The First Special Session of the 118th Legislature adjourned in the early evening hours on Sunday until a scheduled June 19th "Veto Day." The reason for the temporary adjournment is to provide the Legislature with the opportunity to respond to the Governor’s expected veto of the cigarette tax bill (LD 1887), which was enacted by a majority vote in both House and Senate, but certainly without enough support to override the Governor’s veto of the cigarette tax measure.

The cigarette tax bill would double the current cigarette tax by adding another 37 cents of tax to each pack of cigarettes. The $30 million that would be raised each year from the additional tax would be used to fund a program to address the high incidence of youth smoking, an expansion of the Medicaid program for low-income children, and an expansion of a prescription drug subsidy program for the elderly.

Beyond the funding of a program directed at smoking education, the Governor is opposed to using the cigarette tax revenues for any purpose other than providing tax relief.

How Did Municipalities Fare?

Except for two issues which remain outstanding, the Legislature treated local government very fairly with respect to the state’s biennial budget, enacted in late March, and the several hundred other legislative proposals that came before the Legislature which could affect municipal government in big and small ways.

From the first days in January as the Appropriations Committee tackled the biennial budget to the waning days in May as the final proposals of the session were enacted, the Legislature very deliberately tried to avoid two outcomes: shifting costs onto the property tax and enacting unfunded mandates.

There are two issues that remain outstanding, and which will hopefully be addressed on the June 19th "Veto Day."

• The first is the Legislature’s failure to pass a very important $13 million environmental bond issue covering a variety of municipal needs from landfill closure to wastewater treatment plant construction.

• The second is the failure to obtain the funding to modestly increase the District Court reimbursement to municipalities which partially covers the expense of providing off-duty law enforcement personnel to prosecute traffic violations.

Beyond these hopefully temporary nicks in this Legislature’s otherwise very positive record, it should be noted also that MMA’s major initiative this session did not fare very well. LD 1742 - An Act To Comprehensively Realign the Tax Structure of the State - received a unanimous "ought not to pass" report of the Taxation Committee within 24 hours of its public hearing. Although the conceptual components of the property tax relief bill were kept alive as the Committee considered its own bill to accomplish meaningful tax reform, the Committee came up empty handed and put structural tax reform off to another day.

A complete analysis of this session of the Legislature and a summary of the new laws enacted that affect municipal government will be provided in the June issue of the Maine Townsman. Particular attention will be paid in that issue to the tax policy decisions this Legislature made (and decided not to make).

This final issue of the Legislative Bulletin (for the time being) includes an open letter by MMA’s Executive Committee regarding the issue of future efforts at tax reform. In addition, there are a series of brief reports on several legislative issues that were decided in the final days of the session.

LD 1720 - Victualers Licensing

LD 1720 was finally enacted in the last days of the session. The legislation, quite simply, removes the requirement that a municipality license all victualers (persons who sell food prepared for consumption). There has been some confusion regarding this legislation, as some municipalities have developed the impression that the legislation in some way prohibits or preempts municipalities from licensing local victualers.

LD 1720 does not in any way impair a municipality’s authority to license victualers by the terms of an ordinance enacted under that municipality’s home rule authority. Such a preemption was neither the intent nor the result of the enactment of LD 1720. Representative Doug Ahearne (Madawaska), the House Chair of the State and Local Government Committee (the committee of jurisdiction over LD 1720) was kind enough to clarify the municipal authority in this regard on the record during the final enactment of the bill.

Any municipality interested in obtaining a sample victualer’s licensing ordinance should contact MMA’s Legal Services Department.

LD 1614 - Maine’s Freedom of Access Law

LD 1614, a bill that would have made a number of changes to Maine’s "Right to Know" law, was rejected by both House and Senate in the last week of the session.

The printed bill and its subsequent modifications that appeared as the Judiciary Committee’s minority report and, in final form, as a floor amendment, have been described in the Legislative Bulletin over the last several weeks.

TAX REFORM:

Where do we go from here?

(An open letter to the membership from the MMA Executive Committee)

Last fall the Maine Municipal Association embarked upon a monumental undertaking - comprehensive realignment of Maine’s tax structure. From the outset, the MMA Executive Committee and staff knew that this would be a difficult, if not impossible, assignment. As reported in the May 16 MMA Legislative Bulletin, the Legislature has decided to carry tax reform over to its second session in January, 1998.

