Limiting Tax-Cap Damage

Forty Maine communities, including most of the large ones, have a challenge beyond the obvious in facing the Palesky 1 percent property tax cap. They allow elected officials to approve city debt, which under the tax cap would not be exempted from the cap, as voter-approved debt is. In response, Bangor is considering a smart move to put its current debt before voters this fall. Councilors should support the idea and other cities with high levels of council-approved debt should copy it.

Taxes are too high for too many Maine residents to brush off the good intentions of many behind this tax cap. But the solution would cause even more damage. It is difficult to describe the many ways in which this meat-ax approach to tax reduction would cost the state much more over time, from response times lengthened for emergencies to school-building repairs delayed that result in needing new buildings sooner.

Just on the question of debt, UBS Investment Research last month looked at the likely effects of passing the tax cap and concluded, “While we continue to view tax-backed, local Maine bonds generally secure and stable credits over the longer-term, the immediate fallout from the Palesky proposal could well put some pressure on spreads amid increased prospects for a negative credit watch – or even a rating downgrade.” That is, the research suggests ratings could go down, meaning that the cost of borrowing for towns could go up, costing taxpayers more to accomplish less than they can now.

Bangor’s current level of debt service is $4.2 million, according to City Manager Ed Barrett, which translates to $2.38 per $1,000 in property valuation. Persuading voters to support this level would reduce the $20 million cut in tax revenues to approximately $16 million. It would still mean significant layoffs, suspended programs, more students per classroom, etc., but it would not be quite as bad. Other communities, with debt loads even higher than Bangor’s, would be smart to take the protective step of asking voters to approve their debt and similarly exempt it from the cap.

The Palesky proposal was largely lifted from California’s Proposition 13 and contains language that confusingly refers to special taxes and redemption charges, which Maine does not have. (It also exempts from new home construction “reconstruction or improvement to a structure, constructed of reinforced masonry bearing wall construction necessary to comply with any local ordinance relating to seismic safety … ,” which isn’t often a problem here, though perhaps we’re overdue.) But if you can cut through the language, what you are left with is a heavy-handed, state-centered way to starve local government.

Obtaining voter approval of current debt levels is one small way of minimizing the damage. Councils should approve it before November.