Carryover Bills: A Status Report

(from Maine Townsman, December 2009)
By Geoff Herman and Jeffrey Austin, State and Federal Relations, MMA

After the General Election in any odd-numbered year in Maine, the sky is the limit for the freshly-elected lawmakers; they can submit to the Legislature for consideration all the proposed new laws they want. Under Maine’s Constitution, however, legislative sessions in the even-numbered years like the one upcoming are limited as to both scope and duration, and proposed law from just five sources can be taken up by lawmakers. Those sources (or subject areas) are: (1) matters related to the state budget; (2) bills of the “Governor’s call”; (3) “emergency” legislation allowed into the session by legislative leadership; (4) study bills or other legislation “carried over” from the 2009 legislative session; and (5) legislation initiated through the citizens’ initiative process.

This article focuses on the fourth category, carryover and study bills of municipal interest that were submitted to the Legislature a year ago but where final action was deferred (for a variety of reasons) until this upcoming session. The article also attempts to update municipal officials on significant developments in the regulatory arena. Municipal officials are only too well aware that state agency regulations adopted in the State Office Building can deliver just as sharp an impact on local government as the laws enacted in the State House.

The June 2009 edition of the Maine Townsman identified 32 carryover bills and 18 study bills of municipal interest. What follows is a status report on a dozen of those bills that over the last several months have been advanced at the legislative committee level or by appointed working groups and carry enough impact on local government to warrant special attention. The listing that follows is our attempt to identify these carryover bills according to the significance of their municipal impact, although that type of prioritization is not a perfect science.

Motor Vehicle Excise Taxes. The Taxation Committee reviewed two carryover bills that would restructure the motor vehicle excise tax system. The two bills were carried over because they were “competing measures” to the Question 2 citizen initiative which would have slashed over $80 million in municipal excise tax revenue. Question 2 was crushed by the voters on November 3rd with a 3:1 vote rejecting the proposal.

One of those bills (LD 588, sponsored by Rep. Don Pilon of Saco) would restructure the system in a revenue-neutral way by flipping the current system and establishing a fixed excise tax rate at 20 mills which each year would be applied to an ever-declining percentage of the motor vehicle’s Manufacturer’s Suggested Retail Price (MSRP). The goal of this restructuring would be to address the taxpayers’ concerns that the current system is based on an artificial value and does not reflect the depreciating value of the motor vehicle being taxed.

The other excise tax bill (LD 195, sponsored by Rep. Gary Knight of Livermore Falls) would leave the current rate structure unchanged, but require the current rates to be applied to just 90% of the MSRP. As written, this bill would reduce municipal excise tax revenue by over $20 million a year.

Unfortunately, the sponsors have apparently agreed to combine the two bills into a single bill, so that a fixed rate of 20 mills would be applied each year to a MSRP that is twice-reduced. That is, the MSRP would be first reduced by 10%, and then the annual percentage reductions of Rep. Pilon’s bill would be applied. Therefore, under this combined bill, 20 mills would be applied to 95% of 90% of the MSRP in the first year; 90% of 90% of the MSRP in the second year; 85% of 90% of the MSRP in the third year; 70% of 90% of the MSRP in the fourth year; 50% of 90% of the MSRP in the fifth year; and 15% of 90% of the MSRP in the sixth and all subsequent years.

This bill would reduce each municipality’s excise tax revenue by approximately 11%. The statewide municipal impact would be a $22.4 million reduction in excise tax revenue. The Taxation Committee is scheduled to fully consider and take a final vote on LD 195 and LD 588 at its December 16, 2009 meeting.

Restructuring Revenue Sharing. Also in Taxation, Rep. Mike Shaw (Standish) is pushing for the advancement of a carryover over bill he sponsored, LD 662, An Act to Phase Out the Distribution of the Disproportionate Tax Burden Fund under the State-municipal Revenue Sharing Program over a 5-year Period.

As printed, LD 662 was a “concept draft” bill that would have phased-out the Revenue Sharing II distribution over a 5-year period and returned the entire municipal revenue sharing system to the original “Rev I” distribution.  That idea has been rejected, but Rep. Shaw has indicated that the printed bill didn’t properly reflect the real goal, which from his perspective was to target the “Rev II” distribution to those municipalities truly deserving the supplemental distribution, rather than just any municipality with a full value mill rate over 10 mills. Rep. Shaw’s position is that some municipalities have higher-than-average mill rates out of choice (and household-income capacity) rather than necessity and those wealthier municipalities do not deserve to receive Revenue Sharing II.

