Is the state giving money to ‘well-off’ suburbs at expense of urban areas?

AUGUSTA, Maine — Nearly all of Maine’s population growth in the last decade, as well as nearly 70 percent of the state’s economic activity, has taken place in metropolitan areas. Yet state policies governing funding for education and transportation, state aid to local communities and economic development programs have not caught up to this new reality, according to economists and planners who have studied Maine’s communities and the state’s economy.

State policies often have put service-center communities — which include the state’s bigger cities of Portland, Lewiston and Bangor along with smaller regional hubs such as Machias, Jackman and Fort Kent — at a disadvantage, said Evan Richert, a former State Planning Office director who now works as Orono’s town planner.

“It’s not purposely biased. There’s nothing malicious going on here,” he said. “Not everything has caught up to the way urban areas and regions have evolved over time.”

The flow of economic activity and people in recent decades has been pronounced in Maine’s three metropolitan areas, and the Portland region in particular. That metro area — defined by the federal government as Cumberland, York and Sagadahoc counties — now accounts for more than half, 51.2 percent, of the state’s economic output, according to data from the U.S. Bureau of Economic Analysis.

More activity in cities

In 1960, Maine was home to only one metropolitan area — defined by federal officials as an area of at least 75,000 people with a core city on which surrounding communities largely depend for jobs and services. By 2000, the state had three federally defined metro areas: Portland-South Portland, Lewiston-Auburn and Bangor, a sign that the economies of those cities and their surrounding areas have become increasingly integrated.

Those three metro areas have come to represent almost 70 percent of the state’s economy, according to Bureau of Economic Analysis data.

And 90 percent of the state’s population growth between 2000 and 2010 took place in those metro areas, in Maine’s two “micropolitan” areas (Augusta-Waterville and Rockland), and in the state’s service-center communities, according to Charles Colgan, a professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service and a former Maine state economist.

Policies that favor suburbs

Whether it’s state funding for education that flows largely to residential, suburban communities or Maine’s slate of policies aimed at spurring economic development, the result often isn’t one that helps service centers, according to Richert.

Though not deliberate, “the legislative bias has been in favor of the suburbs, the bedroom communities,” he said.

Since 2005, for example, Maine has used a public school funding formula that distributes education subsidies largely based on aggregate property values and student population. The formula generally favors school districts that have large student populations and little aggregate property value within their borders.

Service centers — state-designated regional anchors where the bulk of an area’s jobs and services are located — are home to many of their region’s property tax-paying businesses, which boost their total property worth. The suburbs that surround them are often bedroom communities that have few other developments aside from residential properties.

“The formula sees the service centers as being property-rich and the suburbs as being property-poor,” Richert said.

Since the formula has taken effect, Richert said he’s tracked education funds as they flow from service centers and rural areas to the growing suburbs. Former Senate President Kevin Raye of Perry sponsored a successful bill in 2011 that directed some of those funds back to small school districts in rural areas and away from cities including Portland and Bangor. Bangor schools Superintendent Betsy Webb estimated last year that the legislation would cost the city’s schools $187,000. Portland state Sen. Justin Alfond estimated a loss of up to $1 million in his city.

“We have this weird situation where relatively less well-off populations in service-center communities and in truly rural places are having their tax dollars transferred to relatively well-off suburban places,” Richert said.

As a consequence, service centers need to substitute local property tax revenues to make up for a smaller share of state funding for their schools, inflating property tax rates in service centers compared with their suburban neighbors. In 2010, 49 of Maine’s 63 service centers had property tax rates that exceeded the state average, according to a review of Maine Revenue Services data.

State transportation policies have put service centers at a disadvantage, too, Richert said. The state’s urban compact system largely assigns service-center communities with maintenance responsibilities on major state roads, while the state picks up those responsibilities in the less densely developed areas outside the “urban compact” area.

Add to that the nature of service centers. Their populations swell during the workday as commuters from the surrounding suburbs travel to their jobs, and the service centers’ residents pick up the tab for that widely used infrastructure.

Those same service centers generally are home to larger populations in need of social services, so they generally absorb the cost when the state reduces its allocations for general welfare assistance. And now, more welfare recipients who have lost state assistance because of a newly implemented five-year lifetime limit are turning to the cities and service centers where they live for help.

A handful of policies implemented over the past decade have started to chip away at the anti-service-center bias, Richert said.

Service centers now can use tax-increment financing, for example, to attract new development and shield part of the added property wealth from counting against them in state funding formulas. And Maine communities with higher-than-average property tax rates — often the service-center communities — sometimes can qualify for additional revenue-sharing funds from the state.

Economic development for rural industries, areas

The state’s job picture has transformed as Maine’s economy and population have shifted toward metro areas.

In 1969, the industries that formed the backbone of the rural economy — agriculture, forestry and manufacturing — accounted for one in four Maine jobs. By 2004, that figure had dropped to one in 19, according to a 2007 research paper by Colgan and Richard Barringer, a former conservation commissioner, state planning director and Muskie School professor.

Still, “it’s probably fair to say that economic development policies have generally downplayed the urban areas and particularly Portland, largely because the assumption is they are doing OK and don’t need the help,” Colgan said.

Maine’s modern economic development policies took root as the state started losing textile, apparel and shoe manufacturing jobs in the middle of the 20th century to southern states with lower labor costs.

One of the first responses was establishing the Maine Guarantee Authority — which evolved into the Finance Authority of Maine — as a way to encourage private investment in Maine by having the state guarantee private loans.

Later, targeted infrastructure investments in ports and potato storage sheds attempted to prop up the state’s natural resource industries by making it easier for Maine foresters to export lumber and for Maine farmers to sell potatoes when market conditions were favorable.

Tax incentive programs followed as a way to entice businesses to invest in areas of the state that had seen economic distress, such as Millinocket and Eastport, and to prop up certain industries.

One of those incentive programs, Gov. John Baldacci ’s Pine Tree Development Zone program, initially targeted distressed areas by offering a range of tax breaks to companies that relocated to those regions from outside of Maine. The program, which has continued under Gov. Paul LePage, has expanded in recent years to cover the whole state, though lawmakers limited the benefit period in much of Cumberland and York counties — the Portland area — to five years while Pine Tree Zone businesses in the rest of the state can receive tax breaks for 10 years.

“In general, in economic development, there’s a strong bias toward manufacturing and the goods-related industries, but most of the jobs have been produced by the service-related industries,” Colgan said.

And those service industries — from health care to professional and business services — are more often located in Maine’s growing urban areas and service centers.

In Colgan’s view, Maine’s economic future will brighten not so much as a result of economic development programs targeting specific industries and regions, but through investments in the state’s workforce.

“The first thing [companies] look for is, ‘Have I got enough of a labor force and are they well enough trained so I can get them to do what I need them to do?’” he said. “Where Maine needs to be competitive right now is in the labor force and the availability of well trained and educable labor.”