2006 is an election year. That fact is presumably not lost on anyone within Maine’s political environment.
The State’s Constitution provides that election years also coincide with a shorter, somewhat targeted legislative session…a four-month session that is more limited than the anything-goes First Regular Session, which can easily gobble up the first six months of an off-election year.
The specific constitutional provision allows just five categories of legislative proposals to be taken up for consideration when the Legislature convenes in January: budgetary matters, the Governor’s bills, “emergency legislation,” carryover bills, and citizen initiatives. Four of those five categories have defined boundaries. The fifth category – “legislation of an emergency nature admitted by the Legislature” – is less carefully described. In a nutshell, the term “emergency” means any legislative proposal that Maine’s ten leading lawmakers, acting as a group, agree to admit into a session that otherwise has a limited agenda.
Legislative proposals of deep municipal interest are harbored in each of these five categories. A cursory review provides a snapshot of the upcoming legislative session.
Under the citizen initiative category, the so-called “Taxpayers’ Bill of Rights” proposal, spearheaded by Mary Adams of Garland, will undoubtedly grab the municipal attention. A thorough analysis of that proposal is provided in a separate article in this issue of the TOWNSMAN.
55% School Funding
Under the category of budgetary issues, there is a compelling municipal interest in making sure the Legislature remains committed to providing 55% of the statewide cost of K-12 public education by keeping to the financing schedule it adopted last session, a phased-in approach as an alternative to the deep reform of Question 1A. The state’s “ramped-up” school financial obligations are cloaked within the arcane mechanics of school funding law. For this second year of the four-year funding commitment (FY 07), the Legislature has committed to officially recognize 90% of the EPS school funding model (rather than 84%), and to provide on a statewide basis 53.86% of that 90% recognition. Commitments are often easier to make than they are to keep. Both history and common sense suggest that if the state’s financial commitment to education is ever going to be honored, it cannot be broken in its second year.
Repeal of Personal Property Tax
The broad category of “carryover” legislation includes dozens of bills of municipal interest first introduced last year and held over until 2006 for final disposition. In that interim period, some of those bills were further studied by either a formally appointed or informal working group of interested parties. An update on the the most municipally significant carryover bills (including a couple that were initiated by MMA’s Legislative Policy Committee) is provided in a separate article in this issue of the TOWNSMAN.
Clearly the most significant carryover bill from the municipal perspective, and the biggest threat to any hope of real property tax relief for Maine residents, is LD 1660, Governor Baldacci’s proposal to eliminate the personal property tax.
This proposal to prospectively eliminate the property tax on almost all personal property currently taxable by municipalities has been advanced in one form or another in each of the three years of the Baldacci Administration. In summary, the proposal would create a property tax exemption for all BETR-eligible property that is first installed in Maine anytime after April 1, 2006. BETR-eligible property is practically all municipally-taxable personal property and in its wide-ranging definition even includes some real estate. Municipalities could continue to assess the pre-2006 base of personal property, although that base would steadily depreciate in value and eventually disappear.
In a relatively short period of time, the total municipal tax base in Maine would be reduced by 10%. Because of a provision in Maine’s constitution, municipalities would be eligible for 50% reimbursement for their lost tax revenues, although there would be nothing stopping the Legislature from financing that 50% obligation by reducing other municipal programs such as municipal revenue sharing or school aid. LD 1660 even offers certain enhanced reimbursement rates, at least on a temporary basis, but nobody believes any enhanced reimbursement would be honored over time.
After being re-introduced for the third time as a “tax reform” proposal at the tail end of the last legislative session, LD 1660 was quickly bound over to 2006. Although there were some discussions at both the legislative and Administration levels of putting together a working group of stakeholders to further study the issues and analyze the impacts of gradually eliminating 10% of the municipal tax base, no formal or informal study groups were organized.
The scuttlebutt in Augusta is that there will be a concerted push in the upcoming legislative session by the business community, the industrial lobby and the Baldacci Administration to get the personal property tax exemption enacted into law.
It is hard to believe that the Governor and the businesses are choosing this legislative session to push for big industrial tax breaks in the face of all the municipal revaluations being conducted statewide that are so dramatically shifting tax burden away from the commercial and industrial property and onto residential property.
The proponents’ advocacy mantra is that the personal property tax is an impediment to capital investments, but like most sound bites, that reveals very little of the whole story. The industries have already enjoyed a personal property tax exemption for the last 10 years because of the Business Equipment Tax Reimbursement program (BETR), so the “impediment” argument rings hollow.
In an effort to balance the state budget last June, however, the Legislature enacted a temporary reduction to the BETR reimbursement rate so that for one year businesses will get just 90% reimbursement from the state for their personal property tax payments instead of 100% reimbursement. This temporary 10% reduction in the reimbursement rate has apparently further convinced the business lobby that the BETR program is politically unstable. As a result, the businesses would like to transfer all that reimbursement instability off their respective bottom lines onto the bottom lines of the municipalities and their residential and small commercial taxpayers.
The business and Administration proponents for repealing the personal property tax euphemistically refer to LD 1660 as a “conversion”, which is a reference to the reimbursement system being converted to an exemption system. The term “conversion” implies something being changed or altered for an equivalent. The impacts of this so-called “conversion” are triangular, affecting the owners of the personal property, the state, and the municipalities. Although there is some kind of equivalency in this trade off for the industrial taxpayers and the state, there is no equivalency in this “conversion” for the municipalities and the residential property taxpayers who support municipal government, there is only loss.
The businesses gain a permanent exemption (rather than a 12-year exemption under BETR) that is absolutely free from the vagaries of legislatively-controlled reimbursement commitments. The state gets to convert a 100% business reimbursement obligation to a 50% municipal reimbursement obligation which could easily be financed by simply cutting other municipal subsidies.
On the municipal side, however, the municipalities lose 10% of their tax base in pretty short order and have to rely on the charity of the Legislature to get half of that back in reimbursement. In today’s dollars, even assuming a clean 50% state reimbursement, LD 1660 puts into motion an $80 million shift in property tax burden onto residential, agricultural land, open land and small commercial property taxpayers when fully played out in about 20 years.
All this, and TABOR too!
Current Use Taxation
It will probably be a bill “of the Governor’s call” that implements the new current use taxation program approved by Maine’s voters on November 8 th as an amendment to Maine’s Constitution.
By a very strong majority, Maine’s voters said they wanted “waterfront land used for commercial fishing activities” to be assessed based on the land’s “current use” in a manner similar to the system of current-use assessing that applies to farmland, forest land, and open space lands.
The actual amendment to the Constitution that was adopted by the voters is a little more nuanced than the question to which the voters responded. The land that will now qualify for the current-use treatment is “Waterfront land that is used for or that supports commercial fishing activities.”
That change to the Constitution does not go into effect automatically. The details of how to implement that change to the tax code need to be first enacted into law.
The financial impact of this change will not be felt by the state; it will be borne by the affected coastal municipalities. Accordingly, the municipal officials in Maine’s 120 coastal municipalities will be watching the development of this implementing legislation very closely. How is the affected property going to be defined? What method will be used to determine the “current use” value of the eligible land? What kind of penalty will be applied to prevent short-term or speculative use of the special tax program? Would the Legislature even consider participating financially in this program by providing some level of reimbursement for the lost tax revenue, or will the tax break be financed through a purely internal cost shift within each affected municipality? These are all questions that will not be fully answered until this legislation is enacted.
“Legislation of an emergency nature”
The broadest of the five categories of second-session legislation contains the “emergency bills”. After a couple of meetings, including some appeal procedures, the 10-member Legislative Council has decided to admit 207 bills of an “emergency nature” into the 2006 legislative session. A separate article in this edition of the TOWNSMAN gives more detail to the 45 municipally-related bills in that emergency category.
At this point we can only judge the content of a freshly-submitted legislative proposal by its title. Perhaps more than one of those bills will be Maine’s version of legislation that is circulating throughout the nation as well as in Congress.
For example, An Act to Clarify the Laws Governing Eminent Domain , sponsored by Rep. Deb Pelletier-Simpson of Auburn, would appear to be a vehicle to address the public response to a United States Supreme Court decision, entitled Kelo v. City of New London, Connecticut which upheld the right of the City to take occupied homes through the process of eminent domain for economic development purposes. The Kelo decision sparked a sharp property-rights reaction, to which lawmakers in Maine and elsewhere are responding. A complete discussion of the Kelo decision and its relationship to eminent domain law in Maine was provided in an article in the November issue of the TOWNSMAN.