Clearly we are disappointed and frustrated that meaningful tax reform will not take place in 1997. However, we believe it is important to look back at why we began this effort and the progress we have made, as part of determining future courses of action. During the next several weeks, we intend to "debrief" - talking with a broad cross-section of people who have been involved in this effort (e.g., municipal officials, legislators, the Governor, special interest groups, etc.). The following are some of the questions we will be asking:

• How realistic are the prospects for meaningful tax reform in an election year?

• Is the heavy reliance in Maine on the property tax a critical issue which the Legislature and Governor are committed to addressing?

• Is the Homestead Exemption the best approach?

• Should MMA pursue an initiated referendum?

• Would more incremental approaches, through proposed legislation and possible court challenges (e.g., on tax exempt property) be pursued?

• Are any avenues available which would foster focusing the attention of special interest groups on addressing the problems of Maine’s tax structure?

Why did MMA begin this effort?

Let’s look back to the summer of 1996. For the second year running, proponents of a drastic property tax rollback referendum drive continued their effort to gather signatures. If enacted, this proposal would have created a budget shortfall of over $440 million needed to fund basic municipal services (fire, police, roads, snowplowing, etc.) and local education. Maine’s economy and quality of life would face a drastic upheaval as municipal and school budgets were stripped to austerity levels. The Legislature would be faced with a pressing demand to address this budget shortfall through state level taxes.

At the same time, preliminary information suggested state government’s budget shortfall for the next biennium would range from $325 - 430 million, in part due to the income tax cap which would take effect in July, 1997. With the experience of the early 1990’s state budget crisis as a guide, it was clear that this state level budget shortfall would, in all likelihood, result in another shift of costs onto the local property tax. This would further aggravate the structural imbalance among Maine’s three major taxes (sales tax 28%; income tax 28%; property tax 44%).

Nearly a dozen studies over the past fifteen years had identified Maine’s over-reliance on the property tax, together with the volatility of Maine’s tax structure (e.g., narrow sales tax base subject to significant fluctuations during economic swings), as important issues which should be addressed, but no meaningful action had resulted.

Faced with this situation, the MMA Executive Committee invited a small group of distinguished individuals (municipal officials, legislators, business representatives) for advice. A centerpiece of the Committee’s work was a major survey of 600 Maine citizens on an array of tax policy questions. The survey had three major findings:

• 77% of those surveyed supported a comprehensive change in Maine’s tax structure.

• The property tax was identified as the major source of concern (2.5 to 1 compared to either the income or sales tax).

• 74% wanted an opportunity to vote on any restructuring.

Based upon these results, the Committee made the following conclusions and recommendations:

1) Tax reform should be comprehensive (encompassing sales, income and property taxes holistically).

2) No more studies are needed - we need action.

3) If at all possible, a tax reform proposal should be crafted through the legislative process, allowing interested parties an opportunity to shape a strong and viable proposal.

4) A window of opportunity might exist in 1997, with the election of a new Legislature, for comprehensive tax reform.

5) The Maine Municipal Association should embark upon an effort to establish tax reform, with a focus on reducing Maine’s reliance on the property tax, as a top priority for action in the first session of the 118th Legislature.

6) MMA should formulate a comprehensive proposal for introduction, with a referendum provision which would allow citizens to have the final approval and which hopefully would avoid inaction or referral to another study commission.

Where are we now and where do we go from here?

Although we were not successful in obtaining comprehensive tax reform this year, we have accomplished a great deal. The State’s budget shortfall was addressed without shifts onto the property tax. Significant attention was focused on the need to address tax policy on a comprehensive, rather than a piecemeal basis. The Taxation Committee devoted countless hours to tax reform issues, reviewing previous studies and receiving testimony on tax policy in Maine and in other states. Editorials in newspapers throughout the state supported tax reform and the need to provide meaningful property tax relief.

But much more clearly remains to be done. Maine’s structural tax problems remain. The property tax continues to shoulder a major load. State revenues remain highly vulnerable to an economic downturn. Tax reform remains as a lofty goal with broad conceptual support, but as an elusive political undertaking.

We urge municipal officials to talk with your local legislators. Ask them why no action was taken. Do they believe Maine relies too heavily on the local property tax? What will they support? The MMA Executive Committee and staff need to hear from you. The Executive Committee will be discussing possible next steps at its June 25 meeting. We welcome your thoughts and urge you to follow up with your legislators.

In a surprising turn of events in the last two days of the session, several bond issues failed in the Senate to get the 2/3’s vote necessary under Maine’s Constitution in order to be sent to the voters for ratification.

