Baldacci tax plan gets cool reception

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AUGUSTA – Gov. John E. Baldacci presented a complicated, multipronged tax relief package Wednesday to a less-than-receptive Legislature already in the midst of advancing its own tax reform proposals.

“It’s kind of late in the session for him to be submitting this plan,” said House Speaker Patrick Colwell, D-Gardiner. “I had hoped for something much sooner. Many of us have been working on this since last summer.”

The governor laid out a strategy he said would combine spending reforms with property tax relief to provide immediate and long-term property tax reductions. The conceptual proposal would provide $25 million for tax relief programs and pump an additional $25 million into state education funding for the 2005 fiscal year, which begins July 1.

The plan also pledges to dedicate the annual growth in state revenues to boost the state’s share of education costs from 43 percent to 55 percent over the next five years.

“We have been debating tax relief and tax reform for quite some time and I think that now is the time for action,” Baldacci said. “Our goal with this package is for all Maine people to see on average a 15 percent reduction from what their property taxes would have been.”

Many of the details must still be worked out before draft legislation can be presented, but in general Baldacci’s plan would:

. Cap the municipal share of education costs at 9 mils.

. Cap county and municipal spending growth at no more than 4.5 percent per year.

. Restructure special education and student transportation expenses within the state’s new essential programs and services formula.

. Encourage cost sharing among school departments to achieve greater efficiencies.

. Replace the current Homestead Exemption Program with a new Homestead Cap Program applicable only to those households earning $65,000 or less annually and whose property taxes are greater than 4 percent of that income.

. Add $25 million to the 2005 budget to expand eligibility under the circuit-breaker tax relief program for low- and middle-income Mainers.

. Repeal the municipal personal property tax on business equipment and machinery effective April 1 and give communities half of the money they had formerly received when the tax was in effect.

In order to achieve those goals, Baldacci would have to raise about $50 million in the next fiscal year. He proposes to do it by:

. Eliminating the old Homestead Exemption Program to free up $35 million.

. Including $5.9 million from various yet-to-be-identified state agency budgets.

. Collecting $9.1 million in additional lottery revenues by enrolling Maine in the multistate Powerball lottery.

Baldacci has been a leading opponent of expanding gambling in Maine and threatened last year to veto a Powerball bill that was approved by the Legislature. He stepped back from those long-held positions Wednesday on the basis that the state’s economy can no longer afford to ignore the new potential revenue source.

“The original lottery was established to help education,” he said. “While it bothers me that we’re doing [Powerball], this money will go to a good cause, toward education and property tax relief. It isn’t what I would have done, but the economy and the times demand flexibility.”

Emphasizing that Maine continues to lead the country in state and local tax rates as a percentage of personal income, Baldacci said the state also is wrestling with the largest loss of manufacturing jobs in the nation.

A third of the jobs that do exist, he added, do not pay a livable wage and the state lags 10 percent behind the rest of the country in per capita income. The trend is likely to continue downward, he said, without the profound change in statewide tax policy provided by his proposal.

“[My proposal] recognizes that we’ve got to get our spending under control and attract economic development to our state through new industries and manufacturing jobs that will grow our economy,” he said.

Most of the major players in the ongoing tax relief debate criticized the Baldacci plan for its lack of details, which will not be spelled out until the concepts are presented in the form of a bill.

The governor hopes his proposal will serve as a vehicle legislators can mold into a measure to compete against a separate $250 million municipal tax relief plan that Mainers will vote on in June.

Geoffrey Herman of the Maine Municipal Association and Steve Crouse of the Maine Education Association are fervent proponents of the referendum question that appeared on the November ballot as Question 1A. The proposal failed to win a majority of votes against a competing tax measure backed by the governor and Legislature, but won the right to appear unopposed on the June ballot.

Unless the Legislature comes up with an alternative plan they can support, Herman and Crouse said Wednesday they plan to continue supporting the June ballot question. Both were disappointed that the governor’s package provides no specific incremental increases each year until the 55 percent goal is reached.

“From our point of view, that really has to be in statute beginning next year,” Crouse said.

Of significant concern to Colwell, House Republican Leader Joe Bruno of Raymond and Senate Democratic Leader Sharon A. Treat of Farmingdale is a second referendum question advanced by Carol Palesky.

The radical tax relief plan would cap property taxes at $10 per $1,000 of assessed value and limit assessment increases to 2 percent per year. The initiative promises $800 million in tax relief in its first year.

Compared to the complex tax relief plans proposed by the governor, the Legislature or the MMA, Palesky’s question could be attractive to some voters by virtue of its simplicity alone.

“The Palesky proposal would end up closing down schools – a lot of them,” Treat said. “We obviously have that in the back of our minds as we look at any proposal. I don’t think the governor was [as] clear as he could have been in terms of explaining that, so that’s what [the Legislature] is going to have an opportunity to really sit down and look at. And it will be a factor.”

Bruno, whose party favors a constitutional amendment imposing a state spending cap, said Baldacci’s plan at least provided a starting point for discussions with the Legislature. He urged the governor to rebalance his priorities on mandatory caps to focus more intently on state spending rather than county or municipal spending.

“The state is the worst culprit out there when it comes to spending,” Bruno said. “This doesn’t really say that we should restrain state spending. It’s hypocritical.”