On November 10th, the Tax Committee agreed to give Rep. Shaw one more month to provide the Committee with enough detail so that an actual bill restructuring the Revenue Sharing distribution system could be written.  A subcommittee of the Taxation Committee was created to oversee that process, including Rep. Kathy Chase of Wells, Senator Richard Nass of Acton, Rep.
Elsie Flemings of Bar Harbor, Rep. Shaw, MMA, and the Office of Fiscal and Program Review (OFPR). The role of both MMA and OFPR on this subcommittee is to perform the purely technical task of analyzing the fiscal impacts of the subcommittee’s recommendations.

As ultimately crafted by the Taxation Committee subcommittee, LD 662 would:

1) Replace the current threshold for being a “Rev II” recipient (which is a municipality with a full-value tax rate over 10 mills) with a new threshold, which is being either a defined “Service Center Municipality” or a defined “Census Designated Place” and having a full value mill rate over 10 mills. There are currently 69 municipalities meeting one or the other of those definitions with the requisite minimum mill rate;

2) Distribute to those newly-defined Rev II recipients almost the total amount of Rev II that is being distributed to them under current law, defined as a percentage of total revenue sharing. Those 69 municipalities currently receive 12% of all revenue sharing through the Rev II distribution. For some reason, Rep. Shaw is proposing that 11% of total revenue sharing would be distributed to them under this proposal.

3) Distribute that Rev II allotment to all 69 Rev II recipients according to the Rev II distribution formula (population x full value mill rate minus 10 mills); and

4) Distribute the remaining 89% of revenue sharing funds to all municipalities under the traditional Rev I distribution formula.

If you would like to obtain the impact analysis of this proposed change, contact MMA’s Kate Dufour at
kdufour@memun.org or 1-800-452-8786. The Tax Committee is expected to give final review and vote on this proposal at its meeting on December 16th.

Fish Passage and Culverts. Last spring the Legislature enacted LD 1333, An Act To Ensure that Replacement Culverts Permit Fish Passage, which requires the Department of Environmental Protection to amend its permit-by-rule standards under the Natural Resources Protection Act (Chapter 305) in such a way as to require municipalities to achieve “natural stream flow” when installing road culverts. The Legislature believes culverts can pose a barrier to fish as they make their way along a stream. For example, where the bottom of a culvert is higher than the riverbed, fish swimming upstream might not be able to make it up and through the culvert.

The DEP has conducted informal stakeholder meetings along with its formal rulemaking process. The proposed rule requires two significant changes. First, culverts must be embedded in a riverbed and not just laid upon it. Second, the size of the culvert must be proportionate to the size of the river channel at its “bankfull” level.

Because of the amendments, some culverts will need to be so large that the only real option is to construct a bridge or “open-bottom arch” structure. This would dramatically increase costs. In its rulemaking materials, the DEP noted: “The cost increase between a culvert or a bridge crossing cannot be generalized but could in some cases increase a project cost 10 times.”

Municipal officials and public works officials have expressed concern to the Board of Environmental Protection over the potential increase in costs as a result of the proposed rule. The new culvert rules are “major substantive” and, if supported by the Board, will be reviewed by the Natural Resources Committee and the full Legislature this session.

Telecommunications Taxation. The issue of telecommunications taxation grew out of last session’s state budget deliberations. There is no bill or carryover bill on the subject, but the Taxation Committee intends to get permission to report out its own bill on this topic.

At issue is the complicated way the state and local taxation of telecommunications equipment and companies has evolved over time, particularly in light of the rapid changes that have made the various companies using different technologies -- cable, satellite, Internet, land-line, and wireless -- more similar than dissimilar in recent years.

Specifically, the state imposes a property tax on the two-way interactive telecommunications personal property owned or leased by a “telecommunications business”. The state-imposed mill rate is currently set at 22 mills. There is about $830 million worth of telecommunications property subject to the state property tax, which generates $18.3 million in revenue for the state.

All one-way, non-interactive telecommunications property and all other telecommunications personal property that is not owned by a “telecommunications business” is taxed as personal property at the local level at the prevailing local mill rate, which is often much lower (at full value) than 22 mills.

