Governor unveils ‘fiscal’ reform plan MMA faces ballot challenge

AUGUSTA – Unveiling the framework of a “fiscal reform” package to counter a Maine Municipal Association referendum question on the November ballot, Gov. John E. Baldacci said Thursday his graduated approach to property tax relief was the most prudent course of action for Mainers coping with a fragile economy.

“Fiscal reform is spending reform and tax reform, and we try to do that in stages,” Baldacci said.

The MMA’s ballot question asks voters if they favor requiring the state to pay 55 percent of local education costs, but leaves it up to the governor and the Legislature to determine how that would be accomplished. Baldacci said an affirmative vote on the MMA question would require the state to identify an additional $267 million in revenues or program cuts to increase local education funding from the current 43 percent level to 55 percent.

The MMA as well as competing groups of lawmakers and tax advocacy experts have suggested a broadening of the state’s sales tax to include currently exempt goods and services is the best way to raise new revenues, reduce property taxes and diminish volatility within the state tax structure.

But Baldacci, who favors a cautious approach to tax reform, said now is no time to talk about raising taxes in the state.

“I really truly believe we’ve got to be careful of what we’re doing,” he said. “It’s one thing to propose things in the hypothetical, but it’s another when you’re doing it for real and you’re talking about people who are worried about making ends meet as a family. Businesses are also worried about meeting payroll or about how many people they’re going to have to lay off.”

Baldacci will present his proposal to the Legislature’s Taxation Committee which could begin public hearings on the bill as soon as next week, according to Rep. David G. Lemoine, D-Old Orchard Beach and House chairman of the tax panel. The governor hopes his tax plan – heavy on regional consolidation of services by towns and school districts and restructuring of existing tax programs – will appear on the November ballot as a competing measure to the MMA initiative. Baldacci said the successful implementation of his policies would increase the state’s local education share to 55 percent over the next five years.

“I truly believe that you can’t just put more money on the table and think that it’s somehow going to solve things,” Baldacci said. “It’s just not going to do that. … This is what I think to be the most responsible way to approach it at this time. There are many people here who disagree with that and that’s what the legislative process is. We’ll have our debate and our discussion about it.”

Key elements of the governor’s plan to reduce the property tax burden include:

. Create a Municipal Service District framework to provide incentives for voluntary regional consolidations of municipalities and school districts;

. Adopt a new essential programs and services protocol to gain control over educational spending;

. Provide Municipal Service Districts and qualifying service centers with a mechanism to fund projects of regional benefit through a limited purpose local option sales tax;

. Phase out general property tax relief in favor of targeted property tax relief by redirecting money from the broad Homestead Exemption Program and greatly strengthen the Maine Residents Property Tax Program, also known as the Circuit Breaker Program;

. Eliminate the personal property tax on machinery and equipment over time and phase out the Business Equipment Tax Reimbursement program;

. Gradually lower the individual income tax top marginal rate from the current 8.5 percent to 7.75 percent.

Questioned on the elimination of the $35 million homestead program which generates an average annual benefit of about $110 to Maine homeowners, Baldacci said the money would be better used in his beefed-up circuit breaker program which would provide essential tax relief “to those who most need it through a targeted, means-tested program where the parameters are greatly strengthened.”

The elimination of the BETR program represents something of an about face for the governor who praised the benefits of the tax reimbursement policy on the campaign trail last fall. Since then, Baldacci said he has come to view the program as “a bit cumbersome” and a “center of heated political debate annually, adding risk to the investment and undermining the program’s effectiveness.”

“I have concluded that if we truly want to spur new investment in Maine, we need to get rid of the tax – period,” the governor said. “It eliminates a major barrier to capital investment, placing Maine squarely in a better competitive position for attracting investment essential to our long term growth and viability.”

Legislative reaction to the reform package was generally supportive, but both Republicans and Democrats questioned whether the initial phase of the governor’s plan could be characterized as true tax reform. In a prepared statement, Senate President Beverly Daggett, D-Augusta, said she agreed with the governor on the need to have a competing measure on the fall ballot to counter the MMA initiative.