Lawmakers grapple with tax relief plan House approves amended bill

AUGUSTA – Gov. John E. Baldacci’s revised measure on tax relief continued to evolve Thursday night when lawmakers overwhelmingly supported an amended version of the bill that would expand the state’s property tax relief program by $34 million.

The governor’s measure offers an alternative to the Maine Municipal Association’s proposal in a referendum to be held Nov. 4.

In initial voting, the House approved the governor’s proposal 86-60 and then went on to amend the bill, voting 129-13 to bulk up the property tax relief program, a provision sponsored by Rep. Peter Mills. Although the Cornville Republican supported Baldacci’s plan, he worried many voters would reject the proposal because it did not deliver any significant property tax relief immediately.

Under Mills’ amendment, the Legislature would add $34,447,163 to the Maine Residents Property Tax Program, more commonly known as the circuit breaker program. The program provides tax reimbursements to homeowners and renters who fit income limit guidelines and whose property taxes grow at rates that are disproportionate to that income. The maximum amount of relief available to any participant is capped at $1,000.

Mills’ amended version of LD 1629, the governor’s measure, eliminates the income requirements and provides a rebate equal to 100 percent of the amount by which the tax on the first $200,000 of valuation exceeds 5 percent of the participant’s income.

As an example, Mills used the case of a taxpayer in the current program with a home valued at $150,000 taxed at 25 mills and whose earnings were $30,000 annually. The taxpayer would have to pay $3,750 and could look forward to a rebate of $1,000. Under the amended version of the program, that same taxpayer would receive a rebate of $2,250.

Mills acknowledged his proposal still required fine-tuning, but he was optimistic it would become part of the governor’s measure. Mills did not provide any suggestions about where the $34 million would come from in the current fiscal year, although other proponents seemed to believe there would be enough state revenue growth over the balance of the fiscal year to fund the expansion.

The Senate had not taken up the amended proposal midway through Thursday evening, and the governor and his staff were busy crunching revenue numbers to see if some kind of proposal could be crafted to satisfy the Legislature.

“We’ve always supported the circuit breaker program, and we’ve said we’re committed to taking it on in January,” Baldacci said. “[The Legislature] would like it done sooner. We’re running the numbers and trying to determine exactly what [the amended legislation’s] impact would be and make sure those who are currently receiving relief would continue to receive it. But we’re going to try and determine what the state can and cannot afford. We have a modest surplus, but I think we need to look and see if it could be phased in over a period of time.”

Lawmakers also added a amendment offered by Rep. Leila J. Percy, D-Phippsburg, requiring state agencies to review LD 1629 in 2010 to see if it was meeting the governor’s objectives and report back to the Legislature’s Taxation Committee with their findings.

Remaining in recess for a large portion of the evening, legislators waited to see if their leaders would call them back or send them home to resume their work Friday morning for the second day of a session that legislative leaders and the governor had hoped would require only one day. Still up for discussion – and potentially a much more divisive issue – is the governor’s bond issue. Republicans and Democrats place different priorities on how the money raised by the bond should be spent.

“I think we’re in for a long night,” Baldacci said.

The debate on LD 1629 was sparked by a citizen’s initiative launched by the Maine Municipal Association, a lobbying group for city and town governments, that attracted nearly 100,000 signatories. The MMA has grown increasingly frustrated with the state’s failure to comply with a 1984 law that guaranteed lawmakers would approve state payment of 55 percent of local education costs. Baldacci said the state pays about 43 percent of those expenses.

Over the last 18 years, lawmakers frequently have used the state’s roller-coaster economy as a pretext for failing to live up to its statutory obligations for education funding. The MMA proposal would require the state to make plans to fund the 55 percent figure effective July 1, 2004. If approved by the voters, the $264 million in additional educational funding required by the measure would have to be arranged by the lawmakers no later than March 1, 2004.

Baldacci opposes the plan, maintaining the state would have to hike taxes or slash social service programs to find the money. He also has argued nothing in the legislation compels municipalities to use the money for property tax relief.

Rather than allow the MMA plan to appear on the Nov. 4 ballot alone, the governor crafted a competing measure for the voters to consider. Baldacci’s plan also would increase the state’s share of local education funding to 55 percent – but at a slower, phased-in rate, deferring 100 percent of the funding goal until fiscal year 2010. Another major distinction between both plans lies in the funding mechanism. Baldacci would pay for the increase of nearly $300 million over five years by dedicating to education most of the state’s annual growth in revenues – estimated at about $100 million per year.

The competing measure provides state reimbursement to communities whose education costs exceed an amount equal to 10 mills of local valuation and restricts municipal budgets to a growth rate not to exceed 4.6 percent per year. Communities surpassing the 4.6 percent cap would face decreases in state revenue sharing funds that would vary depending on how much the cap was surpassed.

Lawmakers spent much of Thursday in and out of party caucuses where positions and personalities sometimes clashed over the merits of the governor’s proposal and proposed amendments. The heated discussion elicited controversial words from Rep. Christopher O’Neil, D-Saco, who remarked that a suggested amendment reminded him of banter he once heard from a “little dumb Frenchman” car salesman. The slur provoked a loud objection from Rep. Joanne Twomey, D-Biddeford, and a grimace from Rep. Ross Paradis, D-Frenchville, along with muted criticisms from others at the House Democratic caucus. O’Neil later apologized.