At the same time, all types of telecommunication service providers are subject to a 5% “service provider” tax, which is applied to the value of their services rather than the value of their property. The aggregate value of those services among all the different providers is apparently in the $760 million range, because the 5% tax generates approximately $38 million a year for the state.

At issue is how this tax structure falls unevenly among the various providers. For example, constitutionally problematic inequities have even been raised with respect to the unequal application of property taxes between the state and local jurisdictions for substantially similar machinery and personal property.

As a result, the Committee is attempting to restructure the system of telecommunications taxation with the goal of making the tax burden spread out more evenly among the various telecommunications providers. No final plan has been articulated as of yet, but part of that plan could involve repealing the state’s property tax on telecommunications property and replacing the $18 million in lost revenue by increasing the rate of the service provider tax. What is currently under consideration is whether to allow municipalities to expand their taxable base by now including within it the two-way telecommunications property which has heretofore been exempt from local taxation.

The Tax Committee is expected to provide more detail on this proposal at its December 16th meeting.

Elderly Tax Deferral Program. As originally submitted, LD 1088 (sponsored by Rep. Kathy Chase of Wells) would re-instate the elderly tax deferral program that was established in state law in the 1980s and discontinued in the early 1990s. In summary, that program allowed qualified elderly, low-income homesteaders to apply to the state in order to defer their municipal property tax obligation. Instead of paying their taxes to the town or city, the state would pay their taxes, and the state would get a lien on their property to cover its exposure plus 6% interest. That lien would foreclose when the property is subsequently transferred. Although the program was not heavily utilized, no new applicants were accepted by the state in the early 1990s due to budgetary constraints.

At the Taxation Committee meeting in November, Rep. Chase said that the state’s current budgetary constraints make it impossible for her to further advance the bill as written. Therefore, she has rewritten the bill in two ways.

First, additional eligibility restrictions would be established. An eligible applicant would need to be at least 70 years of age, have lived in the homestead for at least 10 years, and the household income could not exceed 300% of the federal poverty level. The value of the deferred taxes would be subject to a 6%-per-annum interest rate.

Second, since the state cannot afford to cover the program, the deferral system would be made a “local option” program; that is, the state law would establish the program’s parameters, but the program would only be implemented locally if approved as a “local option”.  The municipality would cover the cost of the tax loss during the period of deferral and would have to manage the extended tax lien and lien foreclosure process.

The Tax Committee is expected to vote on this proposal at its December 16th meeting.

Site Law. Another carryover bill is LD 891, An Act To Amend the Site Location of Development Laws To Include Consideration of Greenhouse Gas Emissions. LD 891 was carried over from the first session to the second session of the 124th Legislature. It would amend the Site Location of Development Act standards to include requirements that greenhouse gas emissions from new projects either be limited or “offset” by the payment of a fee or other mitigation options. MMA did not closely follow this legislation last session as it mainly dealt with the relationship between the state and the development community.

However, the DEP has simultaneously begun pre-rulemaking work on rules associated with Site Law and one in particular may interest municipalities. Chapter 375 is the “no adverse environmental effect” standard enforced by DEP.

The proposed amendments significantly expand the DEP’s environmental purview over “scenic” impacts. For example, under the proposed rule the DEP will determine if a project interferes with “the general public’s visual enjoyment and appreciation of a scenic resource.” The rule also requires the pitch of a roof to “follow the natural hillside slope.” And Chapter 375, Section 14(C)(2)(d)(ii)(a) says that freestanding accessory structures must be “coordinated” with the principal building through details such as “color.”

Most aesthetic regulatory issues have been historically handled locally and not centrally by the state. Accordingly, LD 891 and related rulemaking may be of interest to municipal officials.

Exempt Personal Property and LD 1. LD 839 would allow a municipality that has a substantial amount of personal property in its tax base (over 5%) to include the value of newly installed personal property in its “property growth factor” calculation (both in the numerator and in the denominator of that calculation) even though that property is now exempt from taxation. LD 839 was a carryover bill because it competed, at least technically, with the Question 4 citizen initiative known as TABOR II. Now that Question 4 has been rejected, the Committee is able to advance LD 839, and the bill received a near-unanimous (11-1) “ought to pass” recommendation from the Committee at its November meeting.

