LEGISLATIVE AGENDA: Fairness, accountability and investment
(from Maine Townsman, December 1998)
By Geoffrey Herman, Director of State & Federal Relations, MMA
Immediately after its membership was elected in July of 1998, MMAs 70-member Legislative Policy Committee (LPC) began the work of developing the Associations legislative agenda for the consideration of the 119th Legislature. MMA staff prepared a Legislative Status Report to give the newly elected membership some background on the various issues the Association has been working on during the last decade. A Legislative Issues Survey was provided to membership for the purpose of framing the Associations legislative priorities.
The LPC met on September 17, 1998 and began to give form to the Associations legislative agenda. To assist in that effort, the LPC created a number of subcommittees to work on the details of the various legislative initiatives that were being reviewed. During MMAs annual convention in October, 1998, the full municipal membership was provided a review of the draft legislative agenda as it had been developed up to then.
Finally, on November 12, 1998, the LPC voted to adopt the following agenda. The themes that underlie the three planks of the platform are fairness, accountability, and investment.
Tax Exempt Property, Telecommunications Property, and Fairness
There are two taxation issues that the Association would like to address.
Tax Exempt Property. The municipal concern with the states policy on tax exempt property runs long and deep, and is grounded in a fundamental belief that as the Legislature has granted various property tax exemptions over the years, the result is an unquestionably unfair distribution of tax burden among the non-exempt taxpayers both those taxpayers within the community where the exempt property is located and among those taxpayers in the many communities throughout a region.
For decades municipalities have been asking the Legislature to establish some meaningful standards of eligibility for "benevolent and charitable" organizations, which is an umbrella category of exemption under which more and more organizations seek tax shelter. Municipalities are seeking some objective, verifiable standards by which organizations can be judged as to their true "charitable" nature.
In addition, Maines towns and cities are seeking an equitable level of contribution from all non-municipal exempt properties as a matter of fairness. The Legislature grants the exemption, but the municipalities must assess their non-exempt taxpayers to pay for the exemptions granted by the Legislature. The impact falls unevenly and disparately throughout the state.
To address those concerns, MMA has prepared a proposed amendment to the exemption statute that has two components.
Standards of Eligibility for a Charitable Organization. There is approximately $10 billion worth of tax exempt property in Maine; a state with less than $70 billion worth of total taxable property. Approximately $3 billion worth of that exempt property belongs to non-governmental entities, and about $1 billion worth of all non-governmental exempt property belongs to a category of exemption for "charitable organizations". There are no real standards of eligibility for this category of exemption except the property must be owned by a non-profit corporation and have a "charitable" purpose. There is no statutory definition for "charitable purpose" and so there are no standards of eligibility that a municipal assessor can use to judge an applicants entitlement to this tax break. The definition that Maines Law Court has cobbled together over the years in this statutory vacuum has culminated in sharply split decisions with the disagreement rooted in the fundamental lack of eligibility standards (see Episcopal Camp Foundation v. Town of Hope, 666 A2d. 108 (1995)).
The MMA proposal addresses this problem by creating three standards of eligibility.
The first standard, very simply, requires that the charitable organization either provide a significant portion of its services to people deserving of charity or in some other way relieves the government of its burden. This standard is the core of the definition Maines Law Court has developed, and it essentially allows the municipal assessor to seek from the exempt entity a clear identification of the actual charitable service it provides.
The second standard establishes a link between the salaries and benefits that are provided to the employees of the charitable organization and the pay ranges applicable to the job duties of those employees as published by the states Department of Labor every year in a book entitled "Maines Occupational Wages". This standard is added to prevent for-profit entities converting to non-profit exempt entities, and then burying what used to be profits into the wage and benefit package for the organizations officers.
The third standard creates a clear reporting requirement so that the taxpayers in the general region of the exempt entity will be clearly informed by that charitable organization, through a published report, about the nature of the charitable services are that are being, at least in part, provided at taxpayer expense.
Phased-In Reduction of the Depth of Exemption. Under current law, almost all organizations that are exempt from property taxation are 100% exempt. (There is a single exception to that general rule with regard to federally subsidized low-income housing projects that converted from a for-profit status to a non-profit status after September 1, 1993 , which are entitled to only a 50% exemption.) There is nothing in Maine law, however, that requires exemptions to be all-or-nothing. All property has to be assessed at its full value, by the terms of the states Constitution, but the Legislature is free to grant exemptions at any depth it feels appropriate. The second component of MMAs proposal would gradually reduce the level of exempt status for most exempt properties from 100% to 60% over a 10-year period. The purposes of this amendment are essentially two-fold:
First, the phased-in approach would allow the relationship between the assessor and the owner of the exempt property to be re-established in a gradual way, and the financial impact on the owner of the exempt property would also be gradual and predictable.
Second, and most importantly, the exempt institutions would become financially responsible for the municipal services that they receive directly. The reason the ultimate exemption is targeted at 60% is because 60% of the property taxes collected, statewide, are used to fund K-12 education, and therefore should not be assessed against the exempt institutions which (except when housing is created) do not add burden to the local educational system. The remaining 40% of the property tax commitment, however, is required to provide fundamental municipal services to the owners of the exempt properties, such as road construction and maintenance, and police, fire and rescue protection. Even exempt entities should be helping with these costs.
Under the MMA proposal, some exempt institutions would retain their 100% exempt status. Those completely exempt entities would be the owners of federal property, municipal property, church property, open land that has no structures on it, and the low-income housing property that is already limited to the 50% exemption.
Telecommunications Property. Beyond the issue of tax exempt property, the municipalities are seeking to obtain property tax jurisdiction over the personal property of telecommunications companies. For reasons that are not entirely clear, the state levies a property tax on telecommunications personalty, not the towns. The state uses an across-the-board tax rate of 27 mills for this purpose. This is the only exception of its kind. All other property of utility companies that is subject to taxation falls within municipal tax jurisdiction. Much of this utility property is located in the municipal right-of-ways, but state law prohibits municipalities from charging any fees to for-profit utilities as compensation for their use of the municipal right-of-way.
The municipalities do not understand why the personal property of telecommunications property is treated differently from all other property under Maines tax code. There does not appear to be any rational justification for the special treatment of this property.
Although the relationship or nexus between a persons tax obligation and the services they receive from the government levying the tax is never perfect, and at times is very weak, fundamental property tax policy holds that there is some relationship between the ownership of property in a community and the role of the local government to maintain a system that serves or protects that property. The owners of all other utility property in Maines towns and cities either contribute to the local government treasury just like all other property owners, or are exempt from taxation as governmental property. The exception to the general rule is with respect to the owners of most telecommunications property.
According to the states figures, there is approximately $1 billion worth of telecommunications personalty that is being assessed by the state. Contrary to the completely open records of virtually all municipal property tax assessment, no one is able to learn from the state, under its rules of confidentiality, where this property is located and whether it is being accurately assessed.
Maines towns and cities are responsible for maintaining the infrastructure that supports the location of the vast majority of the personal property that is being assessed by the state. The municipal position is that the tax jurisdiction of all telecommunications property belongs with the municipalities.
Returning telecommunications property to municipal jurisdiction would:
Provide the tax revenues to the level of government that is expending funds to maintain the public right-of-ways and other infrastructure that supports and protects telecommunications property;
Reduce the mill rate demand on the property by nearly 40% (from a flat rate of 27 mills to an average, state-wide equalized mill rate of 17 mills);
Ensure that the property being assessed is properly valued and accounted for according to the open, accountable assessing system that is used at the local level for all other property; and
Remove the tortured distinction between two-way interactive telecommunications personal property (taxed by the state) and one-way telecommunications personal property (taxed at the local level).
K-12 Education and Accountability
In a break from recent tradition, the municipalities, through MMA's Legislative Policy Committee, have made it clear that there are issues regarding the delivery of K-12 educational services that the Association should be attempting to address. If the issues surrounding tax exempt property boil down to fairness, the education-related issues boil down to accountability. When municipalities use the word "accountability" in this sense, they do not mean to suggest that money is being mismanaged, misdirected, or unlawfully spent by the states 258 school units. They mean, instead, that the existing system by which school budgets are developed, adopted, and administered appears designed to be somewhat exclusive of the input of the municipal officers who must collect the revenues, disrespectful in some degree to the fundamental voting rights of the electorate, and contrary to the principles of categorical appropriation (or line item budgeting) that are the centerpiece of both municipal and state government budgeting.
To address these concerns, the MMA will be seeking changes to state law that will:
Create a uniform line-item format to which school budgets must conform unless an alternative school budget format is adopted by the voters of the school unit; and
Ensure that when the voters in a School Administrative District have elected to adopt the school budget by referendum, the referendum method is adhered to.
There is an additional quirk in education law that MMA is seeking to address because it appears to disadvantage local government as an employer. There is currently an odd discrimination in state law regarding the rights of school teachers to unlimited leave-of-absences to serve as legislators. All employers in Maine, if they have at least 5 employees, must grant a leave of absence as may be necessary so that an employee can serve as a legislator. It is something akin to an employers duty to allow an employee to serve on jury duty. For all employers except local government school units, the mandate to grant the employee a leave of absence is lifted after the employees first (two year) legislative term. After that, the employer has the right to deny continued leaves, presumably on the grounds that it would be in the employers greater interest to have the employee at work than in the legislature. For some reason, school boards do not have the same authority all other employers have, and school teachers have a right to their leave of absence as a legislator for an unlimited number of terms. The municipalities are seeking to create a single standard regarding the entitlement for a legislative leave of absence that will apply to all employees and protect the rights of employers to assert some priorities with respect to the direction of their employees service.
