Facing debt, towns eye property tax

Posted Feb. 12, 2010, at 8:57 p.m.

AUGUSTA, Maine — When Gov. John Baldacci talks about his latest proposals for trimming more than $400 million in state spending, the governor rarely misses an opportunity to point out one thing you won’t find in his budget: tax increases.

Some municipal officials say that’s only partially true, however.

Faced with more than $100 million in reduced state aid to municipalities, local officials throughout Maine are bracing for some tough decisions on property taxes as they prepare their budgets and gear up for town meeting season.

“There is no doubt among my [members] that the cuts to general purpose aid and state subsidies will result in property tax increases on the local side,” Geoff Herman with the Maine Municipal Association said recently. “The real issue is how much.”

Roughly 46 cents of every dollar funneled into the state’s General Fund eventually flows back to municipalities, whether in the form of general purpose aid to education, so-called “revenue sharing” of sales taxes or other programs.

So it’s inevitable, according to administration officials, that the cutbacks because of the recession will filter down to towns.

Legislative budget writers are now reviewing Baldacci’s proposal to close a $438 million revenue shortfall, in part, by reducing education subsidies by $73 million plus slashing revenue sharing by $27 million over the biennium.

While some organizations, including the Maine Municipal Association’s policy board, are beginning to advocate for more broad-based tax increases, Baldacci has made clear that he will not support balancing the budget with new taxes.

The key question for municipalities, said Baldacci spokesman David Farmer, is whether they will continue to operate as normal, and therefore be forced to consider property tax increases, or take additional steps to tighten their belts.

“We don’t think anybody should be raising taxes right now,” Farmer said. “We think right now is the time to make government more efficient.”

But municipal officials insist that efficiencies are often harder to come by at the local level, particularly in smaller towns.

“The reality is the state is cutting funding not only for us but also for schools, and then the state turns around and gives us a lecture about how we are not adequately managing our resources because property taxes are up,” said Michael Crooker, town manager in Glenburn, a bedroom community of Bangor.

Glenburn residents saw their tax rates increase by nearly 2 mills during the past year in part to help pay the additional upfront costs of consolidating with two other local school districts and to offset previous reductions in state aid.

The town also has cut back on expenses, including reducing money set aside for a new town office and delaying replacement of an aging town truck. Crooker said nobody in town wants to see another property tax increase but that it is too early to tell how Glenburn will respond to additional cuts.

“For the state to sit there and tout that there are no new taxes, I don’t necessarily agree with that,” he said.

Maine Municipal Association officials cite several recent reports as evidence that towns and cities already are running relatively lean operations.

For instance, a 2008 analysis of fiscal year 2006 data by the Maine Heritage Policy Center, a conservative think tank, ranked the state as No. 41 in the nation in terms of local spending burden compared to No. 5 for state spending burden.

The report, titled “Maine Spends Too Much … But Where?” also said Maine had the No. 13 highest expenditures nationwide on state government administration versus No. 35 highest for local government administration.

Baldacci administration officials point out, however, that the size of the state work force has shrunk since then. Additionally, the current biennial budget is smaller than the last one — something that has not happened in about 30 years.

Roughly 30 miles north of Glenburn, in Dover-Foxcroft, town and school officials are bracing for a triple-punch: reduced revenue sharing, lower general purpose aid for education and a penalty for not consolidating with other school districts.

Town Manager Jack Clukey noted that Dover-Foxcroft residents voted in support of consolidation, but the plan failed in the partner towns. Yet the town will have to absorb its share of the $190,000 penalty.

Additionally, municipal officials are anticipating a 15 percent drop in excise tax revenue as fewer people purchase new cars. Clukey said he hopes people understand that economic decisions at the state level can have direct consequences on municipalities and their residents.

“The last few years have been tough on the expenditures side,” he said. “We have had flat or reduced budgets, so we are to the point of having fewer options.”

Baldacci administration officials and state lawmakers insist they fully recognize that some of the financial hurt is being passed along to municipalities.

Rep. Emily Cain, an Orono Democrat who is co-chair of the Appropriations and Financial Affairs Committee, said there is no doubt in her mind or the minds of her colleagues that the state budget has a direct impact on property taxes.

“It’s something that all of us on the committee are trying to mitigate,” she said.

While Cain does not foresee a scenario where the revenue sharing money will be fully restored, she said the committee is looking at a range of options. Those could include repealing some mandates or seeking to reduce cuts with other funding sources.

As one example, the committee expects to hear a presentation on a way to better use federal Social Security money to reduce cuts to social programs in service center cities such as Bangor and Portland.

“We are genuinely looking to the municipalities for help and for ideas,” Cain said.

Farmer said there is no question state budget cuts affect municipal governments. But he said the Baldacci administration has been working for several years to reduce local spending obligations.

The governor’s jail consolidation effort, for example, is expected to save municipalities $189 million in property taxes over the next five years, he said. The administration also has pushed harder for greater education efficiencies through its controversial school consolidation mandate.

“The governor is making cuts and seeking out efficiencies,” Farmer said. “He thinks increasing taxes will threaten the economic recovery. And the local governments have the same choices.”

In 2009, municipal property taxes rose by 2.5 percent, less than half the growth rate in the three years before voters approved LD 1, which seeks to limit government spending while reducing property tax rates.

Roughly 71 percent of municipalities stayed within the property tax growth limits established by LD 1, according a recent State Planning Office report. But Maine’s school districts had a more difficult time staying within the restrictions, with 87 percent exceeding their spending limits, the report found.

Education programs make up roughly 40 percent of state spending, so it’s no surprise that K-12 spending would factor heavily into any debate over taxation.

Farmer pointed out that the Baldacci administration has increased state aid to education by more than $350 million since entering office as a result of LD 1. At the same time, enrollment in Maine’s public schools has shrunk by about 27,000 students.

Herman with the Maine Municipal Association acknowledges that the administration infused substantial sums into education, thereby helping towns stabilize their property taxes. But the percentage of education costs covered by the state has since shrunk from a high of 52 percent in fiscal year 2008 to an anticipated 44 percent in this budget.

“That was the past,” Herman said. “What we are talking about is this budget … and a precipitous drop in aid to education and unprecedented cuts to revenue sharing.”

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