The transportation bonds, thankfully, were approved by the necessary super majority. Failing of final enactment were bond proposals for vocational high schools and capital improvements to state facilities to address accessibility and public safety issues. A bond proposal for the Baxter School for the Deaf was recommitted to the Appropriations Committee.

From the municipal perspective, the most alarming failure of enactment was the environmental bond, which would provide $13 million in state funds and additional $15 million in matching federal funds over the course of two years to:

• Finance wastewater pollution control construction;

• Provide the state share toward municipal landfill capping costs;

• Provide funds for DEP’s Small Community Program which provides substantial financial support for septic system reconstruction in the rural parts of the state;

• Begin reducing the threat posed by the several large and relatively uncontrolled tire stockpiles in the state; and

• Initiate the establishment of a comprehensive watershed protection program throughout the state.

The entire bond package, split into a $7 million increment for the November, 1997 ballot and a $6 million increment for the June, 1998 ballot, would leverage $15 million of federal funds, principally for wastewater treatment plant and combined sewer overflow construction, with respect to which there is an outstanding capital need pegged at several hundred million dollars.

The reason this bond issue failed to get the necessary votes is hard to identify. Senator Rick Bennett (Oxford) spoke against the proposal because he felt that some amount of the $500,000 in bond proceeds allocated for the comprehensive watershed protection program could be spent for assessment and planning purposes that were not strictly the type of capital items for which bonds should be issued.

Senator Peter Mills (Somerset) spoke against the environmental bond proposal with the idea that in the second session (beginning in January) the Legislature might consider funding these programs out of the state’s growing financial surpluses, which are being generally allocated at this time into a "taxpayer’s relief" fund.

The environmental bond issue, and the other bonds that failed of enactment, are scheduled to be resubmitted to the Legislature by the Governor on "Veto Day," June 19th. Municipal officials concerned about the failure of the environmental bond should contact their senators before then. The senators that voted against this bond proposal were Senator Joel Abromson (Cumberland), Senator Rick Bennett (Oxford), Senator John Benoit (Franklin), Senator Jeff Butland (Cumberland), Senator Vinton Cassidy (Washington), Senator Norm Ferguson (Oxford), Senator Stephen Hall (Piscataquis), Senator Phil Harriman (Cumberland), Senator Leo Kieffer (Aroostook), Senator Peter Mills (Somerset), Senator Betty Lou Mitchell (Penobscot), and Senator Mary Small (Sagadahoc).

LD 1523 – An Act to Make the Workers Compensation System More Equitable.

This bill, enacted as amended by S-302, the minority report, establishes an expanded Advocate Program to assist employees with workers compensation claims through the formal hearing stage. The majority report, which to a degree would have re-established the obligation of employers to pay for employees’ attorneys fees if the employee prevailed in the claim (the "prevail rule"), was defeated.

LD 1180 – An Act to Amend the Workers Compensation Law as it Pertains to Employer Selected Health Care Providers.

Enacted, as amended by H-615, this bill changes the current law that requires an injured employee to seek treatment from an employer-selected health care provider for the first 10 days after injury ("ten-day doctor") by allowing the employee to also obtain one evaluation from the employee’s preferred provider during that period. It is anticipated that this bill may receive a gubernatorial veto.

LD 321 – An Act to Amend the Maine Workers Compensation Act of 1992 as it Relates to Compensation for Total Incapacity.

This bill, which would have added on a lump sum benefit to the current weekly benefit in cases of total incapacity, was defeated.

The following three bills were granted approval as carry-over bills:

LD 1192 – An Act to Provide Adjustments to Accommodate Increases in the Cost of Living for Injured Workers.

This bill would provide for an annual cost-of-living adjustment to disability benefits.

LD 1193 – An Act to Permit a Suit Against an Employer Who Knowingly Places a Worker at Risk of Serious Bodily Injury or Death.

Under current law, workers compensation provides the exclusive course for recovery by an injured worker ("exclusivity" standard). This bill would allow an action under tort law in instances where the employer knows there is a risk of serious injury or death.

LD 1318 – An Act to Clarify the Doctrine of Res Judicata in Workers Compensation Cases.

This bill provides that a petition for restoration of benefits may not be barred by the doctrine of res judicata if the employee obtains medical information that was not known or litigated at the time the Board determines that the effects of a compensable injury had ended.

Representative George Kerr (Old Orchard Beach) succeeded in pushing the concept of local option taxation as far as it has ever gone in Maine’s history. While at least six local option sales tax proposals have been considered over the same number of years, not one has made it out of Committee until Representative Kerr’s bill, which cleared all hurdles to enactment except the State Senate.

