January 16, 2013

How big is LePage's tax bite?

A municipal group estimates all of his new budget initiatives would cost towns and cities $420 million.

By Steve Mistler smistler@pressherald.com
State House Bureau

AUGUSTA – Gov. Paul LePage's proposed two-year budget may drive up property tax rates much more than the administration has let on, says a group that represents Maine cities and towns.

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Gov. Paul LePage gestures during a press conference at the University of New England's College of Dental Medicine Patient Care Center Building, Tuesday, January 15, 2013. A municipal group estimates all of his new budget initiatives would cost towns and cities $420 million.

Gabe Souza / Staff Photographer

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Top 10 affected Maine cities

Below are the 10 Maine cities that would lose the most money in fiscal year 2014 if Gov. LePage sucesssfully ends the state's municipal revenue-sharing program. The fiscal year begins July 1:

• Portland $9.1 million

• Lewiston $6 million

• Bangor $5 million

• Auburn $3.6 million

• South Portland $2.7 million

• Sanford $2.6 million

• Augusta $2.5 million

• Biddeford $2.3 million

• Waterville $2.3 million

• Westbrook $2.2 million

The LePage administration announced last week that a plan to suspend municipal revenue sharing would result in a loss of $200 million to cities and towns. However, the Maine Municipal Association has released an analysis projecting a $420 million tax shift from several of the governor's initiatives, including the elimination of the business reimbursement tax program, a proposed General Assistance cap and town collections for registering tractor-trailer trucks.

Not only would the revenue sharing suspension cost about $83 million more than the administration has announced, said MMA legislative liaison Geoff Herman, but other measures in the budget would multiply the local impacts.

Herman said the association, which represents most of Maine's 496 communities, is still calculating the property tax impact and was not yet prepared to release precise figures.

LePage, in a statement issued last week, said the proposals are designed to strengthen the state's financial position. He said the state has to better manage its finances, and so do towns.

Herman said the strategy, and the governor's argument, are flawed.

"So let me get this straight," he said. "State government does its belt-tightening by appropriating nearly a half-billion dollars that is dedicated to local government? Is that how we define belt-tightening? It's kind of ironic."

Herman said the governor's plan to eliminate the Business Equipment Tax Reimbursement program in favor of a newer program, the Business Equipment Tax Exemption, would cost towns -- particularly those with large commercial bases -- a combined $12 million.

The programs are designed to help the state attract businesses by reimbursing them for taxes they pay to municipalities on equipment, such as machinery and computers.

The first program, the Business Equipment Tax Reimbursement, was adopted in 1995. Under that program, towns are allowed to tax the full value of business equipment, but the state reimburses businesses for those equipment tax payments.

The Business Equipment Tax Exemption was adopted in 2008 as a replacement for the reimbursement program. It fully exempts qualifying businesses from the equipment tax. However, the state reimburses towns only 50 cents on the dollar to account for the lost tax revenue.

The governor wants to quickly move towns from the old program to the newer one, with the goal of lowering the costs of administering both programs. But Herman said the proposal cuts tax revenues in half and ignores "a carefully worked out arrangement not to have a major, overnight impact on local government."

The governor has also proposed changes to General Assistance, money used to help needy families pay their bills, including a permanent $10.2 million cap. The cap, proposed in LePage's supplemental budget for the fiscal year ending June 30, would be made permanent in his two-year proposal. It would allow municipalities to shut down their assistance programs once the state's annual appropriation runs dry.

Another proposal would prohibit General Assistance if any member of a household has reached the 60-month limit for Temporary Assistance for Needy Families.

The administration has estimated the proposals would save $6.7 million over two years, but Herman said the costs would be shifted to service centers such as Portland, Bangor and Lewiston.

Herman flagged other proposals, including a plan to divert excise tax collections on tractor-trailer trucks from municipalities to the state. The LePage administration said the plan is designed to beef up the state's Highway Fund, which pays for road and bridge projects.

Herman said the proposal would cost municipalities a combined $8 million over two years. The towns that are home to tractor-trailer fleets would be hit harder than others, he said.

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