Legislative Bulletin
June 7, 1999

STATE’S "PART II" BUDGET FINALLY ENACTED

Twelve weeks ago, on March 11, the Legislature enacted the Part I, "continuing services" state budget and in so doing appropriated $4.4 billion in General Fund revenue to keep the state operating its current programs for the next two fiscal years.

On June 2, the Legislature enacted the Part II state budget, which draws down an additional $263 million of General Fund revenues either for new or expanded programs or tax reductions.

The elements of the Part II state budget of particular interest to municipalities are:

General Purpose Aid to Education (GPA). After months of negotiations over how much money will be appropriated for GPA over the next two years, and how that pot of money will be distributed, the final decision of the Legislature is to appropriate $620.7 million for FY 2000 and $638 million for FY 2001. These spending levels represent a 4.9% increase in state spending for K-12 education between this year and next, and a 2.8% increase between FY 2000 and FY 2001.

With respect to the funding formula itself, the Legislature adopted in the budget bill a series of changes that have been generally described in the May 7th edition of the Legislative Bulletin. The changes are intended to provide greater equity in the distribution formula. A printout showing how the $620.7 million will be distributed to the 286 school units is available by calling SFR’s Tina Means at 1-800-452-8786.

Because the funding formula changes resulted in some school units receiving less financial support from the state than they were anticipating, the Part II budget also includes a one-time appropriation of $3.8 million for FY 2000 which will be used as a "hold-harmless" cushion to keep those school units from feeling the funding formula change in the first year. There is no plan to provide a similar cushion for FY 2001.

GPA Add-ons. The Part II budget also appropriates $2.6 million over the biennium to be used as special adjustments for school units that incur extra costs in teaching English as a second language, and $1 million over the biennium to increase the adjustments available to school units to cover some degree of higher state support for out-of-district placements.

Outside of the GPA distribution formula, the Part II budget appropriates $240,000 to create start-up grants of $3,000 for any school unit with a student population meeting certain income guidelines that wants to start a school breakfast program.

School Renovation. $23.4 million is appropriated in this budget for the purpose of further capitalizing the school facility renovation fund which was established in 1998 and provides the grant and loan revenues that represent the state’s new financial partnership in school renovation (as distinct from school construction, which is funded through the GPA formula). In 1998, $20 million was appropriated to start up this fund. This year’s appropriation keeps the state on track for its multi-year plan to provide $100 million for this purpose.

BETR. The budget bill appropriates slightly over $3 million to fully fund (at a total of $42 million) the state’s reimbursement obligations for FY 2000 under the Business Equipment Tax Reimbursement Program. The amount previously appropriated for the BETR program for FY 2001 ($48 million) was not adjusted by the Part II budget.

Land Purchases. Nearly $7 million is appropriated out of the State’s Rainy Day Fund by the Part II budget for two land purchases: the $5.2 million Plum Creek purchase in the area of Moosehead Lake and the West Branch of the Penobscot River, and the $1.6 million land purchase at Scarborough Beach.

Disaster Relief. By means of another $300,000 appropriation from the Rainy Day Fund, the budget generates the state match to leverage federal disaster relief funds associated with the storms, heavy rains and flooding that occurred in October, 1998, in York and Cumberland Counties.

Rainy Day Fund. The Rainy Day Fund has a current balance of approximately $100 million and is completely full at the statutory cap of 5% of General Fund revenues received during the preceding year. Despite the several "Rainy Day" appropriations as detailed above, the Fund will be more than replenished by a provision in the budget bill that raises the statutory cap of the Rainy Day Fund to 6% of the previous year’s General Fund revenues. The replenishment of that Fund occurs automatically at the close of each state fiscal year under an existing provision of law that directs the State Controller to divert 50% of the unanticipated surplus General Fund revenues into that account. At the new 6% cap, the Rainy Day Fund has the potential of holding $125 million.

Circuit Breaker for Renters. The Part II budget establishes a more generous standard of eligibility for renters to obtain what is essentially a rent refund payment from the state to reflect the renter’s indirect exposure to property taxes. Under current law, the calculation of the rent refund assumes that 15% of the annual rent obligation was the renter’s property tax obligation. The budget changes the law to assume that 18% of the annual rent obligation is the property tax obligation, which allows more renters into the program and potentially increases their Circuit Breaker benefit.

