AUGUSTA — Maine’s cities and towns are bracing for what’s sure to be another battle over how much tax revenue the state should ship their way as part of the state’s revenue sharing program.
The funds, meant to be 5 percent of all sales and income taxes collected, have increasingly become a source of funds for lawmakers and governors looking to fill state budget shortfalls or reduce taxes.
“The last four Legislatures and the last two administrations have made it abundantly clear, each more aggressively than the last, that the respect formerly held for the revenue sharing program by previous Legislatures no longer exists,” Geoffrey Herman, the director of state relations at the Maine Municipal Association, wrote in the December issue of the Maine Townsman, the association’s monthly magazine.
Herman wrote, “Instead of sharing, state government has come to treat the revenue sharing program as a magic ATM machine, the withdrawals from which never have to be repaid.”
State lawmakers and city officials worry a state budget proposal from Republican Gov. Paul LePage, expected on Jan. 9, also will seek to further reduce, if not eliminate, revenue sharing with cities and towns. LePage has previously proposed eliminating the program, but his predecessor Gov. John Baldacci, a Democrat, also made steep reductions in the amount the state shared with cities and towns.
Meanwhile, the Legislature has transferred increasing amounts from the program to the state’s general fund. The Legislature raided $25.4 million from the fund in 2009 but has more than tripled that amount to $86 million for the current budget ending in June 2015.
Since the Great Recession of 2008, “the state budget has seen a steady erosion of revenue sharing that was going directly to cities and towns,” state Sen. Nathan Libby, D-Lewiston said.
Libby, a newly appointed member of the Legislature’s State and Local Government Committee and a Lewiston city councilor, said the reductions have pushed cities to cut budgets and raise local property taxes to keep pace.
In Lewiston, for example, even while the city has reduced its actual spending, it has had to increase property taxes to keep up with the lost revenue coming from the state.
City Administrator Ed Barrett said since 2009 city staff has been reduced from 369 to 331 employees, other city services were reduced and still the city had to increase the property tax rate $24.9 per $1,000 of assessed value to a rate of $26.6 per $1,000 of assessed value.
“That’s in spite of the fact that our budget this year is $900,000 less than it was in fiscal year 2009,” Barrett said. “Even though we have worked very hard to minimize the impact of these cuts on our taxpayers, it’s still showing up. You are seeing an increase in our property tax rates. Any further reductions of revenue sharing are going to result in more of the same.”
According to figures available from the state treasurer, Lewiston received about $5.2 million in revenue sharing in 2008 compared to $2.7 million in 2014. Portland saw its revenue sharing decrease from $7.7 million in 2008 to $4 million in 2014, and Bangor’s revenue sharing dropped from $4.9 million to $2.1 million during the same period.
Barrett said Lewiston is not alone in its woe, noting that almost every town or city in Maine that acts as a regional service center is facing similar financial difficulties as a result of reduced revenue sharing from the state.
From Portland to Calais to Rumford, local budgets are being stretched to the max, Barrett said.
“What people need to recognize is that a significant amount of the state’s economic activity takes place in its municipalities,” Barrett said.
Without adequate infrastructure and support systems, businesses and residents will start to relocate outside of Maine.
Lewiston and other cities with lower overall property values are hit particularly hard when they lose state revenue because making up the loss with property tax increases requires a bigger tax rate increase, putting a greater burden on lower-income and middle-class families.
Earlier this year Libby, who also serves on the Legislature’s Taxation Committee, along with a bipartisan group of 10 other lawmakers offered a plan that would have dramatically changed the state’s tax system in an effort to provide property tax relief and stabilize state revenues by hitching them to more consistent revenue streams.
The proposal would have broadened the state’s sales tax, but it also depended heavily on increasing taxes on lodging and meals as a means of exporting state costs to the estimated 25 million tourists who visit Maine each year.
LePage has also said he wants to reform Maine’s tax system, even suggesting the state should eliminate its income tax. But Libby said escalating property taxes are the bigger problem for Maine residents and businesses.
Any tax reform that doesn’t tackle the regressive nature of the property tax won’t help, Libby said.
“Any plan to reform the state’s tax code needs to help working people with their property taxes,” Libby said.
LePage has held Lewiston and Auburn up as an example of the savings cities can achieve when they look to consolidate services to reduce costs.
But Libby and Barrett said financial incentives for cities to do more with consolidation efforts would be a better approach than forcing consolidation through fiscal hardship.
“I certainly think that fiscal hardship does make people start looking at these things, but at some point it gets difficult due to structural issues,” Barrett said.
One suggestion Barrett has is to allow cities and towns to shelter the portions of their tax base that are used to pay for consolidated services from other state formulas that determine how much funding a town or city will receive from the state in other areas including public education.
Barrett said he expects LePage will again look to reduce, if not eliminate, revenue sharing for cities, but he hopes any proposal to do so will also include ways for cities to make up for that lost revenue in other ways.