Study: Slash taxes, state government State should invest in R&D, land preservation

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BANGOR – Economic prosperity for Maine could be within reach if the state took bold action and focused its resources on a few critical investments, according to a newly released report.

The report, titled “Charting Maine’s Future: An Action Plan for Promoting Sustainable Prosperity and Quality Places,” proposes making major government spending cuts and investing the savings in research and development and land preservation.

“Maine needs a plan to stick with year-in and year-out,” said Mark Muro, a policy director at the Brookings Institution, the Washington, D.C., think tank that published the report. “We want you to invest in your economy and stay that course and increase your energy and urgency.”

The 144-page report attempts to provide an objective analysis of trends in Maine’s population, economy and land-development. It also indicates what those trends mean for the state’s economic health and residents’ quality of life.

GrowSmart Maine, a nonprofit in Yarmouth that promotes sustainable economic growth, commissioned the report in the spring of 2005 for $450,000.

Alan Caron, GrowSmart’s president, said the report is in part a reaction to past research that has not spawned legislative action.

The report is one of many economic studies of Maine published in recent years.

“I think this is a next stage in a lot of good work that’s been done in past years,” said Caron. “To us the report is just the first step. It’s a tool, it’s a catalyst to bring action into the future.”

Caron said the report marks the beginning of a five-year campaign to build enthusiasm among state residents and encourage elected officials to make a serious commitment to economic development, tax reduction and preservation of rural and agricultural land.

The report outlines three recent major changes in Maine: population growth, sprawl and a diversifying economy. Each change brings with it some very positive implications but also some significant challenges that the state must address, the report says.

Although Maine’s population is growing faster than all other New England states except New Hampshire, the 25- to 34-year-old age group continues to shrink. The existing, aging population contains too few young workers and too few highly skilled or educated people, according to the report.

The report identifies Maine’s quality of place – its outdoor activities, scenic countryside and small towns – to be its “calling card” for a growing population. But the in-migration contributes to sprawl, which threatens picturesque landscapes.

The sprawl, or development extending from regional hubs, now comprises 17 percent of the state’s land mass, up from less than 1 percent in 1960, according to the report. Suburbanization is increasing government spending on schools and services and degrading small towns and interrupting natural and agricultural landscapes, the report says.

Eventually the sprawl, and Maine’s high taxes, can be expected to turn people away.

The report proposes establishing a Quality Places Fund, a 10-year, $190 million revenue bond that would combat sprawl by supporting land and farm conservation and access to forests and lakes, as well as advertising to attract tourists.

To pay for the fund, the report suggests increasing the state’s lodging tax by 3 percent, raising the current rate of 7 percent to 10 percent. The study predicts this would bring in $20 million in revenue annually.

A Maine Community Enhancement Fund is another means of ensuring the state’s quality of life, the report says. By raising deed transaction fees by $20, the state can generate $5 to $8 million per year. This money would enter the fund, which would be dispersed as grants for improved town planning methods, incentives for more efficient municipal and regional planning, building code reform and The Maine Downtown Center, which works to preserve Maine’s town centers.

Sprawl is directly affecting government spending, the study asserts. Of the 42 new schools built between 1995 and 2005, 13 costing a total of $200 million were constructed in direct response to population dispersal in four of the state’s largest labor market areas: Augusta, Bangor, Lewiston-Auburn and Portland.

The report lists public school systems and state-level administration as two major areas of excessive spending. By spending $8,000 per student, Maine ranks 11th in the country in K-12 educational spending, placing it above New Hampshire. But the report questions how much of that expenditure is necessary. The report points out that Maine school districts employ 152 superintendents and 50 percent more district-level administrators than the national average.

“This is not just Vacationland, it’s Administrationland,” said Bruce Katz, a vice president and director at the Brookings Institution. “You’re spending so much on administration it’s crowding out the ability to invest in programs and policy that could have an effect on prosperity.”

Non-school local government spending appears relatively frugal, but its costs rise in suburban areas, also because of sprawl, the study says.

Maine’s 1.3 million residents pay taxes to support 504 local governments, which amounts to one government for every 2,570 people, the report said. This gives the state the seventh-highest ratio of governments to citizens in the country, according to the report. California, it notes, has one government for every 65,770 residents.

Maine’s taxes are simply higher than they need to be, according to the report. Calculated as a percentage of income, Maine’s combined state and local tax burden of 13 percent was the fourth-highest in the nation in 2004.

Taxes could be lower, the report says, if the state would only find more frugal and efficient ways of spending its income.

The report encourages the formation of a Government Efficiency Commission, a bipartisan collective that would scrutinize state and local government systems to locate cost savings that could be applied to tax reduction, the Quality Places Fund, and a $2 million Fund for the Efficient Delivery of Local and Regional Services.

