The Legislature is getting down to the divisively nitty gritty: potentially changing tax law. Any decision lawmakers make to find money for municipalities — even if they don’t find it — will likely cause taxes to go up. It’s just a matter of who will pay. Being backed into a corner like this — in an election year, no less — isn’t conducive to quality decision-making because only short-term fixes are available. It’s unfortunate that a sense of emergency is what’s needed to prompt lawmakers to talk seriously about tax breaks and force a plan of action.
But if one thing should now be clear, it is that the Legislature should not, once again, wiggle its way out of a situation it — and Gov. Paul LePage — created. It must come up with something other than the “easy out” of more deep cuts to municipal revenue sharing, which will result in increased property taxes. The biennial budget ending in June 2015 directed a special task force to find $40 million by eliminating or scaling back tax breaks — or else the cut would come from municipal revenue sharing. The task force could not agree on a way to get to $40 million.
So now Sen. Dawn Hill and Rep. Peggy Rotundo, the chairwomen of the Legislature’s Appropriations Committee, are trying to find the money. They have put forward their initial, specific ideas for getting to $40 million in LR 2721.
It proposes the following: Restore a 12-year limit on a program that reimburses businesses for taxes paid on equipment; make property used at retail sales locations ineligible for the tax reimbursement program; prohibit businesses from being able to pay reduced income taxes by using the “last-in, first-out” inventory method; take money from a rainy day fund put aside for future income tax reduction; and take money out of the state’s reserves.
It’s not yet clear what the widespread impacts of each proposal would be or whether Republicans would support them. There is also a budget shortfall within the Department of Health and Human Services to deal with. Hill and Rotundo have emphasized that they are willing to consider other options, if only people would suggest them.
If you feel like you’re having deja vu, there’s good reason. Similar to how the federal government gets around passing regular budgets by relying on continuing resolutions, the state Legislature commonly leaves holes in its budgets that it vows to fill in the future. In this case, instead of addressing these tax breaks in the budget process, it booked the advance savings and authorized a Tax Expenditure Review Task Force to come up with the solutions later.
The problem, as we’ve pointed out before, is that it’s awfully hard to make decisions about what tax breaks to cut when you don’t have information to judge whether they are meeting their goals. Very rarely have credits, exemptions and incentives been reviewed to determine whether they actually should be expanded or eliminated. One of the task force’s important jobs — with which it had more success — was to design a regular evaluation system for those tax policies. But without it set up yet, the Appropriations Committee is in the same position as the task force: It doesn’t have a lot of good information to inform its decision-making.
We give credit to Hill and Rotundo for taking on the uphill battle. This is the best opportunity available to the Legislature to partially restore its commitment to Maine towns and cities in the short-term. Even with $40 million, lawmakers will not be funding municipalities at the level dictated by Maine statute. We also realize the impossibility of the situation that the Legislature has created for itself — both with the delay of a decision and a lack of information. We would much rather be seeing lawmakers talk about larger, structural questions, such as whether municipal revenue sharing could be more targeted to provide property tax relief, and we suspect they would prefer that as well.
But no lawmaker should use the challenging situation as an excuse to not work together and find a solution. The worst thing that could happen would be for lawmakers to walk away from the table, claiming they’re not responsible, and let the cuts to revenue sharing take effect. They created the situation, and they need to deal with it. They need to find the political will.