Tax Relief. The Part II budget enacts two forms of generalized tax relief. As of July 1, 2000, the general sales tax rate in Maine will go down a half-penny to 5%. That decision cost the General Fund $57 million in FY 2001. The budget bill also increases the personal exemption under Maine’s income tax code from $2,750 for each personal exemption allowed (which is the applicable exemption for income tax year 1999) to $2,850 for income tax year 2000. The expanded income tax exemption carries a price tag of $4.4 million for the biennium, which includes only its first year of implementation.

Transportation Debt Service. $5.8 million in hard cash was appropriated from General Fund revenues in the Part II budget to buy-down a portion of the state’s bonded indebtedness for highway purposes. A reserve account for this same purpose was also established, which is funded with some "available balances" from the General Fund after all other deductions and appropriations from the General Fund are made at the close of the fiscal year. The appropriation, in combination with the lapsed-balance revenues, is expected to buy down approximately $7 million of transportation debt.

Snowmobile Grants. A one-time General Fund appropriation of $150,000 is in the Part II budget for the Snowmobile Trail Fund, which is administered by the Bureau of Parks and Recreation. The purpose of the appropriation is to provide grants to clubs, municipalities, and counties for the acquisition of snowmobile trail maintenance equipment.

Other Programs. Finally, a full range of other new or expanded cultural and social service programs was also established by the Part II budget, including enhanced eligibility for low-cost drugs to the elderly, a "Maine Communities" program which will provide matching grants to local groups, historical societies, museums and libraries for community-based projects, the "Start ME Right" program, which will establish expanded child care and parent-assistance programs for infants and preschoolers, and expanded Head Start programs for preschoolers. (GH)

LEGISLATURE FINISHES 99.9% OF ITS BUSINESS, WAITS FOR VETO DAY

In the early morning hours of Sunday June 6, the First Session of the 119th Legislature finished up nearly all of its business and adjourned for 12 days.

June 18th is the day set aside for the Legislature to review the several veto messages that the Governor could be issuing with respect to legislation enacted in the areas of minimum wage, pension taxation, worker’s compensation and some last minute spending decisions regarding legislation on the Special Appropriations Table which have significantly increasing financial ramifications beyond the next biennium.

As is discussed more fully in an article regarding the bond package, there are still a couple of issues regarding the final borrowing resolves that may also be addressed on Veto Day.

This edition of the Legislative Bulletin provides information about the most significant decisions made in the last days of the session regarding legislative initiatives important to municipal government, such as the Part II state budget, the Transportation funding initiative, bills that lived and died on the Appropriations Table, and the not-quite final bond package.

A complete summary of the legislative session will be provided in the July edition of the Maine Townsman. Anyone interested in more detailed information about the final disposition of any municipally-related legislation should feel free to refer to our so-called "LD List" which can be accessed through our web page, www.memun.org. The LD List is being constantly updated to detail the final disposition of the nearly 600 bills of municipal interest that MMA has been tracking during this extraordinary legislative session.

Municipal officials should also feel entirely free to call our State and Federal Relations Department at 1-800-452-8786.

DEATH AND RESURRECTION ON THE APPROPRIATIONS TABLE

Of the roughly 560 bills MMA has been tracking this session, 46 ended up on the Special Appropriations Table or Special Highway Table.

A bill on "the Table" has been all but finally approved by the Legislature, but contains a fiscal impact on the state budget and therefore is set aside until it can be determined if the state can afford to enact the bill out of the General Fund or Highway Fund revenues that remain after the two budgets are enacted.

There were over 200 separate pieces of legislation on the Table, which taken together would cost the state several orders of magnitude more than the $3.5 million that was available after the enactment of the Part II, expanded services budget. The following list describes the Legislature’s final decisions with respect to several of the bills of particular municipal interest.

