PORTLAND – The local option tax: Senators and representatives from all over the state have proposed it many times before, only to see the idea fail in the Legislature.
This time, however, proponents see an opening like never before.
Gov. Paul LePage’s budget proposals could drastically reduce funds available to municipalities by eliminating revenue-sharing, cutting education aid and trimming property tax relief programs. And some local officials said that could make lawmakers more willing to consider allowing a local sales tax on things such as retail purchases or lodging.
LePage’s budget, which would also decrease income taxes for some residents, would result in one of the biggest — if not the biggest — tax shifts in the history of the state, according to Portland Mayor Michael Brennan.
“The choice is very stark and clear whether people want a relatively small decrease in their income tax or a relatively significant increase in their property tax,” Brennan said, noting that the loss of revenue-sharing would only exacerbate the property tax situation.
“As a result of the governor’s budget,” he said, “I think the local option tax then gets onto the table.”
The argument for a local option tax goes like this. Municipalities have few options to raise revenue to support services such as fire, police, trash-hauling and general assistance. Cities and towns rely primarily on property taxes, though they also collect auto excise taxes and various fees for permits and licenses.
A local option tax — whether on meals or lodging or other commodities — would help lower the pressure on local property owners by generating revenue from discretionary purchases and services used by visitors.
But opponents such as the Maine Chamber of Commerce, Maine Restaurant Association and the Retail Association of Maine (formerly the Maine Merchants Association) have historically argued that a local option tax would only hurt businesses and discourage tourism.
Two of those groups — the chamber and the retail association — said they would likely oppose such efforts again, but would have to review the specifics of any proposed bills before taking a position.
“I don’t think our position has changed,” said Curtis Picard, executive director of the retail association. “It ends up being a record-keeping nightmare for businesses. Like anything, the devil is in the details.”
Since 2001, only once has the Legislature not taken up a local option tax proposal. Seven of the bills considered had either a sponsor or co-sponsor from Portland or South Portland, two cities with plenty of retail and lodging businesses.
This year, three bill titles have been submitted to allow a local tax, although the final wording has not been released.
• Rep. Matthew Moonen, D-Portland: “An Act to Allow a Local Option Tax.”
• Rep. Sara Gideon, D-Freeport: “An Act to Allow Local Sales Tax.”
• Rep. Sharri MacDonald, R-Old Orchard Beach: “An Act to Allow Options for Local Revenue Enhancement.”
Moonen said the details of his bill were still being worked out. But he agrees that municipalities — even those previously opposed to a local option tax — will be looking for options besides property taxes to make up for potential losses in state revenue.
“This time I think it’s possible that more municipalities around the state would be interested in a local option tax,” Moonen said. “That would give them more flexibility in how they deal with the looming possibility of revenue-sharing being eliminated.”
MacDonald said her proposal would allow a community to adopt or repeal a local option tax on any commodity by a local referendum. The proposed limit would be 5 percent, and communities would have the liberty of structuring it as a year-round or seasonal tax, she said.
As a Republican, MacDonald said, she is generally opposed to new taxes. But there is a unique need in Old Orchard Beach — a town of 8,600 residents that swells to 40,000 in the summer — for a way to cover the costs of all the needed staff and services, she said.
“What this bill would do is help offset that cost,” MacDonald said. “The point of this bill is to allow a community to decide by a vote, not just the select board or council.”
Just a 1 percent local option sales tax would generate $570,000 for the town, which would help fund those seasonal services, she said.
MacDonald said her proposal is her top priority of the session.
“I know this is not a Republican thing to do, but that is something I need to concentrate on with my own caucus,” she said. “It is something I am focused on because my community has been asking for it and asking for it.”
While the Maine Innkeepers Association’s opposition to local taxes has “absolutely not” changed, Greg Dugal, the group’s executive director, said LePage’s budget proposal has created a unique opportunity for proponents.
“This will be the most valid attempt to move forward with a local option tax,” said Dugal, who believes tax authority should remain with the state. “Of course the game has changed. Certainly the time.”
LePage spokeswoman Adrienne Bennett would not comment on the governor’s position on local option taxes.
A HISTORY OF REJECTION
Local option tax bills over the last decade have come in all shapes and sizes. But none of them has struck the right chord.
Some have been part of a broader proposal to overhaul the tax code.
A bill in 2003 would have allowed municipalities to enact local option sales, use and income taxes by local referendum. It died in committee.
A local option tax was also part of tax reform proposed by then-Rep. Anne Rand, D-Portland, which would have broadened the tax base and increased the highest income tax rate. It too was struck down.
At least one past bill seems to have been crafted to help a specific community.
In 2007, Sen. Dennis Damon, D-Trenton, proposed a 2 percent sales and use tax that would be used to offset property taxes. The catch? It would have benefited only communities located next to national parks, such as Bar Harbor. That bill was postponed indefinitely, without a public hearing.
Some bills looked regionally for support, whether by promising to distribute the tax revenue between local, county and state governments, or dedicating the funding to infrastructure projects of regional significance.
All suffered a similar fate, however, failing to get out of committee with a recommendation to pass.
A SHIFT IN MOMENTUM
LePage’s proposal to eliminate revenue-sharing is expected to save the state $200 million. That, along with other budget cuts, would shift roughly $420 million onto local governments, the Maine Municipal Association told the Press Herald last month.
“I think the momentum around this has been increased simply because of the decision by the governor to basically balance the state budget by cutting all the major portions of state funding to municipalities,” Brennan said.
Portland stands to lose $6.1 million in revenue-sharing alone.
At a recent MMA meeting, Brennan said several participants were talking about local option taxes.
“That conversation was different than it was a year ago,” said Brennan, noting that the subject is being discussed among the 12-member Mayors Coalition.
Geoff Herman, MMA’s legislative liaison, said revenue-sharing was originally designed to lower property taxes by returning 5 percent of sales and income taxes to municipalities.
Herman said communities statewide are largely taking a wait-and-see attitude regarding the local tax. If LePage’s proposed elimination of revenue- sharing remains in the budget, they will likely get behind a local option tax, provided it’s part of broader tax reform, he said.
“The local option tax could be part of a broader menu of tax reform, but probably not the sole option,” Herman said.
Even the Maine State Chamber of Commerce, which has opposed previous local option tax proposals, agrees that the case for a local option tax becomes stronger if cuts to revenue-sharing go through.
“I would expect the (forces) of the past that defeated this will also prevail this time,” said Dana Connors, chamber president.
Connors said the chamber’s internal committee will review the local option bills once they are drafted before taking a position.
Although Brennan sees momentum behind the local option tax this time around, he is still cautious about its chances of success.
“Even though I think there is more momentum and more possibility, it’s still got a long road to travel before it’s passed,” he said.
Staff Writer Randy Billings can be contacted at 791-6346 or at: