Gov. Paul LePage last week described his proposal for a new two-year state budget as a “balanced budget proposal … that sets priorities and lays out a fiscally responsible plan to right-size our government.”
However, Democrats who hold majorities in both chambers of the Legislature argue LePage’s plan imposes a $400 million tax hike on local property taxpayers in trying to balance the state budget without raising state taxes. They cite proposals in the budget that eliminate revenue sharing with municipalities for two years and scale back key state programs designed to offset local property taxes.
LePage, though, says local taxes don’t have to rise in response.
“A temporary loss in revenue sharing does not mean that property taxes will automatically go up,” he said in a radio address in late January. “That is a local choice. It is not impossible for local government to save money, consolidate services and identify priorities.”
As LePage’s budget has come under fire for its potential impact on property tax bills, the governor and Republican allies have increasingly argued that municipalities ought to — and can afford to — share in the cost cutting, setting up a debate with municipal leaders over appropriate levels of municipal spending.
“Our local property taxes have increased 123 percent since 1992, while state government spending has increased by 89 percent since then,” LePage said last week in his radio message. “Mainers like home rule, but it is expensive. The state cannot continue to subsidize the costly duplication and redundancy of services in our largest communities.”
The available data show that local property taxes have increased more than state spending in recent decades — and at a consistent clip. But the growth in both state and municipal spending has slowed in recent years, staying within state-prescribed growth limits, while most school districts have exceeded those limits.
Since about 60 percent of all municipal spending funds public schools, shrinking spending by towns and cities would depend largely on either the state picking up a larger share of education funding or schools cutting their costs.
Tax shift or local choice?
As members of the Legislature’s Taxation Committee last week debated whether to keep LePage’s revenue sharing suspension in the budget proposal or scrap it, Republicans on the committee echoed LePage.
“Nobody likes this budget proposal, including the governor. It forces tough choices,” Rep. Gary Knight of Livermore Falls, the committee’s ranking Republican, said in a statement released by the House Republican office. “But an important fact to consider is that local government has grown faster than state government over the past 20 years, and it’s fair that our towns find some savings, too.”
Municipal leaders, meanwhile, say they’re already doing that.
According to the Maine Municipal Association, towns and cities have been trimming their budgets in recent years as state funding for schools has continued to fall short of the promised 55 percent of total funding and lawmakers have dipped into revenue sharing funds for the past four years to balance the state budget.
Plus, towns and cities are already collaborating with their neighbors to provide services for less. The Maine Municipal Association released the results of a 2011 survey last year in which the group found 550 examples throughout the state of municipalities collaborating to save money, including through shared ambulance services, bulk purchasing and public works.
“We know more can be done, but a lot has been done both in terms of budget-cutting and collaboration,” Maine Municipal Association spokesman Eric Conrad told the BDN in late January.
A key point, Conrad wrote in an email last week, is that the state is attempting to balance its budget through cuts in municipal aid.
“The suspension of revenue sharing essentially signals that state government costs and/or revenues aren’t being managed in a way that state operations pay for themselves,” he wrote. “So, this budget proposal would go after local property taxes to help the state balance its budget.”
Under a four-decade-old state law, revenue sharing — when it’s fully funded — sends 5 percent of state sales and income tax receipts to municipalities as a way to keep property taxes down.
A history of increases
If there’s one trend in both state and local government spending in recent decades, it’s that it’s risen without many exceptions.
In 1991, Maine towns and cities collected a total of $943.1 million in property taxes, the largest source of local revenue.
Total property taxes — used to fund local schools, municipal operations and county governments — passed the $1 billion mark in 1993 and broke the $2 billion threshold 16 years later, according to Maine Revenue Services. They rose most sharply during the first half of the 2000s, jumping 8.4 percent between 2000 and 2001 and 6.7 percent the next year.
Property taxes accounted for about 80 percent of locally raised revenue for towns and cities in 2011, according to the Maine Municipal Association. Motor vehicle excise taxes were the next largest revenue source — about 8 percent.
Property taxes rose 74.3 percent between 1998 and 2011, compared with a 50.6 percent jump in spending from the state’s general fund, which was nearly $2.86 billion in 2011.
At the local level, Maine in 2007 exceeded its rural peer states (Mississippi, Montana, South Dakota, Vermont and Wyoming) in spending on fire protection, sewer services and waste management, according to a 2010 paper by University of Maine economics professor Philip Trostel.
In education, the paper found, Maine spent 10.9 percent more per student than its rural peers, while local governments spent less on police protection, parks and recreation, and libraries.
While it has risen less than property taxes in the past 15 years, state spending has been more sporadic, according to figures from the Legislature’s nonpartisan Office of Fiscal and Program Review.
General fund spending jumped 13.4 percent between 1998 and 1999 and 11 percent between 2000 and 2001 before shrinking by 2 percent between 2002 and 2003. State spending returned to negative territory in fiscal year 2009, when it dropped 2.1 percent, then 5.1 percent the next year.
In his 2010 paper, Trostel found Maine spent more than double what its rural peers spent on welfare per single mother. State spending was also high in corrections, where Maine spent 126 percent more per inmate than other rural states, and government administration, which was 10 percent above the rural average.
Maine’s state spending was below average in the judicial branch and on highways.
The spending growth rate — especially at the state level — started to change in 2005 after lawmakers passed LD 1 in an effort to reduce Maine residents’ growing tax burden. State spending grew 4.4 percent between 2005 and 2011, compared with 36.1 percent during the preceding six years. Local property taxes rose 22.3 percent between 2005 and 2011, compared with 40.1 percent in the six preceding years.
LD 1 imposed caps on growth in state, municipal, county and school spending; directed more funds to property tax relief; and set the state on a path toward providing 55 percent of public school funding by 2010 — a funding level it still hasn’t reached.
The stated goal of the effort was to move Maine toward the middle of the national tax rankings by 2015. In 2002, the U.S. Census bureau calculated Maine’s state and local tax burden to be second highest in the nation. By 2010, Maine’s rank had slipped to sixth — its rank for four straight years — with residents paying 12.2 percent of income in state and local taxes, according to the state’s Office of Policy and Management.
Maine’s tax burden ranking hasn’t fallen precipitously, but government spending has grown more slowly since LD 1 passed. The state, municipalities and counties have consistently stayed within their prescribed growth limits. Meanwhile, school districts — which account for more than 60 percent of all municipal spending, according to the Maine Municipal Association — have consistently exceeded their growth limit determined by the state’s Essential Programs and Services funding formula.
And the source of education funding can directly affect local property tax bills, according to data from the Office of Policy and Management. The amount of property taxes spent on schools either dropped or grew more slowly in years when the state boosted its share of education funding. In years when state education funding dropped, local property taxpayers largely made up the difference.
In his late January radio address, LePage used four Waterville-area towns as examples of municipalities that could “consolidate services and save money.” As Office of Policy and Management data show, the towns could probably lower property tax bills most significantly if schools reduced their budgets or received more education funding from the state.
Matthew Stone is a reporter in the BDN’s State House bureau.