LD 1763 would enable municipalities, by a referendum vote, to adopt a local option lodging tax of up to 2% on top of the current 7% state sales tax on lodging (hotels, motels, campground rental rates). All revenues produced by the optional lodging tax would have to be used to finance major capital projects. The bill received a positive "ought to pass" majority report of the Taxation Committee, but fell into some trouble on the floor of the House during debate.

From his side, Representative Kerr argued forcefully for the bill's merits (home rule authority, the highly "exported" and "progressive" nature of the lodging tax, the use of local option taxation in other states, the accountability of requiring the revenues to be used for major capital projects, etc.), but the House debate revealed that the majority of state representatives had reservations about jumping into a statewide local option tax policy.

With some parliamentary maneuvering, Representative Kerr amended his bill on the floor to reduce the scope of the local option so that it would apply only to his community in order to establish a "pilot project" to test the merits (or demerits) of local option taxation in a controlled application.

In the ensuing debate, many representatives went on the record to say that if any community deserved to be the test municipality for a local option tax, it would be Old Orchard Beach, as the massive influx of tourists during the summer months generates special pressures on that municipality in the area of public safety and public infrastructure.

Other representatives made it clear that they felt the voters of Old Orchard Beach were more qualified than the Legislature to make the call on a local option tax for their community.

As amended, the "pilot project" local option measure received overwhelming approval by the House. The bill suffered its death in the Senate, however. By a vote of 19-8, the Senate rejected LD 1763 as it came out of Committee. The amendment to scale back the measure to make it merely a pilot project never got a chance for Senate consideration.

Hunting and Fishing Licenses

In the last days of the session, MMA became aware of a provision in a bill that would potentially reduce the number of hunting and fishing licenses issued on the municipal level, thus reducing the agent fees upon which many municipal clerks rely.

The bill was LD 1826 - An Act to Change the Name of the Bureau of Taxation and to Allow Other Agencies of the State to Benefit from its Services.

One provision in the ten-page bill provides that "The Commissioner (of Inland Fisheries and Wildlife) may enter into an agreement with the State Tax Assessor pursuant to which applications for fishing and hunting licenses are included in State individual income tax booklets."

The idea, which was apparently advanced by Governor King in his "State of the State" address in January, would allow people to apply their state income tax returns toward a seasonal hunting and fishing license for the purposes of their convenience and to possibly enhance IF&W revenues.

Unfortunately, the level of communication about this proposal between the state and the municipalities was extremely low. MMA first learned of the proposal a few days ago when Representative Tom Winsor (Norway) spotted the issue when the Bureau’s bill was on the Appropriations Table. When Representative Winsor wondered out loud whether this would mean a loss of revenue to his municipality, MMA first discovered the proposal and notified the municipal clerks who deserve to be part of this decision.

The collective concerns of the clerks was soon felt in the State House, and the provision that would allow the license application form to be provided on the next-issued state income tax forms was stripped off the bill by a floor amendment sponsored by Representative Verdi Tripp (Topsham), the House Chair of the Taxation Committee.

Senator Jim Libby (York) attempted to advance an amendment in the Senate that would provide an even stronger assurance of the rights of the clerks to obtain a hearing on this matter before the state goes forward, but the final compromise was an agreement on the part of the State Tax Assessor, Brian Mahaney, that no further action would be taken until he meets with the clerks and consults with the State and Local Government Committee, of which Senator Libby is a member.

Another detail MMA missed the first time around was a change in the watercraft and resident snowmobile registration fees. Enacted in late March as part of the state’s biennial budget, the fee changes are as follows:

For watercraft equipped with a motor having a manufacturer’s horsepower rating of:

• Ten horsepower or less - $6.00

• Greater than 10 horsepower but not more than 50 horsepower - $10.00

• Greater than 50 horsepower - $15.00

• Personal Watercraft - $20

The effective date of these increases to the watercraft registration fees is July 1, 1997.

The resident snowmobile registration fee was also increased by a provision in the biennial budget bill, from $20 to $25. The municipal share of the snowmobile registration fee paid by Maine residents will increase proportionally, from a flat $6 per registration to 26% of the registrant’s fee, or $6.50.

Finally, a new expanded archery deer hunting license was created in the biennial budget bill as well, to be governed by rules promulgated by IF&W. The resident fee for the expanded license is $40 and the nonresident fee is $80. A fee of $1 may be charged by the Department or its agent for issuing the license.

