OVERVIEW: Plenty of municipal issues before 119th
(from Maine Townsman, December 1998)
By Geoffrey Herman, Director of State & Federal Relations, MMA
All 151 state representatives and 35 state senators in Maine were elected to office on November 3, 1998. While a few are making their first venture into state lawmaking, the vast majority have been there before (see "Profile of 119th Maine Legislature" in this issue).
After being sworn in and taking care of some organizational details on a Wednesday in December, this 119th Legislature will begin "taking up the peoples business" during the first week of January.
The Legislatures First Regular Session is the long session of the biennium, and generally runs from January to June. The First Regular Session is an "anything goes" session, and legislators are free to submit any type or number of legislative initiatives they see fit. This is different from the Second Regular Session, which will begin a year from now. During that short, three-month session, legislative initiatives are limited by the States Constitution to emergency measures, budgetary matters, the Governors legislation, citizen initiatives, and carry-over legislation.
This upcoming long session, therefore, is something like a huge brainstorming session, where hundreds upon hundreds of ideas will pour into the legislative hopper for consideration. The "cloture date", which is the final deadline by which all legislators must submit their legislative proposals, is December 18th this year. On the basis of the best information MMA had when this issue of the Townsman went to press, there were over 1,300 legislative"proposals submitted to the Office of the Revisor, with a week to go.
The beauty of the legislative process, particularly during this First Regular Session, is that it is so open, fluid, unpredictable, and organic. Out of the several thousand ideas that are brought before the Legislature for consideration, it is impossible to know which ones will take root and grow, and which ones will wither on the vine or fail to sprout at all. One characteristic of the legislative process that comes through when you watch it long enough is a certain quiet intelligence of the people of Maine that is working almost unobtrusively (and almost constantly) through what otherwise can appear to be pure noise and chaos.
This article highlights some of the significant municipal issues that have been before the Maine Legislature in recent years and the issues that will very likely be front and center before the Legislature in the upcoming first session of the 119th Legislature. The article is organized to address these issues according to their legislative committees of jurisdiction.
Appropriations and Financial Affairs
During any legislative session, the two primary issues of municipal importance taken up by the Appropriations Committee are the state budget and the bond package that will be sent to the voters for approval in November of 1999.
State Budget. Unlike municipalities, which establish a tax rate to raise the precise amount of revenue needed, the state establishes its budget on the basis of the projected revenues that are generated by (generally) unfluctuating sales and income tax rates. When the projected revenues fail to come in, or come in at higher levels than projected, the state budget needs to be adjusted in mid-fiscal year. State tax revenues fluctuate relative to the health of the states economy in an exaggerated way. A moderately strong economy brings in heavy revenues; a weak economy sends state tax revenues plummeting.
For the last decade the debate regarding the relationship between municipal finances and the state budget has been predictable. When the state was facing a revenue shortfall during the first half of the 1990s, MMA fought somewhat unsuccessfully to protect the integrity of the intergovernmental financial system, including education subsidy, revenue sharing, state reimbursement programs (such as Tree Growth reimbursement and reimbursements to county government for housing state prisoners), and a myriad of other state cost-share programs (such as sand-salt shed construction, landfill closure, and reimbursement for police time spent in District Court).
It has only been in the most recent year that the states revenue situation became unmistakably healthy, largely due to the growth in personal and corporate income tax revenues. MMAs position in light of the revenue surpluses has been to seek some level of general property tax relief as well as specific financial restoration to the municipal programs that were underfunded during the recessionary times. In this debate, municipalities fared better. The property tax homestead exemption was enacted into law, education subsidy (GPA) received an unprecedented 6% increase between FY 98 and FY 99, and over the last couple of years the Tree Growth and Community Corrections Act reimbursement programs have been restored to full statutory funding and the rate of police reimbursement for time spent in District Court was increased from $10 to $25 per day.
The Demise of the Structural Deficit. For the first time this decade, the administration is drafting a biennial budget without having to deal with the limitation of a "structural deficit". The "structural deficit" is the difference between the projected costs of operating state government over the next biennium and the governmental revenues that are projected to be available over that same period of time. In the early 1990s, the state faced a structural deficit of approximately $1 billion. Earlier this year, the projected structural deficit for the FY 2000-2001 biennium was estimated at nearly $400 million, but as the revenue picture came into sharper focus, that deficit shrank to a much more-manageable $40 million and then disappeared altogether. The demise of the structural deficit doesnt take the administration or the Legislature off the hook entirely. State agencies have identified hundreds of millions of dollars of "needs", and the legislative task of prioritization will be as difficult as ever.
