1998 Federal Issues Paper of the Maine Municipal Association


The 1998 Federal Issues Paper is a publication of the Maine Municipal Association. Publishing of this newsletter coincides with the National League of Cities' Congressional-City Conference held each March in Washington, D.C. The purpose of the newsletter is to highlight federal issues that are of most concern to Maine municipal officials, and to reflect the policy positions adopted by the MMA Executive Committee. Articles in the newsletter were written by Linda Lockhart, Kate Dufour and Geoff Herman of the MMA State & Federal Relations department and Chris Lockwood, MMA Executive Director.

Storm Clouds on the Horizon

The much discussed Ice Storm of 1998 provided a clear illustration of the importance of a strong federal-state-local governmental partnership. Each level of government is uniquely positioned and equipped to perform certain functions and to meet the needs of citizens. The effectiveness of disaster preparedness and response is directly tied to the working relationships among these intergovernmental partners.

In Maine we were fortunate that this intergovernmental partnership functioned well. Local and state government efforts were significantly bolstered by federal assistance. We appreciated the active involvement of Maine’s Congressional Delegation, Vice President Gore’s visit to Maine, and the financial and logistical assistance provided by the federal government.

Far less visible than the weather system which brought the Ice Storm, a combination of proposals and developing trends pose significant threats to the future of our federal-state-local intergovernmental system. These "storm clouds" bear labels such as preemption, unfunded mandates, and disinvestment. These are difficult issues. They require an understanding of and commitment to fundamental principles that have underpinned our intergovernmental system for centuries.

The role of the federal government on domestic policy issues has changed significantly. Twenty-five years ago, federal funds paid for 75% of the cost of construction of water treatment and sewage facilities to clean rivers and lakes. In 1998, local rate payers and taxpayers bear the major costs of operating and rehabilitating these facilities, with the federal financial role limited for the most part to low interest loans (disinvestment). Federal priorities for additional steps, such as storm water runoff, are not packaged as federal-state-local financial partnerships, but rather imposed as costly unfunded mandates. In other arenas, far reaching federal preemption poses grave threats to traditional local government land use regulatory authority and state and local taxation systems.

These "storm cloud" threats become more visible in reviewing the specific issues identified in this paper. The Maine Municipal Association urges members of our congressional delegation to call attention to these threats and to work actively to resist legislation which will undermine the vitality and effectiveness of the federal-state-local partnership. We seek your advice and counsel in identifying ways in which these threats to our intergovernmental system might be better understood and addressed by Congress and the Administration.

Disaster Damage

Given our experience last month with an ice storm of a magnitude and duration not seen in this state for 112 years, disaster damage and disaster relief are issues that dominate current thinking of many Mainers. The Federal Emergency Management Agency (FEMA), concerned about the skyrocketing federal costs of disaster relief programs, submitted a legislative proposal to amend the Stafford Act, the current federal law setting the standards for providing relief in the event of actual disasters, placing new restrictions on disaster relief. Proponents of the Stafford Act amendments cite instances of disaster relief going to such low priority projects as refurbishing golf courses in high-income communities. The amendments would have the far-reaching and inappropriate effect of eliminating federal funds for repair of infrastructure, including beaches, parks, and marinas that are publicly-owned and available for use by a broad cross-section of the surrounding communities.

The federal contribution to disaster relief assistance to public facilities in Maine has fallen from 100 percent in 1978 to the current level of approximately 75 percent. While the State initially picked up 25 percent of the burden, in 1993 the State’s share dropped to 15 percent and local governments have contributed the remaining 10 percent. Additionally, State and federal funding rules disallow many local costs. This exacerbates the problem of an already overburdened property tax system.

Recommended Action

Maine’s cities and towns urge our congressional delegation to oppose severe restrictions on Stafford Act disaster relief funds that would eliminate their use to repair storm damage to publicly-owned beaches, parks, and other recreational facilities.

Public Safety

Maintaining the quality of local public safety efforts is crucial to dealing with natural disasters like the recent ice storm. Maine’s public safety professionals keep discomfort from becoming disaster in innumerable cases. The Local Law Enforcement Block Grant (LLEBG) is one source of funding for Maine’ s public safety efforts. For FY96, Maine’s total state award was $1,060,000, with direct local awards of $733,278 and a balance for the State of $326,722.

