Gov. LePage's proposed state budget has -- perhaps intentionally, perhaps inadvertently -- brought the subject of tax reform back to the center of the public policy debate in Augusta. His proposal to suspend state payment to the so-called municipal revenue-sharing program has, quite naturally, led to an outcry from municipal officials and their representatives saying the governor is not covering the state budget deficit but merely shifting it onto the local property tax.
The revenue-sharing program, whereby the state sends 5 percent of sales and income tax revenues to municipalities based on a formula that is, basically, population adjusted for relative property value, is really just a small version of what the vast majority of the entire state budget really is -- the transfer of sales and income tax revenues to local institutions. The vast bulk of the approximately $1.1 billion of "state" money going to K-12 education goes to local school districts (based on a formula that is, basically, enrollment adjusted for relative property value) and to teacher retirement. The vast bulk of the approximately $1.1 billion of "state" money going to health and human services goes to hospitals and health-care providers based on the distribution of those citizens qualified as eligible for services. The vast bulk of the approximately $320 million of transportation funding is the transfer of gas taxes to highway maintenance and repair projects in and between the state's municipalities.
After accounting for this spending, the balance of state responsibilities -- justice, regulation and law enforcement, natural resource management and environmental protection, labor, higher education -- amounts to little more than a large "miscellaneous" category. For practical purposes, the state budget is nothing but municipal or, more broadly, local community revenue sharing.
So yes, the governor's critics are correct. His proposal does amount to tax shifting, or, more precisely, tax burden shifting. It shifts the cost of a service from the burden of the sales and income taxes to the burden of the property tax. And here's where I think Maine's municipalities, counties, school districts, hospitals, nonprofits and other community-based organizations ought to pause and think a minute before reactively pushing the burden back across the table to the state.
Instead, they ought to say, "OK, we'll take the burden and the tax." Short of accelerating economic growth -- and that is a long-run prospect at best -- the only way out of our current fiscal crisis is fundamental tax reform. And, until we bring all of the exemptions, credits, exclusions and other forms of favoritism that keep so much potential revenue in the shadows and therefore off the table, we will never balance our budgets. Nor will we address the cynicism and alienation that so restrict civic participation and public involvement in fiscal decision-making.
Having lost the only significant tax reform in a generation to a Republican-led repeal initiative, Maine's community institutions ought to renew the effort by mounting an effort to pass local-option sales and income tax legislation.
If a community wants to increase the quality of its education or its health care or its transportation, let it vote to do that and share the costs not just among its property owners, but also among all the businesses who sell there and all the residents who earn income there.
Let the state maintain back office administration, but let towns and regions set the base and the rates. Maine is justly proud of its independence and commitment to local control. The governor has thrown down the gauntlet before these alleged character traits.
Now is the time for Maine citizens to take it up and assume directly the burden of service and taxation.
Charles Lawton is chief economist for Planning Decisions Inc. He can be reached at: