Saga of Tax Reform

from Maine Townsman, May 2004)
By Geoff Herman, Director of State & Federal Relations, MMA

Rooting out the beginning point of the tax reform effort in Maine is like harvesting parsnips in the April garden mud…you’re bound to break-off at least some of the taproot no matter how carefully you try to pull out the whole thing.

One relatively deep fragment of the taproot was the economic downturn of the early 1990s. That recession resulted in the Legislature flat-funding the public schools for a seven-year period from 1991 through 1997, effectively pushing a quarter of a billion dollars of the annual cost of operating our K-12 educational system onto the property taxpayers. It was during this period, in 1994, that Carol Palesky began her 10-year drive to get her property tax cap petition before the voters.

The municipalities became interested in promoting a non-negative, non-destructive tax reform initiative more recently, after failing in the late 1990s to convince the Legislature to address the tax problem prospectively, before the initiative process could take hold.

The municipal interest in the initiative approach can be traced back to a warm April evening in 2002 when lawmakers took up a tax reform proposal that was the product of the visionary work of  Rep. Barney McGowan of Pittsfield. On that night, the lawmakers engaged in a genuine, from-the-heart debate in the chamber of the House of Representatives. The Palesky initiative had just failed for the second time to gather enough signatures to be certified by the Secretary of State. Yet again the Legislature had a comprehensive tax reform plan before it for adoption. Yet again the Legislature had dodged the bullet of an initiative.

Two findings or recognitions were the focus of that debate, frankly and directly identified by almost all the lawmakers who addressed the assembly on both sides of the aisle.  First, the recognition that providing property tax relief and comprehensive tax reform was imperative. Second, the intense political difficulty facing a legislature…any legislature…that tries to accomplish the task of comprehensive tax reform.

The now-familiar slogan expressed then by Rep. McGowan as a challenge filled the House chamber.

• We can not accomplish tax reform in good economic times. 

• We can not accomplish tax reform in bad economic times. 

• We can not accomplish tax reform comprehensively.

• We can not accomplish tax reform incrementally

• We can not accomplish tax reform in the first legislative session.

• We can not accomplish tax reform in the second legislative session.

In short, the legislators concluded, they can not accomplish tax reform… without being directed to accomplish that specific task by the voters.

Within minutes of the debate, the McGowan tax reform bill was killed in the Senate, and the municipalities took up a new charge. During the ensuing months, an initiative was developed by a 12-member group of municipal leaders specially appointed to that task by MMA’s President.

That initiative, which became the Question “1A” School Finance and Tax Reform Act of 2003, was developed on the foundation principle that the key to sustainable property tax relief was getting the state to honor its never-fulfilled, longstanding promise to fund 55% of the cost of public education from the state’s General Fund.

When the initiative was written, the state share of education was 44% of the state-and-local total rather than the 55% “intention”...a $250 million shortfall. (The state share has subsequently dropped to 42% in FY 04 and is projected to be 40% in FY 05.) In practical terms, the “1A” initiative requires the state to re-assume the quarter-of-a-billion-dollars in annual school costs that the Legislature pushed onto the property tax during the 1991-1997 period of flat school funding.

The legal core of the initiative essentially ends there, with the simple requirement that the state to honor its public-policy commitment to school funding established 20 years ago. The rest of the initiative is a directive to the Legislature to accomplish the task of properly funding Maine’s schools by comprehensively reforming the tax code in a revenue-neutral manner that includes the adoption of a coordinated plan to properly manage and ultimately reduce Maine’s overall tax burden.

To bring this blueprint for tax reform to the Legislature and the electorate, municipal and school leaders had to secure the signatures of slightly over 50,000 Maine voters. On a single day, November 4th, 2002, that threshold was shattered when 100,000 voters expressed their interest in the initiative by signing the appropriate petitions in the polling places throughout the state. Clearly, the initiative struck a chord with the voters of Maine by attracting enough support to establish a signature-gathering record that still stands today.

When the just-elected 121st Legislature convened in January 2003, the reaction of the political and media establishment to the citizen initiative ran somewhere between sharply and hyperbolically negative. For the next eight months the Legislature crafted, re-crafted and ultimately adopted by almost unanimous consent a “competing measure”. The Legislature’s competing measure was designed to both mimic and frustrate the initiative. The terms of the competing measure moved  the state to its 55% school funding obligation six years from now, pushing off all significant new financial contributions to the schools (and pushing off tax relief to the property taxpayers that support the schools) into the outlying years, for legislatures in the distant future to deal with as they might.

During the fall of 2003 the debate raged over the airwaves and in the town and school meetinghouses across the state. Last November 4th, the voters spoke. 38% supported the “1A” citizen initiative. 35% supported the Legislature’s “1B” competing measure. 27% supported the do-nothing, neither-of-the-above, third option. A reasonable analysis of the vote concluded that fully 73% of the electorate voted to require the state to meet its 55% school funding commitment. The only difference of opinion was how immediately the state should fulfill its promise.

All of that was preparatory to this last legislative session. Because the school and municipalities’ “1A” initiative scored the highest plurality of support, it is required by the terms of Maine’s Constitution to be a stand-alone ballot question at the June 8th primary election. At long last, the initiative would be free of the legislative confusion and get a clean up-or-down vote. In the interim, all attention focused on the Legislature as its second  term began. The lens of perception had been cleansed. It was now time for Maine’s lawmakers to either act on tax reform or leave it to the voters to decide for themselves.

The Legislature moved the tax reform ball around the field during these last four months, that cannot be denied, but at the end of the day it punted.

It was not for a shortage of plans. If anyone ever questioned whether the Legislature had the capacity to develop a tax reform package, the answer is clearly ‘yes’. At least eight separate approaches to tax reform were developed over the legislative session, a veritable menu from which to choose. A brief summary of each of those tax plans is provided in the article that begins on page 11.

The various plans did not begin developing immediately, however. Little was done in January. It was only when the Secretary of State certified the Palesky tax cap petition on February 9th that legislative tax plans began to blossom, then metastasize. It seemed as though every lawmaker suddenly wanted to be in support of something, but each one of those separate somethings lacked political viability.

One reason the plans lacked political viability may have been the way they were put together. Not one of the eight tax plans was developed according to the normal legislative process, whereby a bill would be presented to the Taxation Committee, given a public hearing, be redeveloped during several public Committee work sessions, and finally voted on by the Committee and reported to the Legislature. The normal deliberative process was completely ignored. All eight tax plans at least those that were not born dead — traveled peculiar paths to their demise.

Election year politics certainly has a lot to do with it. Every proposal and every vote is examined and double-checked through the perspective of the political campaign in the fall and the November election. If not for the Representative’s or Senator’s individual election to the State House, then for the prospects of his or her party.

Every proposal, no matter how comprehensive in design or faithful to the principles of much-needed tax reform was reduced to its campaign soundbite, always replete with the “T” word. The most-used rhetorical argujment against the only tax relief bill that made it to the Legislature for debate – the House Democrats’ plan was  to this effect: “This bill calls for raising a tax to lower a tax…that’s ridiculous.”

From the perspective of election-year politics, it is apparently ridiculous to properly fund education at the state level. It is apparently ridiculous to secure the necessary resources to do so. 

In the closing days of the session it became clear that the interpartisan and intrapartisan  divisions were  too  deep and emotionally charged to allow for any compromise. The Legislature recessed for the April school vacation week, but came  back from the 10-day break locked in the same political intransigence. The usual function of leadership was unavailable.

The lawmakers who have contributed the least to the tax reform effort – those who pontificate about the need for “tax reform” but do absolutely no heavy lifting toward accomplishing the task – gleefully watched the contributing  legislators scramble their various proposals toward a doomed conclusion.

Doing nothing in an election year is perceived to yield the highest reward.