Cops in Court: LD 1251, An Act to Change the Reimbursement Rate for Law Enforcement Personnel Who Testify in Court. Sponsored by Rep. Ken Lemont (Kittery), this bill would have fixed the last "shift-and-shaft" gimmick enacted in 1991 regarding the reimbursement rate paid to municipalities when local police officers testify in District Court to prosecute the state’s traffic laws. Prior to 1991, the rate was an honest hourly rate. In 1991, the reimbursement rate was dropped to a mere $10 per day even though local costs for providing the police witness is $65 per day on average. In 1998, the reimbursement rate was increased to $25 per day, which was beneficial but still a far cry from any parity with 1991. LD 1251 would increase the rate to $50 per day and in so doing repeal the last shift-to-the-property tax gimmick of 1991. The bill had a fiscal note of approximately $500,000 over the biennium.

The Legislature did not enact this bill. Instead, LD 1251 was recommitted to the Judiciary Committee and carried over to the next legislative session.

Restoration of Revenue Sharing: LD 968, An Act to Restore Municipal Revenue Sharing, restores $1.15 million to the Local Government Fund, from which Municipal Revenue Sharing is distributed. The "restoration" is necessary because of an interpretation of the mechanics of the sales tax reduction law that was implemented in 1998. In summary, the state’s interpretation of that law resulted in sales tax revenue being diverted to the Rainy Day Fund without the normal 5.1% set-aside into the Local Government Fund.

LD 968, sponsored by Rep. Ken Gagnon (Waterville), restores the correct funding to the Local Government Fund and makes it clear that similar diversions away from the Local Government Fund do not conform to the Legislature’s intentions.

LD 968 was initially killed on the Table. Due to the extremely persistent efforts of the Taxation Committee’s Senate Chair Dick Ruhlin (Penobscot Cty.) and Rep. Gagnon, LD 968 was raised from the dead and ultimately passed into law as one of the last enactments of the session.

Tort Claims Act: As finally amended by the Judiciary Committee on a divided "Ought to Pass" report, LD 1577, An Act to Amend the Liability Limit Under the Maine Tort Claims Act, will increase the cap on a governmental entity’s exposure to liability under the Tort Claims Act from $300,000 to $400,000 per incident. The fiscal impact to state government associated with the increased cap is estimated to be $220,000 per year. The percentage increase associated with LD 1577 with respect to the insurance premiums paid by the 494 municipalities has not been precisely calculated, but ranges from approximately 5% for general liability policies to upwards of 10% or more for motor vehicle policies.

The Legislature enacted LD 1577. A flaw in LD 1577, however, is that the transition from the $300,000 cap to the $400,000 cap was not clearly defined in the enactment. As the law was enacted, the increased cap will become effective on the effective date of the Act, which will be 90 days after adjournment, or in mid-September. What is unclear is whether the increased cap will apply only to claims filed after that date or incidents occurring after that date…there are a number of administrative unknowns. In addition, the municipal insurance premiums are likely to go up long after the municipal budgets have been adopted. MMA asked for clearer transition language in an amendment to LD 1577 after it came off the Table, but no clarifying amendment was enacted.

Tree Growth: Two bills on the Table were related to the Tree Growth program.

LD 587, An Act to Ameliorate Penalties for Late Filing of Municipal Tax Returns, softens the financial penalty associated with filing a municipal valuation return after the November 1 deadline. Under current law, late filing results in the state withholding the entire amount of Tree Growth reimbursement due the municipality. LD 587 phased in the financial penalty to a fixed amount for the first day the return is late, and a per diem penalty every day thereafter. Because the withholding of Tree Growth reimbursement would not be so severe for towns that were only a few days late, there was a fiscal note on the bill to reflect the fact that the state would "lose" that withheld revenue.

LD 587 was initially killed on the Table but it was ultimately resurrected by the full Legislature.

LD 1224, An Act Relating to Tree Growth Reimbursement, will return $127,000 of Tree Growth reimbursement to nearly a dozen towns that lost their reimbursement by virtue of the current law, but would not have lost nearly as much reimbursement if the system established under LD 587 (immediately above) was in effect. The money needed to provide the reimbursement was actually available in the lapsed balance of the Tree Growth reimbursement account.

The Legislature enacted LD 1224.