President Clinton has proposed the elimination of the local public safety block grant program. At the federal level, the issue is whether there will be any block grant for next year. Amendments proposed by Congress would reduce the flexibility and thus the effectiveness of the block grant. The LLEBG derives its success from the fact that it provides direct federal assistance to municipalities so that local elected officials have the flexibility to fund specific, local public safety efforts. It is particularly useful in purchasing and upgrading law enforcement technology and equipment.

Recommended Action

MMA urges rejection of any attempt to fund other initiatives out of the LLEBG. This program was designed and supported because it is directly funded and it can be used for a broad range of municipality-specific public safety efforts.

Electric Utility Deregulation

Maintaining local control is the most pressing deregulation issue for Maine. Our state restructuring law, enacted in the first special session of the 118th Maine Legislature, preserves prior levels of local control and expressly authorizes municipal aggregation of electricity consumers. As aggregators, municipalities will be able to use the purchasing power of consumer blocks to reduce prices for those customers, much as they do now for other municipal services such as wastewater treatment and rubbish removal.

The real battle for Maine’s local governments may be to ensure that the federal government does not preempt their traditional roles and responsibilities. To date, the proposed federal bills are silent concerning protection of local government authority such as zoning, managing public rights-of-way, and aggregation. If deregulation of the electric utility industry follows the example of telecommunications deregulation, the lack of active protection for local authority in federal legislation may mean that local governments will lose their ability to protect their citizens.

The need for Federal involvement in deregulation of the electric utility industry is less of an issue for Maine and approximately 35 other states that have enacted or are in the process of enacting deregulation laws, than it is for the remaining states. States that have not enacted such legislation may rightly fear that 1998 will be the year that Congress mandates deregulation of this last and largest monopoly. Defensive reactions to deregulation from state and local government stem from anticipated loss of tax revenue and reduction of local regulatory authority.

Municipalities in other states benefit from a wide range of local taxes and fees imposed on the industry. These include: property tax on real and personal property, payments in lieu of property taxes, franchise fees, right-of-way fees, sales taxes, gross receipts taxes, business license taxes, local transaction privilege taxes, permitting fees for encroachment in rights of way, inspection fees and utility taxes. The only tax revenue Maine’s municipalities derive from electric utilities is property tax revenue. It is critical that these traditional authorities upon which municipalities rely for revenue remain undisturbed.

Recommended Action

Any federal restructuring of the electric utility industry must protect municipal authority to regulate the use of rights-of-way and to aggregate. Restructuring should not interfere with services provided by municipally owned utilities. Federal action must not be preemptive with respect to those states that choose to restructure their electric utility industry, as Maine has. Finally, restructuring programs should protect the interests of all consumer classes and protect environmental and social objectives covered under existing regulatory policies.

Takings

Congress is currently considering legislation that would restrict the administrative and judicial procedural rights of local governments and limit local governments’ ability to enforce land use decisions. Local control and legitimate state jurisdiction would be displaced by federal jurisdiction, as federal judicial authority is expanded to hear arguments and make decisions that are legitimately the domain of Maine’s Land Use Mediation Program, and, if necessary, the state's judicial system.

Land use regulation is an invaluable tool for communities to chart their own destinies, express themselves, and make rational decisions today that will reduce their infrastructure and operational costs tomorrow. Municipal land use regulation in Maine comes directly from the people themselves in the most direct form of government there is (town meeting), or in a representational government that is extremely close to the electorate (city councils). Maine is known as a leader of comprehensive and sensible environmental and land use management.

Maine’s Legislature dealt with the takings issue at length and enacted a solution that makes sense for all stakeholders, the creation of the Land Use Mediation Program. This program was established to hear all takings claims before they go to court. The mediator’s principal role is to make sure the regulator and the regulated property owner fully and accurately understand the land use regulation in question and the impact of that regulation on the landowner. This mediation step provides an initial opportunity for developers to deal with land use disputes through non-judicial processes, and provides an invaluable incentive to developers to work out their disputes with local officials informally, without requiring expensive and lengthy court action. Working things out at the local level appropriately reinforces local control of land use decision making.

