Baldacci revises tax relief proposal Governor opposes MMA option

AUGUSTA – In response to criticisms of his original tax relief package, Gov. John E. Baldacci has offered a new proposal with some significant changes. And on Tuesday he invited members of the Taxation Committee to revise his plan further if they believe this will make the plan more attractive to Maine voters on Nov. 4.

The 13-member panel has scheduled Thursday to review LD 1629 which has been offered by the administration as a competing measure to a ballot question initiated by the Maine Municipal Association. The association gathered more than 90,000 signatures to place its proposal on the ballot in November. MMA promoted the initiative as a way to ease the municipal property tax burden by requiring the state to increase its share of local educational funding from 42 percent to 55 percent.

The MMA does not recommend how the money to fund its proposal should be raised, preferring to let the Legislature make those decisions. Baldacci is opposed to the initiative, claiming its $264 million price tag would cripple many social service programs and force lawmakers either to radically curtail state spending or impose hefty tax hikes.

Reacting to the MMA proposal, the governor unveiled a conceptual plan for what he called “fiscal relief” during the final weeks of the legislative session. If approved by the Legislature during its Aug. 21 special session, the governor’s revised plan promises to match the MMA’s 55 percent educational funding goal and place new spending restrictions on municipalities in an effort to curb the growth of local property taxes.

Under the original Baldacci plan, property tax relief would be achieved in part by eliminating the tax on business equipment and encouraging cities and towns to join Municipal Service Districts. The new community networks, in theory, would cut expenses by regionalizing redundant services wherever possible. Failure to actively meet the legislation’s goals would result in decreased state revenue sharing funds for noncompliant towns.

The “big stick” approach to booking property tax savings angered some local selectmen and town councilors. In discussing the amended version of his proposal released late last week, Baldacci said Tuesday he has, for the moment, shelved the planned phaseout of the business equipment tax and the Municipal Service District components. The governor’s modified proposal will be reviewed Thursday by the Taxation Committee. Baldacci said if the panel can improve his plan without raising taxes, he would welcome any changes.

“The legislative process is going to strengthen this [plan],” Baldacci said. “We’ve got good leadership. And we think it’s important that the legislation receives bipartisan support as we stand together before the citizens of the state to say: We think this is a better approach.”

Reacting to the governor’s comments, Senate GOP leader Paul Davis of Sangerville said he was glad the Democratic governor anticipated some alterations to his custom-tailored plan for fiscal relief.

“It’s a good thing, because we’ve been hearing from a lot of people about it,” Davis said. “I suspect there’ll be some changes.”

While two of the key components of Baldacci’s initial plan have been eliminated, the governor’s philosophy with respect to municipal belt tightening is still reflected in LD 1629. The amended legislation seeks to discourage the growth of local property taxes by imposing a cap on spending increases for municipal services. Under the administration’s plan, municipal budgets would be allowed to grow by no more than 4.6 percent in the following year.

The percentage could change each year and is based on a formula that takes into account personal income growth and inflation.

Municipalities would be required to pay the first $10 of every $1,000 dedicated for local education costs. Communities exceeding the cap would face decreases in state revenue sharing funds that would vary depending on by what amount the cap was surpassed.

The proposal provides exceptions to the municipal spending cap, including school budgets, unfunded mandates, loss of state or federal revenue, citizen initiatives, and court orders. It also exempts “sudden or significant increases” in demands for existing municipal services.

Martha Freeman, the governor’s former deputy chief of staff and newly appointed director of the State Planning Office, said Tuesday the state would pay the difference exceeding the $10 per $1,000 for costs for educational services and programs deemed essential by the state. Freeman said a newly implemented Essential Services Program effectively replaces the criteria formerly used to determine educational allocations under the state school funding formula.

Relying on what Freeman described as “extremely conservative” projections for state revenue increases over the next five years, the administration’s plan would phase in additional money until the state’s share of educational funding reached 55 percent in fiscal year 2009-2010.

Some critics have panned the Baldacci initiative, claiming it is shortsighted and relies too heavily on projected revenue increases that could evaporate with the onset of a new economic downturn. Not surprisingly, Freeman disputed those negative assessments of the plan that she helped craft.

“That growth in revenues is based on very cautious projections by the economic forecasting committee,” she said. “We aren’t worried that the state [economy] won’t grow by that minimum amount.”