Water Pollution Control Training: There is a program established to train the operators of wastewater treatment plants to assist them in staying current with emerging technologies and regulations. The program received no funding in the Part II budget within the DEP’s part of the budget. LD 2244, An Act to Fund Training Programs for Water Pollution Control Facility Operators, appropriates $40,000 for each year of the biennium to provide financial support to that training program which is otherwise supported by training fees paid by the treatment plant operators.

The Legislature enacted LD 2244.

For an update on all the other bills of municipal interest that were on the Appropriations Table, please refer to our "LD List" at MMA’s website, www.memun.org. (GH)

LANDFILL CLOSURE BONDS DROPPED OUT OF PACKAGE

One of the last set of decisions made by the Legislature this session was the final form of the bond package.

Associated with the decision is a rule of thumb – the so-called "90% rule" – which holds that the aggregate General Fund bond issue sent out to the voters in any biennium cannot be more than 90% of the debt retired during that same biennium.

Even though the unwritten rule was adopted in the 1980’s in response to concerns of the bond houses over Maine’s level of debt, it has retained its political force to this day long after the bond agencies’ concerns have vanished.

For the upcoming biennium, the 90% rule would limit the total General Fund bond issue to $106 million.

In the last days of the session, as the pieces of the bond package were being fitted together, concerns began to crop up in the Governor’s Office and in some legislative quarters that the entire package when taken together was too rich – the 90% rule was not only being violated, it was being violated too egregiously.

Unfortunately for municipalities who are typically connected to the major environmental protection programs, the element of the 5-part bond package that took the only hit when trimming had to be accomplished was the environmental bond. Not only was the entire environmental bond cut by more than half, the bond for landfill closure was zeroed-out.

The total bond package finally approved by the Legislature to be sent out to the voters in November looks like this:

Transportation: $19 million for highway and bridge improvements, to be paid off through the Highway Fund. $36.8 million for airports, ferries, railroad, ports and public transit, to be paid off through the General Fund.

Public Land Acquisition: $50 million for the purchase of public lands, to be issued in increments of $10 million a year over the next 5 years, and to be matched by $25 million in private matching contributions.

Technical Colleges: $26.5 million for infrastructure improvements to the state’s Technical Colleges.

Public Television: $9.4 million to finance the federally-mandated conversion of public television to digitalized transmission.

Environment: Although the Senate approved the environmental bond and fought off an amendment by Senator Sharon Treat (Kennebec Cty.) to restore landfill closure and hazardous waste remediation funds, the environmental bond was "held" by the House, signifying a possibility that it may be amended before final approval on the June 18th "Veto Day" to address some of the concerns of the municipal community, DEP and the King Administration with the short appropriations for the environmental programs.

The environmental package as initially proposed and all but finally enacted as shown below:

Program Proposed Enacted

Wastewater Treatment Facilities:

Grants and Loan Capital $5.5 million $5.5 million

Drinking Water Infrastructure $1.5 million $1.5 million

DEP Small Community Program

(septic system repair) $1.5 million $1 million

Tire pile abatement $2.5 million $.5 million

Hazardous Waste Site Remediation $1.5 million $.5 million

State share landfill capping $3.5 million — 0 –

Agricultural Program:

Grants for Manure Pits $1 million — 0 –

State Planning Office Initiative:

Grants for Water Systems in

Residential Growth Zones $3 million — 0 –

DEP-DOT Road Program:

Grants to Municipalities to address

Road runoff in sensitive waterbodies $.5 million — 0 –

Total $20.5 million $9 million

COMPROMISE ON FUNDING PAVES WAY FOR IMPROVED ROAD SYSTEMS

Raising taxes for better roads isn’t easy. That’s a well-known fact on both the local and state level. The long-term view with respect to road infrastructure is the first thing to get near-sighted during difficult economic times. In any economic situation, programs for people are typically more attractive than programs for bituminous.

But that challenge didn’t stop the Transportation Committee, which long ago recognized the need for improved funding for the transportation component of the state’s Highway Fund and disagreed only with respect to the sources of obtaining the necessary revenue.

As reported in detail in the May 28th Legislative Bulletin, one proposal would have phased a five-cent increase to the state’s fuel taxes. Another proposal would have enacted only a 2-cent increase to the gas and diesel tax and supplemented the difference with a $22 million General Fund appropriation to carry the program through the next biennium. In the last week of the session., the House sent the message to the Transportation Committee that neither of these proposals was acceptable. In response, all members of the Transportation Committee reunited to work out a unanimous compromise.