Dark Skies. LD 11, Resolve, To Encourage the Preservation of Dark Skies, was enacted by the Legislature last spring. This resolve reflects the State Planning Office’s request to review commercial outdoor lighting standards and promote those standards that will limit so-called “light pollution” which is generally understood to be outdoor lighting which interferes with the ability to see the night skies. In response to the Resolve, the State Planning Office has produced a report on the topic. In that report, SPO is recommending that the state should preempt municipal authority and establish a state-level commercial lighting standard in law. SPO is also recommending that municipalities should be mandated to apply and enforce the state-adopted standard. Many municipalities have outdoor lighting standards for commercial development and they generally feel that the local standards balance the issues of light pollution with other public policy interests such as safety.

Local Option Taxation. LD 1253 (sponsored by Rep. Patsy Crockett of Augusta) is a local option sales tax bill. As printed the bill allowed a municipality by referendum vote to adopt a local sales tax of up to 3%, with the revenue to be divided between the municipality (50%) the state (25%) and the county in which the municipality is located (25%). At this point, the bill’s sponsor does not intend to advance the proposal as printed, and the Committee gave her another month to put together the approach to local option taxation that she is now considering. That approach, apparently, would be a county-wide local option sales tax, adopted by a referendum vote throughout the county, with 50% of the revenue accruing to the county and the other 50% being distributed to all the municipalities within the county according to a revenue-sharing type formula. More details of this proposal should emerge at the Taxation Committee’s next meeting on December 16th.

Climate Change Adaptation. The Legislature also enacted LD 460 during the last legislative session, under the title Resolve, To Evaluate Climate Change Adaptation Options for the State. This Resolve directed the Department of Environmental Protection to convene a stakeholder group made up of representatives of the business community, non-governmental organizations and state government to study the impacts of climate change on built infrastructure and various systems. The study would include coastal and inland flooding effects on roads and facilities, the heat effects in urban centers, beach scouring, the impact on water supplies and drinking water, and emergency response systems. The goal of the study is to develop an “adaptation” strategy. That is, the goal is not to determine how to stop climate change but, rather, how to deal with it. The Department has conducted extensive stakeholder meetings including nearly 100 individuals. The stakeholder discussions have focused on issues such as figuring out where climate change impacts will actually be felt most acutely and what infrastructure owners and others might do to prepare. It does not appear that recommendations coming out of this process will be going in the direction of new mandated requirements.

Quality of Place Planning. The original bill was LD 1389, An Act to Create State and Regional Quality of Place Investment Strategies for High-value Jobs, Products and Services in Maine. LD 1389 was promoted by the State Planning Office and the Governor’s Quality of Place Council, and mandated that the state’s six federal “Economic Development Districts” (typically a Council of Government/Regional Planning Commission or similar venture) develop Quality of Place investment strategies. These strategies would identify and inventory regional assets and strengths (rather than needs and wants) and then develop strategies to invest in these assets that contribute to a region’s “quality of place”. The process would be guided, overseen, judged, monitored and reported on by the SPO and the Quality of Place Council.

The mandate “stick” in the bill was accompanied by two vague, but appealing, “carrots.” One carrot was access to “quality of place” bond funds. A second carrot was that additional preference points for state grants would be awarded to projects that were identified in these regional investment strategies.

The second carrot was particularly appealing because it represented a potential to fundamentally alter grant making from a completely state-controlled exercise to one where local preferences would be elevated, as long as those locally-identified preferences were included in regional plans. The bill was held over because the State Planning Office could not identify at the time of the hearing which state grants would include these preference points and how many points would be awarded. Also, the “quality of place” bond didn’t exist at the time of the public hearing, even in bill form. When the bill was carried over, the expectations were that SPO would rewrite the bill to remove references to the bond and that specific state grant programs would be identified.

Instead, both the bond revenue and the preference points have been completely stripped from the bill. It appears that the state will be offering no benefits to regions that develop these “quality of place” planning documents. Correspondingly, the bill no longer mandates that these plans be done. Thus, both the stick and the carrot appear to be gone. The Business Research and Economic Development Committee endorsed the bill in November, apparently in response to testimony from SPO and other proponents that there is significant federal money poised to be granted to Maine if this legislation were enacted.