Sales Tax Reduction. The disappearance of the structural deficit is all the more remarkable because it has come about despite a substantial reduction of sales tax revenues that was barely anticipated six short months ago. This automatic sales tax rate reduction was built into the sales tax law as a hedge against the sales tax rate increase from 5% to 6% that was enacted in the early 1990s. The section of law in question is why the sales tax rate increase was labeled "temporary" and essentially codifies the "promise" to reduce the increased sales tax rate back towards the 5% rate when the state could afford to do so. The 1993 law establishes an automatic reduction of the sales tax rate by one-half of a percent after the close of any fiscal year when General Fund Revenues exceeded the previous fiscal year by 8% or more. That trigger was tripped in the last month of FY 98 as a result of the strength of income tax revenues, which can be attributed to large capital gains resulting from the expanding values on the stock market and declining unemployment rate.
The result of this provision of law is that on October 1, 1998 the sales tax rate was automatically reduced to 5.5% for "general" sales. The reduction of the rate is projected to reduce General Fund revenues by $130 million over the next biennium. There will also be a $45 million revenue loss in the current biennium (through June, 1999), because the sales tax rate reduction occurred nine months before the end of FY 99. Because the Revenue Sharing program is funded, in part, by 5.1% of sales tax revenues, the gross result of the reduction of the sales tax rate will be an approximate $3.4 million loss in Revenue Sharing for FY 99 and $6 to $7 million in the next biennium. However, much higher-than-expected revenues in the income tax line and some additional growth in sales tax revenue will keep state revenues climbing, albeit at a slower pace. To put that in context, approximately $196 million in Revenue Sharing will be distributed to the municipalities over the next biennium compared to $177 million in FY 98-99.
Homestead Exemption. The Homestead Exemption program was enacted by the Legislature and successfully implemented in 1998, providing nearly $40 million of property tax relief to the nearly 310,000 Maine resident "homesteaders" who were granted the $7,000 exemption against the value of their "homestead". During the enactment of the Homestead Exemption, there was considerable skepticism expressed, both in the Capitol Building and elsewhere, regarding the Legislatures long-term financial commitment to this important property tax relief program. Although the Homestead Exemption program has a great deal of public support (nearly 90% of eligible homeowners participated in its first year), because of its size and newness some municipal officials are concerned that it may be viewed by legislators and Administration officials as an easy target to balance the state budget.
The Bond Package and the "90% Rule". For well over a decade, the overall bond package has been limited by the unwritten "90% rule", which holds that no more bonds should be issued in any biennium than 90% of the bonds retired during that same period of time. In the FY 97-98 biennium, the 90% rule limited the total value of the General Fund bond package to about $100 million. There is a sentiment among some legislators to revisit the wisdom of this 90% rule. Those legislators will point out that when measured according to the amount of debt service per capita, Maines debt service is easily the lowest in New England, and they will argue that the end-game of the 90% rule is microscopic bonding, which makes very little financial sense in a time of low interest rates when borrowing for capital items can be more financially prudent then buying those items with cash.
The typical bond package of recent years includes money for transportation projects, waste water and drinking water infrastructure, and landfill closure. In 1998, a large bond issue ($20 million) to invest in research and development initiatives in both the public (University) and private sectors was passed on to the voters, who approved the bond issue by a comfortable margin.
During the next biennium there is an anticipated need of $5 million for the state share of sand-salt shed reimbursement for the "Priority #3" communities. Proposals for large school renovation and construction bonds are also anticipated, as well as significant bond proposals for the public purchase of environmentally and recreationally important lands.
Business and Economic Development
Two Maines. "The two Maines" is a term that captures the economic development question that is likely to occupy a significant amount of the Legislatures agenda. According to every measure (unemployment rate, new job creation, development activity, demographics, plant closings, etc.) there is evidence that there is a higher level of economic prosperity occurring in southern Maine than much of the rest of the state. A great number of ideas will undoubtedly be generated to address the "two Maines" issue. It seems likely that the solution will not be found in any single enactment but rather in a number of integrated measures that deal with transportation improvements, educational opportunities, development incentives, and regional marketing initiatives.