The compromise, initiated by Rep. David Lindahl (Northport) and Rep. Joseph Jabar (Waterville), funds the $51 million Highway Fund Part II budget gap by increasing the fuel tax by 3 cents and the motor vehicle registration rate by $2. The change in the fuel tax will increase the existing rate from 19 cent to 22 cents, and the registration fee from $23 to $25. This plan provides the revenue necessary to fund the $45 million Local Roads Assistance Program, now restructured into the Urban Compact/Rural Road Initiative, as well as $2.5 million for salt and sand storage facilities.

The $45 million for the new Local Road Assistance Program will provide municipalities, particularly the service center communities, with an additional $6 million over the two year period to invest in their road systems. Of the $2.5 million to be provided for sand-salt facilities, $1 million is dedicated to the municipal facility reimbursement program.

Two-thirds of the House and Senate voted to accept the plan, which shows the legislative support for improving the state’s road infrastructure and enables the fuel tax increase to go into effect in August rather than October. An earlier start-up date allows the programmatic changes to be implemented earlier and ensures that the "exportability" characteristic of the fuel tax (the amount of the burden that is transferred off Maine taxpayers) will be effected for a greater share of the 1999 tourist season.

Municipal officials understand the difficulty around raising taxes and user fees on the citizens of Maine and commend the courage of those legislators that voted to support the Highway Fund. The compromise increases the stability of the Highway Fund and its capacity to address the needs of both urban and rural road and bridge infrastructure.

The MMA staff congratulates every member of the Transportation Committee for their remarkable ability to address the problem and develop the solution. We would also like to thank the many municipal officials that contacted their legislators on this important issue. (KD)

WELLS WASTE OIL SITE SOLUTION ENACTED

Described as an "early recycler," George West operated waste oil collection sites in Maine between the 1950s and the 1980s. During those years, West’s operations were in compliance with all laws and waste oil was not considered to be hazardous waste. The unfortunate legacy of those operations is four contaminated sites in Wells, Plymouth, Casco, and Ellsworth that are expected to cost $60 million to clean up. Used motor oil was disposed of at these sites by more than 2900 parties, including school districts, auto dealers, gas stations and municipal public works operations, among others. LD 1626, An Act to Establish the Waste Motor Oil Disposal Site Remediation Program, reported in the April 16 and May 21, 1999 issues of the Bulletin, was enacted last week in recognition of this problem.

The original draft of LD 1626 sought financial relief for the Maine-based businesses and municipalities that are responsible for clean-up costs of the four waste oil disposal sites. As enacted, LD 1626 provides assistance for the Wells site only. The Waste Motor Oil Disposal Site Remediation Program will institute a "no fault" approach to clean up, at least for the Maine-based responsible parties.

Both houses of the Legislature easily enacted the majority report of the Natural Resources Committee. The program will offer FAME-administered loans of up to $50,000 to cover clean up costs. The interest rate will vary from zero to prime rate, depending on the applicant’s ability to pay. For some of those without resources to repay the loans, the loans may be converted to grants. The revolving loan program will be funded by a transfer of $4 million from the Underground Oil Storage Replacement Fund to the Ground Water Oil Clean-up Fund.

In addition, the program will provide a grant of $2,000 to each Maine responsible party and a proportionate share of the remaining $3.1 million that has been dedicated to the clean up effort. The $3.1 million will be drawn from the State’s Rainy Day Fund. The grant will eliminate the settlement amount for small contributing municipalities, most of which received a bill for $1,150. Larger responsible parties can expect a reduction in their total cost of approximately 40%.

A "Select Commission to Study State Participation in Funding Cleanup and Remediation of Uncontrolled Hazardous Substance Sites" is created by the new law to recommend options for state policy for dealing with the three remaining waste oil sites and future clean-up efforts anticipated for other hazardous waste sites in Maine. The select commission will report to the Natural Resources Committee by year’s end and the Committee is authorized to introduce legislation based on the commission’s recommendations (LL).