Tax panel supports Baldacci measure

AUGUSTA – Gov. John E. Baldacci cleared a major hurdle Thursday when a panel of lawmakers overwhelmingly supported his proposed legislation to create a competing measure to the Maine Municipal Association’s property tax relief referendum question.

“The issue here is that we have limited resources and these are challenging times,” Baldacci said after the vote. “We’re trying to do the best that we can do and we’re taking these resources and we’re putting them back at the local level to cover more of our educational expenses and relieve our property taxpayers of that burden.”

After a full day of discussion, the Taxation Committee voted 10-3 in favor of the governor’s amended legislation advancing an alternative to the MMA plan, which requires the state to pay 55 percent of education costs. Currently, Maine’s share of kindergarten through Grade 12 educational costs is 43 percent, despite a long-standing law requiring the state to pay for 50 percent of local education expenses.

Sen. Stephen S. Stanley, D-Medway and Senate chairman of the Taxation Committee, was confident the governor’s proposal would receive majority support in both the Senate and the House when the Legislature convenes for a special session to take up the bill on Aug. 21. One of his chief criticisms of the MMA initiative is that the proposal does not identify how the estimated $264 million would be raised to meet the 55 percent goal.

If approved by the voters, legislators would be required to draft legislation by March 1, 2004, identifying funding sources to satisfy the law. Such an outcome would be disastrous for the state, according to Stanley and Baldacci, who fear lawmakers would have to raise taxes, gut social programs or compromise on a strategy that combines both options.

“We’ve managed with this legislation to provide some property tax relief and increase edcuation funding without having to raise new taxes,” Stanley said.

Rather than allow the MMA proposal to appear on the Nov. 4 ballot alone, Baldacci crafted a competing measure that will require the state to provide 55 percent of local educational funding over a five-year period. The timetable would force the state to raise an additional $296 million to meet the 55 percent level, although the much of the money would not be allocated until the beginning of fiscal year 2006.

Citing averages of recent state revenue gains, Baldacci is relying on conservative estimates of annual state revenue growth of about $100 million in his amended bill to help fund the 55 percent goal. Another aspect of LD 1629, which provides a structure for the competing measure, 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 per year. Communities exceeding the 4.6 percent cap would face decreases in state revenue sharing funds that would vary depending on how much 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.

Under the above scenarios, municipalities would be required to pay no more than the first $10 of every $1,000 dedicated for local education costs. The state would pay the difference of any educational costs exceeding the $10-per-thousand threshold for educational services and programs deemed essential by the state.

The newly implemented Essential Programs and Services protocol effectively replaces the criteria formerly used to determine educational allocations under the old state school funding formula. Due to a lack of necessary state revenue, EPS does not become effective until fiscal year 2005. Even then, the administration maintains it will only be able to initially fund EPS at 84 percent of its cost. State funding increases 4 percent annually until fiscal year 2009 when EPS is scheduled to be funded at 100 percent.

The fact that the Baldacci plan did not offer 100 percent EPS funding in fiscal year 2005 or the kind of immediate property tax relief promised by the MMA plan was disappointing to Sen. Ethan Strimling, a dissenting Portland Democrat on the Taxation Committee. Strimling plans to offer a minority report which, among other things, would require the state to pay 100 percent of EPS in fiscal year 2005, reduce the $10-per-thousand threshold to $8-per-thousand and provide for a local option sales tax.

Although four of the committee’s five Republican members voted for the governor’s competing measure, GOP Sen. Richard Nass, of Acton, said he would also craft his own competing measure question that reflects his party’s ideological positions on tax policy. Nass’s minority report will require a two-thirds vote of the Legislature to increase taxes and tie the growth of state spending to the average growth of income in Maine, among other provisions.