Municipal Views On Excise Tax Initiative
(from Maine Townsman, August/September 2009)
By Douglas Rooks
As if the most difficult budget conditions in years were not enough for municipal officials to handle, they face two referendums this November that would directly affect their ability to maintain spending on services and reduce pressure on property taxes.
Of the two questions relevant to municipal budgeting, the one that proposes the most direct challenge would reduce vehicle excise tax revenues by about 40%, sharply cutting rates during a car or truck’s first five years of ownership. Municipalities would also be affected by numerous provisions of the TABOR II (“Taxpayer Bill of Rights”) referendum that imposes annual spending caps, but voters are somewhat familiar with its terms, having defeated a similar measure in 2006.
As proposed, the excise referendum would reduce the first year $24 per thousand rate by half, and the second year by even more. Under the new system, the rates would be $12 for the first year, $8 for the second, and $4 for every year after that.
One surprising aspect of the plan is that the $4 rate, which currently kicks in during the sixth year and remains constant for the life of the vehicle, would not provide any tax break for those who own older cars. The state estimate that 68% of all cars registered in Maine are older than five years, so less than a third of current vehicle owners would see a reduction.
Municipal officials provide differing estimates of public understanding concerning the excise tax proposal. Some say that they believe the public perceives it as a state tax – which it is not – because it’s paid at the time one registers a vehicle, while others see voters as more savvy both about the tax and what it funds.
At least one city has already passed a resolve opposing the excise tax question, and other municipalities are expected to take a stand or provide information before the campaign comes to a conclusion with the November 3 election.
Other municipal officials began speaking out even earlier. Augusta Mayor Roger Katz testified against the initiated bill, LD 974, when it was debated and later rejected by the Legislature. “This proposal only benefits a few,” he said. “Most of us will see poorer roads or increased property taxes to make up for the lost revenue, or some combination of both.”
The excise tax is commonly seen as providing funding for municipal summer and winter road work, and although – unlike state fuel taxes and the Highway Fund – it is not specifically dedicated to those programs, there is a strong correlation between excise tax revenues and expenses for roads.
An MMA survey shows that most towns and cities spend at least as much on summer paving, reconstruction and maintenance, and winter plowing, as they take in from the excise tax – and many spend a good deal more. The question that public works directors, town and city managers and elected officials must face is what happens to roads if voters decide to eliminate a good part of excise tax funding.
While councils and selectmen are expected to look across the board for possible spending reductions – few observers are willing to predict that property taxes would be raised to make up the difference – they will certainly look hard at roads.
Bob Belz, the long-time public works director for Auburn, has seen this cycle before. He’s worked for the city since 1969, and in the 1980s, the Auburn city council felt significant pressure to hold down spending and reduce the tax rate.
One place where they cut back significantly was road reconstruction and paving. It’s a big expense in most municipalities, and an even larger one in Auburn. Belz said that Portland, Lewiston and Auburn all have about the same number of “lane miles” to maintain, but Portland and Lewiston have much larger population and tax bases to draw on.
Auburn decided to virtually stop borrowing to rebuild roads, and did only a small amount of paving each year. Not only were taxes an issue, but the 1980s saw major increases in the cost of materials such as steel and concrete, which also forced cutbacks. In recent years, the price of liquid asphalt, the key ingredient in paving mixes, has been the biggest cost driver for road maintenance.
A decade or so after Auburn’s budget reductions, the complaints began coming in about road conditions, and new councils began changing course. For the past 10 years, Auburn has been busy rebuilding its infrastructure and bringing back roads that had been crumbling away.
The difference between maintaining and rebuilding, Belz said, is that the latter is much more expensive. Auburn has had to put significant amounts of new dollars into roads, although it has had other major public works projects to carry out as well, particularly stormwater separation, or combined sewer overflow reconstruction that will cost many millions of dollars over 20 years.
Now, the city could be faced with beginning the same cycle all over again. “It’s not like the city is going out of business,” Belz said. “It’ll be there. The question is whether we’re going to push these costs off to future generations.”
Council Speaks Out
Some of that complexity can be seen in Bangor’s budget, which shows $5.6 million in expenses to maintain and plow roads, and $4.7 million in revenue from the excise tax. The anticipated reduction from the referendum would be $1.8 million.
According to an analysis from the city’s finance department for the fiscal year that ended June 30, the city spent $1.2 million on paving and reconstruction, $100,000 on sidewalks, and $90,000 for the city’s match for federal funding toward regional transportation projects.
Winter maintenance came to $1.4 million while “other highway maintenance,” which includes road crews and other personnel costs, came in at $1.9 million.
There is at least one element in Bangor’s budget that voters might not consider significant: The city spent $791,000 to maintain its electrical system, including personnel costs. One of the state’s most urbanized municipalities, Bangor has 75 traffic lights and more than 2,000 streetlights, according to City Manager Ed Barrett.
Barrett declined to predict how the city council might respond to the loss of nearly $2 million a year in excise tax revenue. But he did say that, in recent years, the council has been extremely reluctant to increase property taxes, so a look at further service reductions – the city has cut employee positions each of the last two years – and possible fee increases might be places to look.