Transportation and Investment
The Commissioner of Transportation and a transportation working group made up of municipal officials have developed a plan to address two issues regarding roads in Maine and their proper upkeep and maintenance.
Local Road Assistance Program. One issue is the formula that distributes about $20 million of the states $220 million Highway Fund to municipalities for their local roads through the Local Road Assistance Program. The Local Road Assistance Program has been flat-funded at $19.5 million per year since 1989.
Under the proposal endorsed by MMA, the formula that drives the road assistance program would be changed to provide substantially higher payments to those municipalities that have taken over the responsibility of maintaining the "compact" sections of State Aid roads. This additional road funding for the communities undertaking additional highway maintenance and construction services would not come at the expense of Maines more rural communities.
A second part of the proposal addresses how state funds can be more rationally allocated to the repair and reconstruction of all the "minor collector" State Aid roads. The many components of the plan, which has received the endorsement of MMAs Legislative Policy Committee, are summarized as follows:
Local Road Assistance funding would be linked to a fixed share of the Highway Fund, rather than a flat amount. This would create a program more similar in structure to municipal revenue sharing;
Local Road Assistance funding would be increased to those municipalities that undertake the maintenance and repair of State Aid roadways;
No communities would lose local road assistance funding because of changes to the distribution formula;
Municipalities that do not provide winter maintenance on state highways would be required to use all local road assistance funds from the Highway Fund for capital construction;
A matching program would be created so that whenever municipalities choose to put the Local Road Assistance funds they receive from the Highway Fund into "minor collector" State Aid roads they will receive matching funds from the DOT for those projects.
Right of Ways. Another issue dealing with the municipal investment in the right-of-way concerns the limitations under current law with respect to the costs a municipality can recover when utility companies excavate into our local roads. Maine law prohibits municipalities from charging any fees to public or private utility companies for the use of the municipal right of ways except for some nominal road construction fees associated with the actual cost of repaving an excavation caused by the utility. That law is outdated in several respects. It applies only to "cities" and not "towns". It does not allow the municipality to recover some of its direct costs associated with the utility excavation, such as the costs of inspecting the utilitys construction work. Finally, it does not clearly allow the municipality to adequately address patchwork cutting that is performed on local roads by utility companies. Patchwork excavations in roads significantly depreciate the roads quality over time.
Land Application of Biosolids
The final element of the Associations legislative agenda is concerned with the relationship of Maine law to a municipalitys authority to regulate the spreading of wastewater treatment plant sludge on the farmland within that municipalitys jurisdiction.
Under current law, a town is authorized to adopt ordinances that regulate the spreading of sludge provided the standards adopted by the municipality are not more strict than the standards contained in Maine law or in the regulations adopted by the Board of Environmental Protection.
Approximately 20 such ordinances have been adopted in Maine. There is confusion regarding the degree to which a municipality may exert home rule authority within this partial preemption of home rule. What is not clear is what "stricter" means in every circumstance. It is also not always clear what "standards" are and what they are not. For example, the states rules require the material to be batch-tested at the point of generation, not at the spreading site. If a municipality wants the actual sludge that is going to be spread in that municipality tested for the various parameters that the state license also requires, is that a "stricter standard"? This is the type of question municipalities often ask when drafting their ordinances.
The subcommittee of the Legislative Policy Committee that was working on this issue recognized that the practice of landspreading biosolids has significantly different implications for municipalities depending on their circumstances. For the more urban municipalities without any agricultural land, the practice of landspreading wastewater treatment plant sludge reduces the bottom line cost for the ratepayers or taxpayers, is supportive of the states goals of minimizing the use of landfill space whenever environmentally feasible, and is found by the states Department of Environmental Protection to be safe when carried out according to the existing regulations. From the perspective of municipalities with dwindling agricultural land, an additional advantage is that the practice provides some financial support (by means of avoided lime and fertilizer costs) for the struggling agricultural base. For municipalities that have relatively small populations and significant agricultural property, the practice is often considered objectionable by the residents most affected by the practice, who tend to seek regulatory mechanisms to ensure that the practice is strictly regulated.
Given this spectrum of interests among the municipalities, the Legislative Policy Committee is seeking a clarification of the balancing act that characterizes current law on this subject. The balance MMA is seeking would provide those communities on the receiving end of the biosolids pipeline more specific information about the chemical constituents of the material that is being spread within their borders. At the same time, the clarification would be designed to ensure that the municipalitys right to obtain more specific information would be controlled in such a way that excessive testing procedures, which can be prohibitively expensive, would not be allowed. The goal is to improve the comfort level among the municipalities receiving this material so that they may rest assured about the overall safety of the landspreading program.