The Belfast City Council is discussing a proposal to advocate a nonoptional local sales tax that would be required to be used to reduce the local property tax. It is not exclusive of other tax reform measures that the state may consider, but would be a measure to provide direct relief to property tax payers. The following is the policy statement that is before the Belfast City Council:

Local governments in Maine have been dependent on the property tax as the primary source of revenue, and property taxpayers have complained that this burden has become too heavy.

Further, demand for services continues to grow but revenues do not grow accordingly. Unlike most businesses, revenues are not tied to investment. For example, a community may spend public money to promote its downtown while increasing the need for infrastructure, traffic control, police protection, and other city services. Yet, even as dollars are spent in the community as a result, local governmental revenues do not change.

Further still, service-center communities are increasingly the host community for desirable but tax-exempt institutions. These tax exempt institutions, such as other levels of government, health care, art or marine museums, schools and colleges, fraternal organizations, add more money into the local economy but do not add more revenues to local government.

Even the state’s No. 1 industry – tourism – does not add revenues to local governments beyond the foundational property taxes of hotels, motels, and restaurants. If tourism increases, the economy benefits but local government economies do not. Yet the demand for governmental services grows as tourism increases.

Sprawl is frequently decried, yet Maine’s tax policy encourages sprawl. With its reliance on the property tax and the increased demand for services, Maine service center communities have higher tax rates than their rural neighbors. Accordingly, people are motivated to move away from the core city in search of a lower property tax burden.

Many states have addressed these issues by allowing municipalities to generate local sales tax revenues.

The state of Maine should adopt legislation to create a local one-cent sales tax to return to the municipality and to the area where it is generated. This penny sales tax should not be optional; it should be applicable in every community in Maine. This sales tax should, by law, be used to reduce the property tax.

This proposal calls for the state to add one cent to the sales tax (bringing it back to the level of a few years ago) and to return that revenue entirely to the municipality and to the county where the tax is paid. The municipality where the sales tax is generated would receive three-fourths of the penny, and the county would receive one-fourth.

The one-cent local sales tax proposal is not a tax increase; it is a tax change, from the overburdened property tax payer to a consumption tax, based on ability and/or willingness to consume. It is revenue neutral. It simply recognizes the 21st century economic conditions, rather than the 19th century economy.

Under this proposal, if a community takes action to increase sales -permits more motels, promotes downtowns, operates a civic center or public attraction, promotes festivals, develops public space or other resources – then revenues to the local government will increase. This measure promotes community investment, rather than, as it exists under the present system, discourages it.

At the same time, the towns surrounding the community would benefit in reduced property taxes for county government, possibly in some instances to virtually eliminate the need for property tax revenues for county government.

In the past, there have been proposals for a local option tax. This has created resistance for fear that one community will pass a sales tax, and another will not, thereby creating competition among towns. A statewide local sales tax will avoid that problem, but still allow the community and the area where the tax is generated to benefit from it.

This proposal calls for the one-cent sales tax to be used, under law, to reduce the property tax. Local government will have to show the revenues from the sales tax and use those revenues to subtract from the property tax amount to be raised. If a community receives $500,000 in sales tax revenues, the amount to be raised by the property tax shall be reduced by $500,000.

Local governments will still be governed by local people. It is true that nonresidents pay some 15 to 20 percent of the sales tax, thus further relieving the local residents’ tax burden, but locally elected officials will still be responsible for raising the remaining costs for services from the property tax. The incentive to keep the property tax low will remain as strong as ever. The ability to keep it lower will be considerably strengthened.

Terrence St. Peter is the city manager of Belfast.