Municipal Infrastructure. Over the last decade, MMA has advocated for a stronger municipal role in the states overall economic development program. Our arguments have been that the infrastructure created by municipal efforts is vital to any economic development initiative and municipalities should therefore: (1) have greater access to municipal infrastructure construction funds; and (2) not be effectively penalized for creating that infrastructure by rapidly losing education support and revenue sharing when the infrastructure succeeds in attracting new development. A municipal infrastructure trust fund was never funded, but the municipal interest in a greater role in economic development was realized through the Tax Increment Financing (TIF) law to provide for the so-called "credit enhancement" TIFs, which reduce the municipal risk in any local economic development initiative.
BETR Program. In 1995 MMA also supported the creation of the Business Equipment Tax Reimbursement Program (BETR). Under this program, businesses that purchase and install taxable personal property are reimbursed by the state for 100% of the personal property tax they pay to the municipality for the first 12 years of that personal propertys life. The BETR program is credited with encouraging the expansion and modernization of many businesses in Maine. It has been so successful in that regard that the cost to the state to provide for that reimbursement is expected to be $86 million over the next biennium, which is $34 million more than original projections.
Municipalities were supportive of the BETR program when it was created because it provided a strong incentive for capital investments and it had no negative impact on municipal revenues.
There are two elements to the BETR debate. First, there will undoubtedly be legislation offered to amend the BETR program to lessen its financial burden on the state. Some of the ideas discussed to accomplish that end are: (1) eliminate the program for retail personalty; (2) reduce the level of reimbursement from 100% of the taxes paid to 80% or 90% of the taxes paid; (3) reduce the number of years of BETR eligibility to something less than 12 years; and (4) eliminate the so-called BETR "double dip", which allows a company to obtain BETR reimbursement in addition to the equivalent reimbursement from the municipality under a TIF agreement.
The other element of the BETR debate began to surface in the late days of the last legislative session. Some legislators questioned why we have a BETR program at all. Why not, instead, simply eliminate the personal property tax in Maine and pay the affected municipalities the 50% of lost revenues to which they would be entitled under the Constitution? Although there are only nine or ten states in the nation which do not levy a property tax on personal property, advocates for eliminating Maines personal property tax often claim that Maine stands out alone by assessing a personal property tax. When the BETR program begins to cost more than $60 million a year, it would be cheaper, from the point of view of the state budget, to simply eliminate the tax and pay off on the 50% requirement. Under such a scenario, the municipalities would lose 10% of their tax base and be hammered with a revenue shortfall of $60 - $70 million a year.
Economic Development Incentive Commission. Most recently, the 118th Legislature passed a law that requires the compilation and communication of information to the Legislature associated with the economic development incentives provided to corporations by state and local government in Maine. This law established the Economic Development Incentive Commission which is charged with making recommendations to the Legislature as a result of its review and analysis of incentive programs and the benefits of the jobs created or retained by such programs as Employment Tax Increment Financing (ETIFs), municipal Tax Increment Financing (TIFs), the Research Expense Tax Credit, the Jobs and Investment Tax Credit, Maine Quality Centers, and the BETR program. It is likely that this new Commission will have a significant influence with regard to any economic development initiatives that are proposed during the 119th Legislature.
Education and Cultural Affairs
Historically, MMA has not actively lobbied many education issues. In particular, MMA stays out of the debate regarding the formula that distributes General Purpose Aid (GPA) revenues because changes in the formula invariably have disparate effects among MMAs 494 member municipalities. MMA has traditionally supported increases to GPA appropriations and has strongly opposed any mechanism for shifting the funding of teacher retirement from state to local taxes. In the 118th Legislature, MMA actively supported increases to education and closely monitored the "health and safety" school construction bill.
During the 119th Legislature, the Education Committee is likely to address the recommendations of the Task Force establishing benchmarks for the Learning Results legislation enacted in the 118th. The recommendations will include appropriate class size analysis and mechanisms for monitoring student achievement.
Although a proposal that would have amended the states Constitution to include a provision to provide all students with an "equitable and adequate" education failed, the discussions did raise concerns over the equity in the state/municipal education funding partnership. The Department of Education, in conjunction with an "essential services" task force on school funding, has developed some proposed changes to the school funding formula that would link the state share of education funding with the "essential services" any school must provide.
Against this background, MMAs members are making it increasingly clear that they are interested in advancing a greater focus on the municipal-school relationship. As is illustrated in the graph above, municipalities now collect about $720 million a year for the K-12 public schools in the state, which is over 60% of the $1.2 billion total that is generated every year by the property tax.
