Solve Tax Question Now

Maine legislators today will debate whether to add a competing measure to the citizen tax initiative already on the November ballot. They seem as determined to approve a second question as they are certain there are large differences between the two. Though the questions vary in their specifics, both essentially ask this: In paying for schools, would you prefer to rely less on your property taxes and more on your income and sales taxes? With either version, and with reform or no reform, you still pay. What is in dispute is from which of your pockets the money for most of the school bill would be drawn.

This matters because the state relies too heavily now on the property tax, which can be an inaccurate measure of wealth. The big promise in the citizen’s initiative, begun by the Maine Municipal Association, and its potential competitor, from the governor’s office, is that sooner or later the state will pay 55 percent of K-12 education costs. But the 55 percent requirement was put in statute in 1984; lawmakers have simply excused the state from paying, passed the responsibility and the cost down to municipalities, then blamed them for having high taxes.

The MMA proposal demands that the state hit the 55 percent mark (it is around 44 percent now) by next year. Gov. Baldacci offers the alternative of phasing it in by ’09-’10 because, he observes, the state would be given more time to react to the change and the delay would make it more affordable. But it would be more affordable only at the state level, not for property taxpayers.

Maine isn’t going to collapse if local taxpayers have to carry an unfair burden for an additional five years, and the governor’s proposal is reasonable because the large funding shift requires institutional changes in state government. His plan rests on his ability to control the costs at local and state levels and let the increase in state school funding ride on the expected growth in state revenue. It also rests on trust. The public saw a plan to reach 55 percent flop in the early 1990s once the economy failed and saw a plan to meet demanded funding for a new school-funding model collapse when the economy faltered two years ago. That new model, Essential Programs and Services, adds improvements over the current distribution system but neither the old nor the new work well if the state gives up on them when the economy sours.

Economic downturns are a fact of governing. It would be foolish not to expect another between now and 2010. The governor’s challenge is to describe why, when the state has failed spectacularly twice before to meet its targets for school funding, the third time would be different.

It is important to remember that the MMA proposal emerged from frustration. Maine government had more cash than ideas just a few years ago but failed to take care of its responsibility for schools. Worse, lawmakers were afraid to drag Maine out of a 19th-century emphasis of equating property with wealth and could not figure out how to make the tax system reflect the changed economy. The citizen’s initiative does both: It requires the state to pay the 55 percent and 100 percent of special education. In its first year, ’04-’05, that would save municipalities $264 million, including $102 million from special education. But it is a jolt, and its demand for 100 percent reimbursement for special education is not entirely persuasive.

It would also force lawmakers to make state government more efficient and to re-examine its sales taxes. This would have been infinitely easier had lawmakers acted when Maine had large budget surpluses, and for years citizen’s groups gave lawmakers warnings that they would put a measure on the ballot unless the Legislature acted. Now it’s here and lawmakers are responding to the created crisis.

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Finding new sources of money immediately to offset a sharp drop in property taxes is difficult, which is why MMA didn’t identify any. The opportunity for negotiation for lawmakers, as UMaine economist Ralph Townsend pointed out on yesterday’s Op-ed Page, is the time between the vote and the actual state payment of 55 percent. The special-education funding is a federal problem because Washington has failed to pay its expected share; MMA and the administration should recognize that neither is at fault in this situation and find a way to work together on the real source of the problem. One way to make progress there is to insist that Maine’s entire congressional delegation agree to the same House and Senate versions of fully funding special education, so that the message from Maine is clear in Washington.

But if the two sides of the property-tax debate could agree on the timing, the argument would largely end. That requires both state and municipal officials to arrive in Augusta today ready to negotiate. They could spare Maine a lengthy debate over what both know should have been solved years ago, and they would turn a chronically divisive issue into a demonstration of political skill and statesmanship, creating a fairer tax system in the process.