Barrett also asked the council whether it wanted to take a stand on the excise tax question, as it had on other public issues with a direct impact on the city and its finances. The council did want to take a look, and its government operations committee decided to take no position on a resolution, instead forwarding the issue to the full council.
On July 27, the council voted 7-1 to enact resolves opposing both the excise tax and TABOR II questions after one speaker urged the council “not to take a namby-pamby stance.”
Barrett said the apparent first-in-the-state status of the resolution was not intentional. “I thought it might take longer to move along,” he said. “Instead, it took only three weeks before the council voted.”
In addition to the points about the relatively small number of beneficiaries and the steep reduction in revenues, the resolution notes that the question would provide disproportionate benefits to corporate and business fleets, which usually feature new vehicles. The lost revenue, if replaced with property taxes, would require a 75 cent per thousand increase to the current tax rate.
Further difficulties would result from the effective date of the proposed law, which would kick-in sometime in the middle of Bangor’s current fiscal year, . The council would have no opportunity to substitute a property tax increase then, and would have much less flexibility over spending. “A mid-year expenditure reduction of this magnitude would require the elimination of city services and staff, including positions in such core services as police, fire and public works,” the resolution concludes.
While the council has spoken, Barrett said the debate is just beginning. The aim, he said, is to engage voters. “We need to see that the public is informed, gets a chance to hear both sides of the issue, and makes an informed decision.”
High Demand for Services
In Norway, Town Manager David Holt notes that the vehicle excise tax is “the second largest source of revenue” after the property tax. Norway takes in about $500,000 a year in excise taxes, and the town spends about $1 million in road-related expenses, including the cost of borrowing.
He’s not sure that voters currently understand the connection between the excise tax and the services they receive locally, and he knows why the vehicle tax, in particular, gets their attention.
The fun of buying a new car – which is usually financed at the dealership – is diminished by arriving at the town office and paying the tax as a lump sum, sometimes more than $1,000 for the first year, he said. “The price of new vehicles has gone up dramatically,” he said, at least until recently. “That’s the pinch.”
Surveys the town periodically conducts show that roads are important to taxpayers, Holt said. “Next to education, it’s what people value most.”
In recent years, Norway has spent $300,000-$500,000 on improvements in an effort to catch up on road repairs, though this year’s spending has been cut back. The $1 million bond that the town normally floats every five years has been deferred as well. “We’ll definitely have to go for one next year,” he said.
Holt said that townspeople have increased expectations for services. Where residents might have been prepared to wait for snow clearance at one time, “now, if a road’s not opened, we hear about it.”
What may not be as clear to taxpayers is that improved services cost more, he said. Calcium chloride for snow and ice removal is one example. “It clears the roads a lot faster, but there’s no question that it’s a lot more expensive than salt.”
Despite the concerns about the referendum’s effects, Holt said it’s unlikely that selectmen will take a formal position, saying, “We’re a little nervous about getting into the fray.”
Nothing Left to Cut
For Candy Nevers, who manages a joint town office for the small towns of Smyrna and Merrill in southern Aroostook County, the referendum takes place against a backdrop of economic decline and real hardship for many of her constituents.
Mill closings throughout the region have hit hard. Several paper mills have been shuttered or gone through long shutdowns, “and even for the loggers in the woods, there’s no place to take their loads,” she said. The closing of a potato starch plant in Island Falls also hurt. “In just about every household, we’ve felt the effects,” she said.
As a result, town budgets are already stretched thin. “We stopped worrying about the fat long ago,” Nevers said.
Merrill gets about $121,000 in non-property tax funding per year, including school aid and revenue sharing, and about $44,000 comes from excise tax. The road budget is $47,000, with $14,000 for summer maintenance and $33,000 for winter plowing. The town uses a road bond of $33,000.
In Smyrna, the figures are similar. There’s $146,000 from non-property tax sources and $59,700 from excise tax. Summer roads cost $12,000, and winter maintenance $55,000, with a road bond of $34,000. As in most smaller towns, almost all of that money goes to private contractors, who could be dramatically affected by passage of the referendum.
Nevers said that although proponents of the referendum say towns can make up the revenue elsewhere, she doesn’t see how that can happen for her towns.
“There’s nothing left to cut,” she said. “If we had to reduce, that would mean closing the town office, not plowing the roads, or not mowing the cemeteries. That’s about all we do.”
Nevers considers townspeople pretty well informed about the issue, both as to who now pays the tax and what would happen to the town budget if it were reduced proportionately. She distributes a quarterly newsletter to all her constituents, and provides information on the fall referendums there.
The Domino Effect
In Auburn, Bob Belz is concerned about a growing mismatch between public expectations for services and the apparent willingness of the voters, as taxpayers, to fund them.
Belz has paid attention to debates within the Legislature’s Transportation Committee, which included the prospect of “decommissioning” some of the state’s 8,500 mile highway system. The problem, he said, is simple. “We want a road system that seems to be beyond our ability to pay for it.”
But in truth, the state can’t really decommission roads, merely change their classification, which it has done in the past, as recently as the 1980s. And that means a shift to municipal jurisdiction, along with the expense of maintaining them, he said. “If they vote to reclassify, that means they transfer them to us.”
Douglas Rooks is a freelance writer from West Gardiner and regular contributor to the Townsman.