A New Export

The Legislature got partway toward serious tax reform this week when a bipartisan group of lawmakers and the Maine Municipal Association agreed to property-tax relief and, possibly, spending restraint. The plan, an outline, really, is not yet complete, but the absence of a means for paying for the tax relief will soon kill it unless a means quickly appears.

The essential components of reform produced by what was known as the Working Group would increase state education subsidies to an overall 55 percent by 2010, starting with a $40 million increase in General Purpose Aid to Education. It would follow the new Essential Programs and Services model for funding levels. It put up for discussion but did not reach conclusions on “homestead tax relief proposals, revenue sharing reform, realignment of the state’s major revenue sources, costs savings through regionalization and spending growth limitations at all levels of government.”

These are approximately where all other serious reforms have landed, and if legislative Republicans and Demo-crats and the representatives of Maine’s municipalities could reach agreement on them, MMA would remove its support for its 1A reform measure, on the ballot in June, presumably either defeating the proposal or allowing lawmakers to tinker with it next session. (Voters who are adamantly in favor of 1A no matter what MMA says may disagree with attempts to tinker.)

This builds a natural coalition to defeat the 1 percent tax cap proposal, on the ballot in November, which would harm local budgets by cutting revenue for some communities by 30 to 50 percent. But if the old saying that you can’t beat something with nothing is true, then the Working Group must also find a way to pay that $40 million school bill next year, leading up to the 55 percent of funding in five years.

The most popular way for states to raise revenue without irritating voting taxpayers is to make taxes exportable, to persuade people living in other states to pay them. This is an old idea that has drawn attention recently because of the fiscal crises states have experienced since 2001. Maine exports its taxes when it gets tourists to pay high meals and lodging taxes, although some Mainers get caught by the same tax too. The trick is to have something of value that others are willing to pay for.

Rep. Peter Mills of Cornville recently talked about the issue at the University of Southern Maine. He observed, “We don’t have Alaska’s oil, Connecticut’s insurance companies, New York’s stock exchanges, Wyoming’s coal or California’s silicon capitalists; but we do have some of the finest real estate on earth and lots of it. It is perhaps the biggest reason people move here.”

Twenty percent of residential property taxes are paid by out-of-staters who own second homes in Maine, an interesting opportunity for lawmakers who are trying to find a revenue source. The state has begun to make a distinction between primary and secondary homes by subsidizing taxes paid by primary homeowners, but the difference has yet to be fully explored. Given the desperation in Maine’s budget, now would be a good time to do that.