Setting aside the amount the state pays for teacher retirement (which is paid 100% by the state), the municipal contribution to education is $130 million more than the state contribution (General Purpose Aid to Education, or GPA). If you include the states contribution to teacher retirement, the contributions of state and local government are roughly equivalent. Since 1993, the local share of K-12 education has been pulling away from the states GPA contribution. Over the last decade, GPA has grown 29% while the local contribution to education has grown 71%.
Because of the enormous local contribution to education, and because the municipalities collect those revenues and have to answer directly to all the taxpayers for the local property tax burden, Maines municipal officers are seeking:
greater participation in the school budget development process;
greater specificity with respect to the various categories of school spending;
better communication about the budget to all the voters; and
clarified voter authority in the school budget adoption process, especially in the school district setting where it is more difficult for the voters to actively participate.
Inland Fisheries and Wildlife
Great Ponds. The most significant piece of legislation affecting municipalities supported by the Committee on Inland Fisheries and Wildlife in the 118th was the Great Ponds Task Force bill. As enacted, the law bans the use of personal watercraft on over 200 lakes in LURC jurisdiction, sets a minimum age for the operation of a personal watercraft, and through a two-tiered system authorizes municipalities to make recommendations for the regulation of watercraft on great ponds within municipal boundaries.
The new law authorizes municipalities, upon approval of the legislative body (or bodies, in instances where the great pond is located within more than one municipality), to submit to the Department of Inland Fisheries and Wildlife the municipalitys recommendations and enforcement plan for the regulation of watercraft on a great pond. The DIFW is then responsible to submit a report and legislation to the committee that if approved, would effectively enact the municipal recommendations supported by the department.
In the short time frame for submitting 1998 recommendations to the department (October, 1998), only three municipalities (Woodstock, Northfield and Bar Harbor) were in a position to enact any recommendations, and it is not entirely clear how the department is going to package those recommendations for legislative review. The bulk of municipal recommendations that are enacted will not be submitted to DIFW until the second round, during 1999, which the Legislature will review in the year 2000.
This municipal authority to enact recommendations to regulate watercraft activity is slated to sunset at the end of the 119th Legislature.
Year 2000. It is generally agreed that there will be some displacement of normal operations around the onset of the year 2000 because of some computers inability to "read" the correct date. Although almost all predictions suggest some level of disruption, there is a difference of opinion with respect to how serious the "year 2000" problem will be.
Some people believe that any entitys diligent attention to its computer hardware and software systems will ensure a fairly trouble-free transition into the year 2000. Other people believe that both network failures and the failures of embedded computer chips could shut down entire systems, including such governmental systems as wastewater treatment, traffic control, elevators and other operational functions in public buildings, and essential record-keeping systems.
Legislation is being considered in some states that would provide governmental entities with some immunity from liability associated with damages resulting from "year 2000" events. There may be legislation along these lines introduced in Maine to protect taxpayers against claims of governmental negligence over which the governmental officials have no meaningful control.
Workers Compensation. The 1992 reforms of Maines Workers Compensation System were challenged during the 118th Legislature as more than 30 workers compensation bills were submitted for consideration. If enacted, these bills would have acted to restore, in whole or in part, the structure of the pre-reform system that was held responsible for inordinately high insurance rates which, in turn, had a dampening effect on economic expansion. Largely due to a business-led grassroots effort to educate legislators, the bills were neutralized through compromise, defeat in the House or Senate, or gubernatorial veto. There is an expectation, however, that the advocates for reform will reintroduce what they consider to be proposed improvements to the system during this 119th legislature.
Teacher Retirement System. In recent years, pressure to relieve the state burden for teacher retirement by shifting at least a portion of that burden to municipal budgets has increased along with the growth of the unfunded liability in the State Retirement System (as of June 30, 1998 pegged at approximately $2.5 billion). That same pressure could produce bills in the 119th Legislature that seek to shift the costs, but allow no decision-making responsibility for how the costs are incurred. The cost of the teacher retirement system, separated from state employees, is projected for FY 99 alone to be $161 million.
Legal and Veterans Affairs
Initiating Referenda. In some sectors, it has been the perception for a number of years that it is too easy to initiate a state-level referendum by citizens petition, which under state law must have as a minimum the number of signatures of qualified voters that is equal to 10% of the voters that participated in the last gubernatorial election. During the four year period before November 3, 1998, that number was 51,131. Because of a lighter voter turnout for this years gubernatorial election, the number of required signatures is now only 42,101, and this reduction in the number of required signatures is likely to increase the underlying perception. Two different approaches may be brought to the Legislature for consideration in 1999. The first approach would increase the number of signatures needed to initiate the petition process (currently, five signatures are needed). The second would increase the number of signatures needed to send an issue to referendum. The current standard, 10% of the number of people that voted in the last gubernatorial election, is merely a minimum set by the state constitution.
