School-budget overhaul

Among the many large challenges for Sen. Peter Mills and Rep. Bernard McGowan as they try to overhaul the way Maine funds its schools are the following: persuade an uncertain public that this is not a reprise of the defeated uniform property tax of the 1970s; amend the constitution to allow for unequal taxation; pass a referendum on the reform; identify enough taxable goods and services to raise hundreds of millions annually through the sales tax. Done right, their plan relieves a huge local tax burden. Done poorly, and Maine is in much worse shape than it is now.

Their proposal, in brief, shifts much of school funding from the property tax to the sales tax. Because a significant portion of the sales tax, about 20 percent, is paid by people visiting Maine, out-of-staters would have the warm feeling of knowing that they were making more of an investment in the state’s future by helping to educate its children while residents saved money. There is more to the proposal than this. The lawmakers hope, for instance, that it will lift much of the local tax pressure of service-center communities and solve the growing Business Equipment Tax Rebate problem – the cost of program is rising quickly and not always equitably. It would make the Homestead exemption unnecessary and lessen the need for the property-tax circuit breaker.

To take the challenges in order, consider first the charge that this is merely a new version of the old uniform property tax. That tax, passed in 1973 and repealed in ’77, had the Legislature annually set a statewide property-tax level that would equal no more than half the actual statewide cost of education. The majority of towns then received the rest of their funding from the state; a minority ended up with more than 100 percent of their costs covered solely by the property tax and were required to pay in some of it to state coffers, an event they protested bitterly and understandably. The Mills/McGowan proposal doesn’t set a property-tax cap – it establishes full education funding generally at 6 mills (12 mills for property that is not primary residential, commercial or industrial or undeveloped) but communities can tax below or above the 6-mill rate. There are no pay-in towns. In at least one respect, however, those recalling the 1970s are correct: this new plan again gives the state an opportunity for increased say over education because the state would have direct control over more of the education dollars.

The constitutional amendment is needed because the proposal would tax property unequally, something Article IX of the Maine constitution mostly does not allow and the plan would phase out the personal property tax and replace it with an excise tax. The constitution can be amended (two-thirds of both legislative houses, a majority of voters) during the next year, but it won’t be easy for supporters of this proposal to explain it in that period of time and then build support for it. A second referendum question on the overall bill would also go out for approval – perhaps as a counter to a citizen’s initiative to cap property taxes at 1 percent (the Secretary of State’s Office is still verifying signatures on that one).

After this come the hard parts for the Mills/McGowan plan: The shift from property to sales taxes would result in the state needing to send an additional $250 million to communities, plus approximately another $160 million to meet the requirements in the upcoming Essential Programs and Services model for funding. That means identifying goods and services that currently are not now taxed but could raise $400 million or more, and then stand back while scampering lobbyists wear down the linoleum in the refurbished Capitol as they find votes to exempt their good or service.

And many of those lobbyists would be right: Untaxed and highly mobile information technologies, a growth area in Maine, can make a strong case for avoiding new taxes, as could similar growth industries able to easily leave the state. What’s left – haircuts, ski-lift tickets (Sen. Mills, an attorney, gamely suggests legal services) – don’t come close to filling the hole. A tax on food, the only untaxed item that does, would be the most regressive tax around.

Despite the positive and constructive intentions of the proposal, the risk of underfunding, of proceeding without having a clear sense of where the money would come from, presents too great a danger for schools, which struggled when the state didn’t keep its funding promises starting with the recession in the early 1990s. To its credit, the bill directs the Taxation Committee to design a fund to be used to stabilize the education budget. That’s a good idea, but Taxation is likely to be busy this session looking for money to patch the $248 million hole in the state budget and less than interested in finding money for a new stabilization fund.

These shortcomings don’t doom the overhaul, but they do mean that supporters must identify reliable sources of funding and describe the effects of the tax on those sources. That’s a difficult job but essential to moving their issue forward.