Bangor eyes way to lessen tax-cap impact

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BANGOR – When Bangor residents adopted the council-manager form of government in 1932, they could not have foreseen it one day might put their community at a fiscal disadvantage.

But with support building for a controversial tax cap on the Nov. 2 statewide ballot, that has become a real possibility.

A citizen initiative led by Carol Palesky and the Maine Taxpayers Action Network seeks to reduce property-tax bills by capping tax rates at $10 per $1,000 of valuation based on 1996 property valuations, and strictly limiting future increases. It also would make it tougher for the state’s cities and towns to borrow money by requiring voter approval.

As things stand, the Palesky proposal allows municipalities to repay “voter approved” debt with tax money raised beyond the $10 cap.

But while the vast majority of Maine’s municipal divisions have a town meeting form of government, where voters approve budgets and borrowing, Bangor is among about 40 in which that authority rests with elected officials. Consequently, Bangor’s debt doesn’t qualify as “voter approved” under the tax-cap proposal and would have to be paid using a portion of the $10 per $1,000 that otherwise would be used for city-school operations.

During a workshop last week, Bangor officials discussed a proposal by Councilor John Cashwell that aims to address the debt aspect of the Palesky plan. The measure also would protect the city’s bond rating by ensuring the city has the capacity to cover its debt.

“Anybody that operates under a charter as opposed to a town-meeting format is at a disadvantage,” Cashwell said last week. “Well, for me, it came down to this: You have to operate under the premise that the tax cap is going to be a disaster. I’m elected as a representative of the people. My job is to do the best I can to provide the services people want under the notion of being prudent and judicious. When you look at the language of the tax cap, you’ve got to look for ways to mitigate damage to the city where you can.”

Cashwell’s approach calls for asking Bangor voters to reaffirm debt that the council already has approved. As he sees it, that would put Bangor on an even playing field with most other municipalities.

Passage of the city measure would require approval from a two-thirds majority, according to City Solicitor Norman Heitmann.

“It’s going to be up to us and the news [media] to explain that it’s a measure which would help the city cope if Palesky does pass,” Cashwell said. Here’s how it would work:

The city would put a referendum question on the Nov. 2 local ballot asking voters to ratify the city’s outstanding debt. If voters approve the measure, the city believes, the city’s debt then would be qualified as “voter-approved” under the language of the tax-cap plan.

That way, should the cap pass, the city would be allowed to raise additional tax revenue on top of the $10 per $1,000 limit to cover its outstanding debt.

Earlier this year, City Manager Edward Barrett concluded that if the tax cap were in effect during the previous fiscal year, which ended June 30, the city would have been limited to $15.9 million in tax revenues – or $21.8 million less than the $37.7 million it was allowed to raise to help fund its $70.7 million city-school budget.

This year’s $70.8 million includes $4.2 million for debt service, which translates to $2.38 per $1,000 in property valuation, Barrett noted in a written briefing for councilors.

To meet the schedule to get the question on this fall’s ballot, the process needed to begin last week, which it did when city councilors set a public hearing for their Aug. 23 meeting, to start at 7:30 p.m. at City Hall.

City officials have reviewed Cashwell’s proposal and discussed it with MMA legal staff, “who felt that it might serve to protect the city and be a prudent step for us to take,” Barrett wrote in a memo for councilors.

As MMA spokesman Michael Starn sees it, Bangor has little to lose – and possibly much to gain – by asking voters to approve debt. Overall, he said, the logic behind it appears sound. He cautioned, however, that tax-cap proponents might see the move as “trying to circumvent the petition, but that’s kind of a simplistic way of viewing it.

“There are some strategic reasons maybe to do that, but politically I don’t know that there’s a clear, ‘Yes, it’s a good idea,'” Starn said in a telephone interview last week. “I think it’s reasonable for planning purposes, but I think they really need to gauge citizen reaction. [The tax cap] is a very sensitive policy question.”

One of MMA’s complaints about the tax cap, the language of which was based on California’s Proposition 13, is its inherent technical and legal problems and contradictory language, including where debt is concerned, Starn said. He said the tax cap treats debts incurred before 1999 and after 1999 differently. Post-1999 debt would require approval from two-thirds of the electorate, while older debt would require a simple majority.

“Whether you agree with it or not, it’s such a mess in the way that it’s worded,” Starn said. “And so now we’ve got something that’s being voted on, though clearly many people believe parts of it are unconstitutional and therefore would be struck from it. But that’s not going to happen [automatically]. There would have to be a [legislative] process.”

The desire to protect its bond rating while seeking to bond $21 million recently prompted the city of Lewiston, which like Bangor has a council-manager form of government, to take the unusual step of purchasing default insurance at a cost of more than $150,000, Lewiston Finance Director Richard Metivier said.

“It was basically a decision that we made, along with our financial adviser,” Metivier said last week, describing the insurance as a way to “bulletproof” the borrowing process.

He said Lewiston councilors would form a 15-member panel to look at the Palesky proposal and develop recommendations for minimizing adverse impacts. Though it is too early to say whether Lewiston would go down the same road as Bangor, Metivier said, “It’s a possibility.”

Some officials from other Maine cities with forms of government like Bangor’s plan to consider the approach Bangor is contemplating, though some noted that their communities would see less of a benefit, either because they had relatively little debt or because their charters require voter approval for borrowing beyond established limits.

“I think it’s a logical move,” Presque Isle City Manager Tom Stevens said Friday, adding that he was in the process of raising the concept with his council. He said he concurs with Bangor’s assessment of the debt issue. The Palesky proposal’s debt provisions “create a great deal of inequity in communities [like Bangor and Presque Isle] that follow their legal structure,” he said.

“I think it’s prudent,” said Rockland City Manager Tom Hall. He noted, however, that debt payment under the proposed tax cap was less of an issue in his community, which requires voter approval for expenditures exceeding $100,000. “It’s just a quirk of our local system,” he said.

Ellsworth is taking a wait-and-see approach, according to its city manager, Stephen Gunty. “At this point, we don’t have anything prepared of that nature.”

He said councilors there have not taken a formal position on the cap. “They feel strongly that at this point they didn’t want to influence voters. They want to hear both sides of the coin first,” Gunty said.