Historically, with a couple of exceptions, MMA has not advanced legislation in the environmental area, but the Association is quickly drawn into that type of legislation because the structure of much environmental law in Maine involves the state setting some overall policy which the municipalities carry out. The Shoreland Zoning Act is an example of that structure, as is the states solid waste management system. Even the review of major development is devolving onto a (generally willing) municipal government through changes over the last several years to the Site Location of Development Act.
During the upcoming session, the Natural Resources Committee will address issues in the areas of solid waste management, the National Pollutant Discharge Elimination System (NPDES) state delegation of federal responsibilities, reauthorization of the toxics use reduction law, and federal Clean Air Act requirements. The committee will revisit the use of methyl-tertiary butyl ether (MTBE) in reformulated gasoline, required by the mandated air emission reductions of the Clean Air Act. Given the results of this summers well testing showing MTBE contamination in Maines private drinking water supplies, standards for appearance of this compound will be reexamined and renewed interest in wellhead protection will stimulate additional legislation for this committee along with the Health and Human Services Committee.
Drinking Water. Environmental degradation that is the ironic result of environmental protection efforts will challenge the 119th Legislature. Reformulated gasoline (RFG), mandated for use in Maines six southern counties but supplied to all counties due to gasoline distribution system factors, uses MTBE as an oxygenation agent. MTBE is a "perfect pollutant" because it is extremely water-soluble and easily dispersed, unlike other constituents of gasoline. This perfect pollutant has appeared in Maines drinking water and has been blamed for health effects at very low concentrations. The 119th Legislature will wrestle with alternatives to MTBE and to the RFG program.
This summer, the Department of Environmental Protection (DEP) issued a 5-Point Plan for dealing with MTBE contamination. The plan required testing of water supplies and wells, intensive analysis of alternative fuels, a legislative initiative on wellhead and water supply protection, a work group to improve communication between state agencies and local officials, and a waste gasoline disposal system and education program. While no public water supplies were found to be contaminated with levels of MTBE above 35 parts per billion (ppb), nearly 16% of private household supplies tested were contaminated. Extrapolated statewide, the detection levels indicate that 1000-4300 private wells in Maine are contaminated with levels of MTBE above the drinking water standard of 35 ppb.
Wellhead Protection. Driven with new energy provided by the MTBE issue, mandatory wellhead protection proposals in the 119th Legislature will be aimed at development of more stringent wellhead protection standards. A DEP/DHS-organized working group has been meeting on that topic as part of the 5-Point Plan.
Mercury. Ironically, the current Maximum Contaminant Level (MCL) for mercury in drinking water is 200 parts per trillion (ppt), but no mercury may be discharged in wastewater. A new, much more sensitive, testing method for mercury in wastewater effluent can now detect minute amounts, making it impossible for Maines wastewater treatment facilities to meet statutory discharge requirements. The new Legislature will be asked to find a way to deal with the problem, choosing between extremes of relaxing the "no discharge" statute, or holding wastewater facilities accountable for fines and penalties associated with unavoidable violations.
Shoreland Zone: Buffers. The 118th Legislature charged DEP with the task of consulting with interested parties before developing a report to be presented to the 119th Legislature that would evaluate the options for encouraging or requiring the creation and maintenance of buffer strips along water resources, including the small streams in Maine.
Specifically, this "Development Buffer Work Group" was asked to think about changing the Shoreland Zoning Act to include "first order streams" in the shoreland zone. First order streams are the smallest streams, before two stream channels come together. Currently, mandatory shoreland zoning does not apply to first order streams, but instead begins with second order streams that exist where two perennial streams join.
After many meetings of the working group the final DEP recommendations to the Legislature are likely to focus on educational efforts to improve the publics understanding of the importance of buffering streams with vegetation, incentives to reward landowners who voluntarily build and maintain effective stream buffers, and an expansion of the role of the Natural Resources Protection Act (NRPA) as a regulatory tool that would apply shoreland zoning-type timber harvesting restrictions to a 25 foot buffer on either side of first order streams. The NRPA is administered directly by the DEP, although sometimes local code enforcement officers lend a hand with respect to NRPA administration.