Sometime soon, the Senate is expected to mark-up the House-approved H.R. 1534, a bill that would have the effect of imposing a far-reaching federal preemption of local government land use and zoning authority and greatly expand litigation against cities and towns in federal court. These bills expand the ability of developers and other claimants to initiate lawsuits against cities and other local governments in federal court for any allegation of takings, expose local governments to increased financial liability, and interfere by intimidation with the ability of local governments to make reasonable, carefully considered land use decisions.

Under this bill, and similar bills being proposed, developers could access federal court immediately without pursuing administrative or state judicial procedures. Passage of these bills by Congress would result in increases in administrative and financial burdens to Maine’s municipalities through the significant increase in litigation costs in federal court and result in severe interference with state and local governments' ability to wisely manage environmental, land use and development in the manner deemed best by those more directly affected. Alternatively, passage of this intimidation tool for developers would interfere with a community’s right to self-regulate.

Recommended Action

This approach would give short shrift to the state’s judicial system, shorter shrift to the mediation system this state has developed to deal with these problems at the level closest to the actual participants, and the shortest shrift of all to the home rule authority inherent in Maine municipal government. MMA urges the rejection of H.R. 1534, S. 1256, and all other similar takings legislation.

Environment

Reaching consensus on environmental legislation remains problematical in the 105th Congress. With the exception of Superfund reauthorization (S. 8/ H.R. 2727 and H.R. 3000) proposals and measures which attempt to delay implementation of EPA’s new Clean Air Act standards for ozone (smog) and fine particles (soot) (S. 1084/H.R. 1984), no other environmental legislation has been proposed in both Houses.

Maine cities and towns with combined sewer systems will be greatly affected by the EPA’s application of the Clean Water Act to combined sewers and proposed stormwater regulations. Combined systems collect sanitary sewage during periods of dry weather for conveyance to wastewater treatment plants for treatment. However, during wet weather events, combined sewers also receive storm water, which typically causes a hydraulic overload of the system triggering the discharge to receiving waters of untreated or partially treated wastewater through combined sewer overflow outfalls. Combined sewer overflow (CSO) programs generally comprise the single largest public works projects in the history of almost every CSO community. Maine has approximately 50 such communities.

While proposals for federal legislation in this area are minimal, EPA’s proposal for new stormwater regulations will require diligence in the rulemaking process on behalf of Maine’s larger cities. The new regulations target pollution from separated municipal storm sewer systems and would apply to all cities with populations of less than 100,000 population located in urbanized areas of 50,000 or more population. EPA is also encouraging states to consider application of the program to cities outside of urbanized areas that have population of more than 10,000 if the population density is 1,000 persons per square mile.

Under the new regulations, CSO municipalities would be required to implement six minimum measures, using strategies for each measure developed by EPA and the states. The six minimum measures are:

In developing the proposed regulations, EPA attempted to cure some of the Phase I problems encountered by larger municipalities that have been required to implement a stormwater program over the last five years. Also, EPA’s policy is to recommend that numerical effluent limits not be included in stormwater permits. Instead, compliance with the required "best management practices" (the six minimum measures developed by EPA) will be deemed compliance with the municipal stormwater requirements of the Clean Water Act.

Cities and towns will be required to map their storm sewer systems and identify major outfalls, a potentially costly requirement. Additionally, it is likely that EPA will impose monitoring requirements on CSOs to determine both the level and types of pollutants in stormwater runoff and the impacts of controls on these discharges.

The minimum measure with respect to development and redevelopment activities will prohibit these activities from having more than a 20 percent impact on the rate of stormwater runoff into receiving waters, a provision that is likely to affect local land use planning activities.

Historically, federal funds paid for as much as 75 percent of the construction costs for water treatment and sewage facilities. Currently, local ratepayers and taxpayers bear the burden of rehabilitation, upgrading and operating costs, with federal contributions limited to low interest loans.

Recommended Action

Maine’s municipalities with wastewater districts encourage simplification of the stormwater permitting and enforcement programs. We also oppose any end-of-pipe requirements (numerical effluent limits) in municipal stormwater permits. Additionally, we urge our congressional delegation to ensure federal contribution to the cost of complying with federally-imposed stormwater rules.

