State sees revenues declining

Posted Nov. 16, 2008, at 10:24 p.m.
Last modified March 20, 2011, at 6:16 a.m.

AUGUSTA, Maine — Maine governments are facing a triple whammy in the current recession, with the three major sources of revenue for state and local governments all in decline, as well as other revenues, something that has not happened in decades.

“We are seeing the income taxes, the sales taxes and property values all go down in this downturn,” said Maine Revenue Service chief analyst Mike Allen. “We have not seen that in a long time.”

But, he said, Maine may not be as hard-hit as some other states. He said history indicates Maine tends to take longer to feel the effects of a recession, and that the impacts are not as deep but tend to last longer in the state.

“That’s true,” said University of Southern Maine economics professor Charles Colgan. “But, we don’t know if that will be the case this time.”

Colgan also serves as chairman of the Consensus Economic Forecasting Committee. That state group is projecting wage and salary employment will be down seven-tenths of a percent in 2009, but will start to grow in 2010.

The state gets more than two-thirds of its revenue from income taxes and the sales tax, and neither is meeting projections made in June. Allen said state revenues will be as much as $150 million below estimates for this budget year, and that could grow if efforts to stabilize the national financial markets are not successful.

“While there are differences in Maine, the national trends are still the big force in Maine’s economy,” he said.

Both Colgan and Allen said what makes this recession more difficult for state revenues than the 2001 or 1991 recessions is that in both only one of the major taxes took a big hit.

“In 2001, we certainly took a big hit on the income tax,” he said, “but sales tax revenues held us up. Interest rates were low, there were big promotions to sell cars, and people were still buying things. That is not true this time.”

Allen said the mortgage foreclosures and plunging property values in other states will have an impact in Maine, but said local municipalities can raise tax rates to make up for lesser property values.

Geoff Herman, director of state and federal relations with the Maine Municipal Association, said the annual growth in value has come to a halt, but he has not seen the actual property value decreases reported in other states.

“I think we will see some as properties are sold and we get that sales data,” he said. “We may also not see as big an impact as other states because we do not do revaluations as frequently as some states.”

A property tax bill has two components: the value of the property and the rate of the tax set by the city or town. While municipalities have been able to see revenue growth without raising the tax rate, Herman believes those days are over and local officials are looking at budget cuts to avoid raising rates.

“Some municipalities have not revalued properties, and when they do they will see the impact of lower values,” he said. “Others, like the city of Bangor, look at comparables every year and set their property values with them.”

Property values are figured using two methods. One is where professional assessors visit each property and assess a value based on both location of the property and its condition. For example, building a new attached garage would add to the value of the property.

The second common method is to use the sales of properties in a neighborhood to assess the value of other properties in that neighborhood. That is the “comparables” used by Bangor in assessing values.

Local governments also are being hurt in other revenues they count on to pay for municipal services. For example, they get a 5.1 percent slice of the state income and sales tax revenues, and they have seen the amount of dollars they get go down as those revenues have lagged behind projections.

“We know they will fluctuate,” Herman said. “We benefit when revenues are better than expected, so we know we also will be hurt when they fall.”

Of greater concern, he said, is the precipitous drop in vehicle excise tax revenues that has hit cities and towns very hard.

“Car sales are down by 50 percent,” he said. “That is hurting a lot of municipal budgets.”

Colgan said even with the broad impact of this recession, he and other members of the economic forecasting commission see growth in Maine’s economy and an increase in jobs starting in late 2009 and early 2010.

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