Shoreland Zone: Septic Systems. A Subsurface Wastewater Disposal System Inspection Program work group evaluated options and developed recommendations for identifying and upgrading substandard septic systems that are located in the shoreland zone. While legislation mandating an inspection program was expected from this group earlier in the process, DEP has determined that the issue requires more research before such a program can be developed.
The approach that is being advocated at this point would merely encourage or require the transmission of more information between buyer and seller regarding the status of the septic system when property in the shoreland zone is transferred. These informational goals would be accomplished through statutory changes that would inform the real estate buyer of what to look for in determining prior malfunctions, problems expected from old systems, benefits and limitations of professional inspections, and information specific to the system being purchased.
Solid Waste. The mission of the DEP-organized Solid Waste Working Group was to "undertake a comprehensive review of the states solid waste management policies and program needs, and develop recommendations on revenue, policies, and structure that meet those needs and provide a stable funding base for the next decade."
The working group was made up of about 40 "stakeholders" and state agency employees. The results of an MMA-sponsored survey of municipal officials concerning solid waste issues was used to help form some of the recommendations of the Solid Waste Working Group and to provide data for municipal advocacy efforts. The essential issues in this review were whether the states financial support of solid waste management is sufficient since the state contributes zero general fund dollars to either the DEP or State Planning Office (SPO) solid waste management programs, and whether the waste fee-assessment system is fair that taxes consumers, industry, and municipalities to fund both the DEP and SPO programs.
The result of the Working Groups effort was a recommendation to the Commissioner of the DEP (Ned Sullivan) and the Director of SPO (Evan Richert) that: 1) the state should make a contribution from its General Fund to support its informational and general data gathering services that are provided directly to the general public; and 2) the waste management fees should be adjusted to reduce the current waste fee that applies to municipal solid waste when it must be landfilled and otherwise equalize the special waste fee schedule so that the same fees apply whether the special waste is landfilled in a commercial or a municipal facility.
State and Local Government
Service Center Communities. In something of an analogy with the "two Maines" issue (discussed above, under Business and Economic Development), there is another simple term that has come into current use that describes a complex set of issues related to local government, and that is the "service center" concept.
As described in a recently issued report prepared by a legislative Task Force on Regional Service Center Communities, there are 69 municipal "service center" communities in Maine, and an additional 26 municipalities identified as "specialized centers", all of which serve a function of providing opportunities and services that benefit a larger region. At the same time, the services provided can create special burdens on the "service center" communities themselves.
The centerpiece of the Task Forces report is that the well being of all the municipalities in Maine is contingent on the general good health of the service center communities, where the citizens of the state typically go to work, shop, find entertainment, receive their health care, etc.
As is also the case with the "two Maines" issue, there is not likely to be a single, blockbuster piece of legislation that will revive those particular service center communities that are dealing with out-migration, escalating tax rates, shrinking tax base, and ever-increasing demands on services. It is much more likely, instead, that a number of legislative initiatives in the areas of transportation (Local Road Assistance), taxation (tax exempt property), education (support for special education), land use (planning grants, regulatory flexibility), and economic development (municipal infrastructure grants) will receive some advocacy impetus because of the benefits they provide to the states service center communities.
The states tax policy has been a front-and-center issue of the Maine Municipal Association for at least a decade. The amount of revenue that is generated by the property tax ($1.2 billion in FY 98) compared to the revenues generated by the sales and income taxes ($833 million and $1 billion, respectively) suggests that there has developed over time too heavy a reliance on the property tax. This suggestion is supported by opinion polls that show the property tax to be the most disliked tax in the system.
Comprehensive Tax Reform. In 1997, MMA advocated "comprehensive tax reform" whereby the sales tax base would be expanded to capture more services that are currently provided tax-free, and the additional revenue would be used to lower the property tax burden through a homestead exemption. In addition to addressing the property tax burden, the rationale for this initiative was to reduce the volatility of the sales tax. The volatility of a sales or gross receipts tax is generally reduced when the base is expanded.
In 1998 the Legislature addressed concerns about the property tax by enacting the $7,000 property tax homestead exemption which provided nearly $40 million of property tax relief to Maines resident homeowners in 1998. For comparison purposes: $90 million a year is distributed through the Revenue Sharing program; $23 million in individual property tax relief through the "circuit breaker program"; $20 million a year in business personal property tax reimbursement; and $19.5 million a year from the Highway Fund (more recently through bonding) for the Local Road Assistance Program.