Maine’s high expenditures on state and local government do not reflect its values or explicit priorities, the report says. Instead they are the result of the accumulation over time of redundant managerial layers and inefficient institutional structures, or excessive numbers of administrators dedicated to routine tasks like tax collection, back office support or corrections.

The Government Efficiency Commission would be modeled on the federal Base Realignment and Closure Commission. The report predicts that its proposed commission could scour up to $100 million annually in efficiency and structural savings within state government.

The Maine Government Efficiency Commission would force legislators to achieve efficiencies in a way that has never been seen at the state level, the report says.

The commission also would fund a $200 million Maine Innovation Jobs Fund, a bond to support research and development in promising areas like forest bioproducts, biotechnology, information technology, organic farming, advanced materials and precision manufacturing.

While Maine’s traditional industries – tourism, health care, catalog retailing, finance and insurance – are faring well compared to their national counterparts, innovative “clusters” of service or export-based companies such as boat-building, advanced materials and biotechnology are populated by only a handful of companies and are generating jobs at a slow rate.

The report sees reason to support these clusters as they are paying employees more than the fading manufacturing and natural-resource-based companies. One example is the Georgia-Pacific mill in Old Town that closed in March but will soon become home to sustainable biotechnology research, energy production and manufacturing.

The success or failure of such clusters will determine the future of Maine’s economy, the report said.

In its past responses to structural economic change, Maine has inconsistently pursued its economic goals and development efforts, the study says. One example offered is the state’s Department of Economic and Community Development, the smallest department in state government. Of the state’s 15,600 employees, 42 work on economic development. And Maine’s $10 per capita spending on economic development is about half the national average, the study said.

Another example of inconsistency is the state’s pledge of 2 percent of its municipal revenue sharing funds and 2 percent of its general purpose aid to the new state Fund for the Efficient Delivery of Local and Regional Services. The program, designed to finance grants for feasibility studies and other developments of municipal, county and school efficiency projects, lost all funding in June 2005.

The state has missed important opportunities to raise revenues that could support property or personal income tax reductions to better balance the revenue system, the report said.

“Parts of Maine’s state and local government system impose heavy costs on the state that are squeezing out necessary investment in other areas even as they contribute to high taxes,” the report stated.

Yet another way to raise revenues, the report suggests, is to create a selective sales tax on tourist services like aircraft rentals, charter flights and lodging.

The report also recommends a lower property tax rate, achieved by a homestead exemption, that would protect Maine residents from paying high property taxes. Out-of-state homeowners, on the other hand, would pay upwards of $300 million in new taxes.

“Up to now, Maine has been a cheap date,” Katz said, referring to the cost of vacationing in Maine.

But Greg Dugal, executive director of the Maine Innkeepers Association, disagrees.

“To put any additional burden on this industry, which is one of the highest performing in the state, is putting us at a tremendous disadvantage,” Dugal said.

Dan Lewis, director of the state Office of Tourism, is also wary of increasing taxes on tourism. Lewis said he could not comment specifically on the report because he had not yet read it, but said, “The entire tourism industry feels like it’s being picked on. There would have to be a very good reason to consider increasing it.”

Such feedback has been important to the Brookings team all along. Their 18 months of research drew heavily on local knowledge shared during 45 “listening sessions” throughout the state. Residents and civic, business and political leaders voiced their concerns during the meetings, and Brookings kept track of the most common concerns.

The researchers gathered statistics from the U.S. Census Bureau, Internal Revenue Service, Bureau of Labor Statistics, Bureau of Economic Analysis, Maine State Housing Authority, National Center for Education Statistics, and research conducted at the University of Maine’s Margaret Chase Smith Policy Center, the University of Tennessee at Knoxville and Colorado State University.

Because they haven’t seen the report, state officials from the Department of Education and State Planning office were unable to offer comment for this article.

Representatives from Brookings and GrowSmart have briefed some Maine legislators and former Gov. Angus King on the report’s contents.

King said he appreciated the report’s balance of good and bad news.

“The puncturing of pessimism is a very important part of the report. No matter what we do, we’re not going to progress unless people think we have a positive future.”

The report can be read in its entirety at www.growsmartmaine. org. GrowSmart plans to distribute a more condensed version of the report for the public in newspapers across the state in November.

Discuss the report

Public meetings to discuss “Charting Maine’s Future” will be held this week in:

Lewiston – noon today, Bates Mill, Mill No. 6.

Bangor – 7 p.m. Thursday, Oct. 5, Bangor Opera House.

Waterville – 8 a.m. Friday, Oct. 6, Waterville Opera House.

For more information, visit GrowSmart’s Web site: www.growsmartmaine.org, or call 207-847-9275.