Study analyzes tax cap results Cuts seen as Palesky consequences

In what its authors call the most detailed analysis of the proposed Palesky tax cap to date, a study released Tuesday found that Maine communities would have faced a shortfall approaching $700 million if the cap were in effect last year.

“People need to know what they’re voting on in November,” said Todd Gabe, a University of Maine economics professor and co-author of the report, commissioned by the Maine State Planning Office. “State and local governments could respond to [the tax cap] in many different ways, but based on the experience in other states, it could mean cuts in services and creation of new sources of income.”

The tax cap referendum was initiated by a citizen petition and will be on the Nov. 2 state ballot. If passed, it would cap property taxes at 1 percent of their assessed value.

Supporters of the so-called Palesky proposal – a reference to its initiator, Topsham accountant Carol Palesky – say it will force towns to control spending. Opponents say it will bust municipal budgets and force a reduction in services.

The study, written by economists at the University of Maine’s Margaret Chase Smith Center, found the cap could force a shift in power from local governments to the state.

State lawmakers, should they try to fill the estimated $688 million shortfall in local budgets, would need to increase the state income tax 64 percent or boost the state’s 5 percent sales tax to more than 9 percent, according to the study.

Taking into account a recently passed law to increase local school funding, the study found the local shortfall would drop to about $535 million.

The report drew immediate fire from tax cap supporters including Phil Harriman, spokesman for the political action committee Tax Cap Yes!

“It’s obsolete,” Harriman said, faulting the study’s authors for basing their numbers on 1996-1997 values, a section of the initiative likely to be found unconstitutional based on an advisory opinion from the Maine Supreme Judicial Court. “Can we at least all give our best efforts to understand what the real impact of this is going to be?”

Despite the disagreements over the study’s methodology, Lee Umphrey, a spokesman for Gov. John Baldacci, said the report clearly shows the devastation the tax cap would have on local budgets.

“It’s just reality,” said Umphrey, who rejected renewed criticism that the state shouldn’t be spending tax dollars – in this case $10,000 for the study – to oppose the referendum. “[Harriman’s] niggling over campaign semantics. This is public information.”

Public support for the cap appears to have dwindled – or at least wavered – in recent months as opponents have stepped up their efforts, warning of drastic cuts in local services, including such things as snow removal and police protection, should the initiative pass.

A September poll on the subject showed a deadlock among voters, with 37 percent supporting and 36 percent opposed. Twenty seven percent of voters were undecided.

A July survey had found support for the plan at 47 percent, down from 51 percent in March.

Harriman attributed the apparent decline to the effective, but unfounded, use of “scare tactics” by municipal officials, who have warned of mass firings and bare-bones educational offerings should voters approve the cap.

Harriman, citing recent changes in the tax law and likely changes to the bill, contended the effects would not be so drastic.

Tax cap supporters and opponents will renew their debate at this morning’s meeting of the Bangor Region Chamber of Commerce, which is hosting a panel on the subject.

The Margaret Chase Smith Center study is available online at www.umaine.edu/mcsc/TaxCap.pdf.