Tax Exempt Property. An aspect of the property tax code that has also received considerable municipal attention over the last decade has been the law that governs tax exempt property, particularly the property belonging to benevolent and charitable organizations. From the municipal perspective, there are no meaningful standards of eligibility for that tax exemption. In the absence of any standards, organizations with IRS Code 501(c)(3) status believe themselves to be automatically eligible for the property tax exemption. Municipal assessors complain about organizations that provide health care services, for example, that appear to be deliberately reorganizing themselves as non-profits for no other reason than to obtain tax exempt status. There are also complaints about non-profits that are providing services, perhaps as a restaurant or exercise/fitness center, that compete with and undercut the private sector, which is a legal practice provided the exempt entities use the income from those activities to further support their charitable activities.
MMA has repeatedly over the last decade tried to get the tax code amended to either put some standards of eligibility into charitable exemption law or to get the charitable organizations (or the state on their behalf) to provide some payments in lieu of taxes (PILOTS) to the municipalities that have a large amount of tax exempt property. Aside from limiting the tax exemption in 1993 to 50% for certain housing projects that convert from a for-profit to non-profit status, the Association has never been successful in that effort.
Tree Growth. As discussed earlier under Appropriations and Financial Affairs, the so-called "90%" reimbursement to municipalities for the tax revenues they lose because certain properties are enrolled in the Tree Growth "current use" taxation system was restored to full funding in 1998 after being underfunded throughout the 1990s. Unfortunately, theres a new Tree Growth glitch on the immediate horizon which will take a legislative tweak to remedy.
At issue is a requirement that has been on the books for some time that establishes April 1, 1999 as the final deadline for all property owners who have land enrolled in the Tree Growth program to prepare a forest management plan. Those forest management plans must be prepared, or at least reviewed and signed by, a licensed professional forester. Under current law, a certification that the plan has been prepared (rather than the plan itself) must be submitted to the municipal assessor by the April 1, 1999 deadline in order for the property to remain in the Tree Growth program. Failure to provide such a certification by that deadline would automatically disqualify that property for eligibility for the special Tree Growth assessment rates, and its disqualification from the program would also trigger the special assessment of certain financial penalties for withdrawal.
According to surveys conducted by the Maine Forest Service, there are approximately 9,000 non-corporate woodlot owners with property enrolled under Tree Growth, and more than 2,000 of them may have trouble meeting the April 1, 1999 deadline. There are a variety of reasons, apparently, for the failure or inability of these property owners to meet the deadline. In many cases, an all-too-human tendency to delay got caught up in an inability of the licensed professional foresters in Maine to meet the heavy demand, in part because of the extra work facing those foresters as a result of the January, 1998 ice storm.
While the idea of providing an additional extension for this requirement is unappealing for a number of reasons, a plan is being discussed that would take some of the pressure off the April 1, 1999 deadline as long as those property owners are able to obtain a completed management plan in calendar 1999 or obtain a contract within calendar 1999 that will guarantee a completed plan within a 12-month period from the execution of the contract. The value of this approach is that it reinforces the ultimate need to develop a forestry plan as a simple matter of accountability, it releases some pressure from a deadline that will not be met by a significant number of landowners, and it doesnt simply create a new April 1st deadline into the future, which could encourage an element of procrastination.
At least five issues of municipal interest are expected to be heard before the Transportation Committee in the 119th. The focus of the Department of Transportation (DOT) will be on stretching the value of each dollar that is allocated to DOT to address Maines deteriorating road infrastructure. According to the departments most current estimates, there are currently 4,200 miles of deficient "federal highway", "arterial", "major collector", and "minor collector" roads, representing $1.5 billion in resurfacing and rehabilitation costs for the states 8,760 miles of roadways. These rehabilitation needs, coupled with the Bureau of the Budgets anticipated $55 million structural gap in the Highway Fund, has DOT examining all avenues for efficiently and effectively expending federal and state funds.
20-Year Plan. To address Maines deteriorating infrastructure, the DOT has submitted, as a part of its budget, a $1.3 billion, 20-year plan that would fund improvements to 1,259 (30%) of the states deficient road miles. If approved by the Governor and Legislature, this plan would predominately address deficient "federal highway" and "arterial" roads, but only 40% of the "major collector" miles. Due to funding shortfalls, the 1,700 miles of deficient "minor collector" roads, estimated to cost $360 million to repair, would not be addressed by DOT for another twenty years. However, DOT would propose to address the minor collector road system through a restructuring of the Local Roads Assistance Program (LRAP).