Electronic Commerce

In 1997, Congress picked up the issue of electronic commerce with H.R. 1054, a bill that would preempt state and local taxation of sales on the Internet.

The preemption would have an enormous effect on rural economics. A November 1996 report from the U.S. Treasury Department predicts that by the year 2000 the value of electronic-based sales transactions will grow from $500 million in 1996 to more than $70 billion! The impact on this extraordinary change in consumer practice is expected to hit rural retail establishments particularly hard, especially if specialty retailers can offer huge selections at tax-free discount prices over the Internet.

The preemption that is being considered by Congress would also have an extremely detrimental impact on state revenues. Maine’s towns and cities, in turn, would bear their full share of that revenue squeeze.

Our concern with the so-called Internet Tax Freedom Act is that the preemptive clause is so broadly worded it preempts every town, city, county and state in the country from collecting taxes or fees on any Internet services, then provides some narrow exceptions to the broad preemption. It is a promise of never ending litigation against municipal authority. In early iterations, the bill could be construed to impair the authority of Maine’s municipalities to assess a personal property tax on computers, if those computers were in any respect being used to provide Internet services. The municipal authority to assess a property tax on income-producing personalty has been in place since Maine’s statehood.

The bill now focuses the preemption more narrowly on sales, use, and excise taxes. Even though Maine's cities and towns do not have sales or use taxing authority, we oppose any federal preemption and remain concerned by the impact of a sales and use tax preemption on Maine’s tax structure. The sales tax base in Maine is very narrow. Of the three major tax revenue sources in Maine the sales tax, the income tax, and the property tax the sales tax presently accounts for only 26% of the total, whereas the property tax is currently shouldering 44% of the load. Over the years, there has been a proliferation of sales tax exemptions in Maine, so that there are presently 78 listed sales tax exemptions on the books, and a good number more that have been created by various definitions in Maine’s tax code. Generally, whenever any tax exemption is granted, it is expanded over time as similarly situated beneficiaries seek to widen the exemption to cover their tax exposure. That has certainly happened in Maine. Over time, the incremental impact of the several dozen exemptions that have been enacted by the Maine Legislature have culminated in a taxation policy in this state that is seriously out of alignment.

We are unable to determine what the impact of H.R. 1054 would be with respect to Maine’s sales tax code now or in the future. Our concern is that the impact whatever that might be is not being taken into full consideration as this legislation is working its way through Congress.

It is the position of the Maine Municipal Association that the sales tax code in Maine could appropriately be expanded to include the taxation of selected services in order to broaden the sales tax base and thereby reduce the remarkable volatility of Maine’s tax structure; a volatility which in and of itself resulted in significantly negative consequences to Maine’s municipalities, low-income individuals, and others during the deep recession of the early 1990’s. Although we certainly understand that the growth of Internet marketing services has resulted in complications with regard to the concept of "nexus", we believe that the nexus issue can be resolved either judicially or with a simple legislative act on the federal level. It is not necessary to enact a sweeping federal preemption of taxation authority to accomplish that purpose.

Recommended Action

A blanket federal preemption of this state’s authority to levy a sales tax on transactions occurring electronically could only serve to make the sales tax in Maine go even further down the road to irrelevancy. If an Internet sales tax preemption is enacted by this Congress, the pressure on the income and property taxes in Maine (the latter of which is seriously overburdened at present) will undoubtedly increase.

Telecommunications

1998 will find some members of Congress still pressing for preemption of local right of way, franchise, zoning, and revenue authority over the telecommunications industry. The Federal Communications Commission (FCC) is currently moving towards adoption of one or more of three rulemakings concerning local zoning preemption. The pressure on the rulemaking process has been largely driven by the leaders in the telecommunications industry, such as those represented by the Satellite Broadcasting and Communications Association and the Hughes Network Systems, Inc.

Under current rules, local zoning authority is preserved for regulations that have a reasonable and clearly defined health, safety, or aesthetic objective. When satellite-antenna users seek relief from local zoning authorities, they must first make use of all available judicial decisions. Based on the industry petitions, comments received in its rulemaking proceeding, and its experience administering its preemption policies since adoption of the current rule in 1986, the FCC has now determined that the "exhaustion of remedies" requirement should be modified to permit the FCC to interpret its preemption rule prior to any judicial review.