MMA apologizes for not providing this information in a more timely manner. In the crush of the legislative session, we just found out about it ourselves. We are aware that the clerks, who bear the brunt of the concerns expressed by the people who pay the increased fees, would like to be informed in a more timely manner about these proposals, but when they are enacted as part of the state budget process, it is not easy to stay on top of them.

Passed as an "Emergency" LD 1227, An Act to Require the Department of Transportation to Improve the Conditions of Any Road That May be Turned Over to a Municipality, goes into effect as soon as it is signed by the Governor. The new law puts into statute a policy that requires the Department of Transportation to bring roads scheduled for turnback to the towns to be in a condition of "good repair" before the municipality becomes responsible for maintenance. This will affect the towns that reached the 6000 population threshold in the last census and the towns expected to reach that number in the year 2000 census and beyond.

The critical element of the bill is the definition of "good repair" used to evaluate the condition of a road. Under this language, a road in "good repair" is in a condition that will not require any non-routine maintenance for a period of 10 years. In evaluating a road, DOT must consider the condition of the road’s ditching, culverts, any major structural defects and a pavement rating of 3.3 or greater.

The issue of the so called "incremental turnbacks" was raised during the work sessions before the Transportation Committee, however, the Committee members felt that resolving the issue of the condition of the roads at the time a town first reaches the 6000 population threshold was a significant first step. Incremental turnbacks occur after a town has passed the population threshold and receives additional highway mileage as development spreads out along the highway corridors. As the town’s built up or "compact area" expands, the state aid roads affected by the growth are incrementally turned back to the towns for maintenance.

The Transportation Committee reaffirmed its promise to look at the incremental turnback issue next session after the possibility of a floor amendment to expand LD 1227 into this area was raised. Even the Committee’s strongest supporters of LD 1227 vowed to oppose any last minute floor amendments to the bill, feeling the issue should wait to be examined in the second session.

An agreement worked out over the last two months to increase the amount municipalities are reimbursed for the cost of sending off-duty police officers to court and impose a moratorium on local traffic ordinances that capture local fines for motor vehicle moving violations fell apart in the last hours of the session when the Appropriations Committee failed to allocate the funds for municipalities.

After weeks of work by the Transportation Committee, the Judiciary Committee, the Maine Chiefs of Police, MMA, and members of the Appropriations Committee, the funding portion of the agreement failed to receive majority support of the Appropriations Committee and the bill was left to die "On the Table" while its companion bill imposing the moratorium was kept alive.

The two pieces of what MMA felt to be a companion-bill package were found in two bills.

LD 549 An Act to Change the Reimbursement Procedure for Law Enforcement Personnel Testifying in Court, sponsored by Representative Ken Lemont (Kittery), raised the $10 per day municipalities receive currently for sending an officer to court to testify, to $30 per day. Prior to 1991 municipalities were reimbursed for the actual hours municipalities paid police officers called to testify. The February 21 Bulletin covered the initial hearings on the bill.

The second piece was LD 848 An Act to Reimburse Law Enforcement Agencies for Their Costs Related to the Prosecution of Criminal and Traffic Violation. Sponsored by Representative Sharon Libby Jones (Greenville), LD 848 was re-titled and substantially amended to impose a one-year moratorium on municipal traffic ordinances in order to further study the cost of providing law enforcement at the local level.

Together, the bills provided some modest tax relief for communities with local police forces and an opportunity to examine the use of local ordinances more thoroughly. The failure of the funding portion leaves municipalities with a preemption of their authority to enact and enforce local ordinances and no options to seek property tax relief.

The Legislators who sponsored the original bills and several others who had worked on the issue during the session, put forth an extraordinary last ditch effort to ensure the funding for local police departments.

Representatives Lemont, Jones and Gary Wheeler (Eliot) worked hard to find the funding for municipalities. Representative Kerr (Old Orchard Beach), Chair of the Appropriations Committee, worked to convince a majority of the Committee to provide this much needed support of our local law enforcement agencies. Representative Wheeler even tried to bring the moratorium bill back to the floor in hopes of attaching the moratorium to the District Court reimbursement funding, but he could not get the votes during the last hours of the session. Representative George Bunker (Kossuth Township) and Representative Edgar Wheeler (Bridgewater) joined in the fight for funding to ensure that the counties would be reimbursed for their court costs, providing additional property tax relief for municipalities.

Some Legislators believe we may have one last chance this year to find the needed funding when the Legislature reconvenes on "veto day." We need municipal officials to contact members of the Appropriations, Judiciary and Transportation Committees and urge them to support funding for police officers testifying in court.