Local Road Assistance Restructuring. Since its inception, the LRAP program has been flat-funded at $19.5 million per year. In the past ten years, fluctuations in Highway Fund revenue, which have not been enormous, have had no impact on the LRAP allocations to municipalities. Furthermore, to address the funding shortfalls in recent years, the LRAP was partially funded through two bond referenda in November of 1997 and in June of 1998. Because bonds are issued to fund capital improvements, this funding solution required municipalities to use the bonded revenue (50% of the total LRAP appropriation) on capital improvements. According to DOT, it turned out that the municipalities spent 85% of the LRAP revenue on capital improvements, in aggregate.
Once again, as DOT prepared its biennial budget, it was faced with both funding shortfalls and reluctance from municipalities to hang LRAP out as another bond issue. In order to address funding shortfalls, municipal concerns, and road infrastructure deficiencies, the department turned to the municipalities for assistance.
MMA created a transporation advisory committee, a group of municipal officials who met throughout the summer with the department to develop a comprehensive transportation funding plan. The MMA Transportation Advisory Committee, consisting of twenty-four municipal officials from urban and rural municipalities, has submitted a plan to DOT to repair the state road infrastructure for its consideration. The committees comprehensive recommendation, which is described more fully in "MMA Legislative Agenda" article in this issue of the TOWNSMAN, addresses the continued existence of the Local Road Assistance Program, a restructuring of the system by which state and local dollars are committed to the states "minor collector" roads, and alternative sources of revenues to meet the shortfall in highway funding. The goal is to develop a comprehensive transportation funding package that does not rely on bond revenue for local roadway capital and creates a stable source of revenue for local/state road repair.
Sand/Salt Facility Cost-Sharing Program. Over the summer the DOT and Department of Environmental Protection (DEP) have been reevaluating the salt and sand storage facility cost-sharing program. This program, enacted in 1987, established a municipal/state cost-sharing program for the purpose of building sand and salt storage facilities. Based on an environmental priority rating assigned by the DEP, municipalities are required to build permanent storage facilities according to a schedule established in statute. Priority ratings, ranging from 1 (high) to 5 (low), are assigned to each sand/salt pile location based on that locations impact on groundwater contamination. To date 70 municipalities have built and received funding for their storage facilities, 37 have built their storage facilities but have not been funded and 348 remain unbuilt and unfunded. Thirty-three of the built-but-not-funded facilities were constructed in relatively low priority locations and they were built before they had to be, according to the statutory schedule.
Based on DOTs funding shortfalls, and as a follow-up to some legislation submitted in the 118th Legislature that would have funded all built facilities, DOT has been meeting with representatives from the Legislature, DEP and municipalities, to address concerns over the program. It is anticipated that from the work of this group, legislation will be submitted that will phase-out the program in the next four years. Also, it is possible that the mandate to build facilities will be removed from the priority #4 and #5 ranked locations. Other considerations include the reprioriti-zation of sites for environmental impact on surface water as well as groundwater, and changes to the funding formula to reflect more recent sand/salt usage rates. The Legislature will also have to decide when to fund the facilities in municipalities that were built before the statute required their construction.
West/East Highway. As part of the supplemental budget in the second session of the 118th, the Legislature commissioned the State Planning Office, Department of Transportation and the Department of Economic and Community Development, to study and report on the economic and trade issues associated with the development of a west-east highway. The State Planning Office has been studying how the west-east highway could impact three specific factors:
1) the flow of Canadian traffic and commodities;
2) the potential increase in tourism traffic; and
3) the potential economic benefits of travel time and cost savings to existing and future Maine businesses which trade with Canadian and Midwestern U.S. Markets.
It is anticipated that the State Planning Office will submit its findings to the Legislature in January.
Law Enforcement Officer Reimbursement. Also enacted during the 118th Legislature was a $15 increase to the $10 per day flat rate reimbursement to municipalities and counties for sending police officers to District Court. Prior to the state budget crisis of 1991, the municipalities were reimbursed at an hourly rate for the police officers time in court. Since 1991, the reimbursement rate has been $10 a day. An MMA study shows the actual cost to the municipality of sending a police officer to District Court to be approximately $65 per day. Although the legislation submitted called for a $40 per day reimbursement, the Legislature appropriated only enough funds for a $25 per-day reimbursement.