In the context of rulemaking, comments filed by industry representatives generally support clarification of the rule and some commenters urge that the preemption policies be extended to all communications facilities. There is widespread industry support for greater FCC involvement in direct review of zoning disputes. While municipal representatives uniformly oppose any greater federal preemption, they differ concerning the merits of direct Commission review.

A bill introduced by Senator Patrick Leahy (D-Vt), S. 1350, would amend the Telecommunications Act to: (1) protect local zoning decisions made on the basis of environmental effects of frequency emissions; (2) place the burden of proving the necessity of placement of a facility on the person seeking the placement; and (3) prohibit FCC adoption of a rule that would preempt state and local zoning and land use restrictions on the siting, placement, and construction of broadcast station transmission facilities. The bill has been referred to the Senate Commerce, Science, and Transportation Committee for hearing.

Recommended Action

Maine’s municipalities strongly support S. 1350. MMA is opposed to any further erosion in local authority to make telecommunications siting decisions. We urge our representatives in federal law-making and rulemaking efforts to ensure the protection of the authority of local citizens to determine safety and aesthetic standards for the communities in which they live.

ISTEA II

The federal surface transportation law, ISTEA, expired last year and is on temporary extension. ISTEA presents two major issues to Maine’s cities and towns: local authority and funding.

With the enactment of ISTEA 1997, a six month extension to the expired ISTEA I program, Congress has narrowed its transportation funding ideas into two reauthorization bills: S. 1173 ISTEA II and H.R. 2400 BESTEA. Although the Senate bill, S. 1173, appears to provide more transportation benefits to Maine, there exists in Congress a powerful interest in shifting a majority of the federal transportation funding to "donor states"; that is, states that raise more money via the gas tax than they receive in federal funding. Therefore, the level of federal transportation funding in Maine will depend on our delegation’s ability to push for "equity" through a federal gas tax distribution program that is based on criteria that go beyond mere contribution.

Of the total $22.1 billion allocation, ISTEA II provides $126 million to Maine per year for fiscal years 1998 to 2003. This equates to a 31% increase in funding per year over ISTEA I and a 15% increase over the proposed House bill. The Senate bill contains two equity categories, one of which, "ISTEA Transition", contains $23 million that is important to Maine’s overall funding package. We do not fully understand the equity formulas in the Senate bill, which are fairly complicated. However, without the $23 million ISTEA Transition allocation, the formulas in the Senate bill just don’t work for Maine.

Recommended Action

As ISTEA reauthorization is debated, it is of utmost importance that our Congressional delegation understands the implications of shifting funding to the "donor states." We must effectively lobby for transportation formulas that support an equitable distribution system that takes need factors into account that go beyond mere donation.

Public Housing

Congress is considering legislation in the public housing area that could shift greater burdens on cities and towns. There are still major differences between the House and Senate bills to reform public housing. We can expect efforts to resolve these differences to begin early in the second session of the 105th Congress. There are two key stumbling blocks.

The first question is whether to repeal the U.S. Housing Act of 1937 as proposed by the House bill, H.R. 2, or to amend the Act as recommended by the Senate version, S. 462. The Senate bill proposes elimination of the cumbersome regulations, handbooks and guidance that have been issued over the years. The House approach would eliminate the federal goal of providing safe, sanitary and affordable housing for all Americans.

The second stumbling block is comprised of the considerable differences between the House and Senate on how many very poor residents will be admitted to public housing and Section 8 housing in the future. The Clinton Administration, municipalities, and most housing advocates would like to see these housing resources continue to serve the very poor and also include more working families to help build more rounded communities.

Recommended Action

The Maine Municipal Association supports the Senate approach which would retain the federal goal of providing safe, sanitary and affordable housing as a valid goal and make the changes necessary to allow public housing agencies the flexibility to administer their programs in the most efficient and cost effective way. The Senate proposal, which does not include the Community Development Block Grant (CDBG) sanction, represents a more constructive approach and would give public housing authorities the latitude they need to develop program policies based on real needs. The targeting provisions in the Senate version are less onerous for very poor families than those in the House version.