Tough Economy, Tough Legislative Session

(from Maine Townsman, April 2010)
By Geoff Herman, Director of State & Federal Relations, MMA

A $200 million-plus cut in state support for towns, cities, schools and property taxpayers

Municipal officials generally believe that state government should honor its financial commitment to public education; back-up its relief programs to the state’s property taxpayers, especially in tough economic times; and share, proportionately and impartially with its local government partners in both good and bad times by letting the municipal revenue sharing program operate as it was designed; that is, by refraining from raiding it.

If that is the yardstick by which a legislature might be judged, the 124th Legislature gets something less than resounding applause from its municipal audience.

Between the cuts to school subsidy, municipal revenue sharing, Tree Growth tax program reimbursement, and the Circuit Breaker and Homestead Exemption property tax relief programs, a cut of about $212 million was delivered over the biennium by this Legislature to the municipalities, the schools, and the residential property taxpayers who support both. $65 million in cuts were delivered in this supplemental state budget. $147 million in local government cuts were enacted in the initial state budget last spring.

Clearly, lawmakers were in a tough spot. The session began with a new-found gap of over $400 million between anticipated revenue and the gross appropriations of the state budget adopted just months before. The choices seemed limited. Either: (1) cut out $400 million worth of programs; (2) increase taxes, raid health insurance reserves or otherwise raise state revenue; or (3) some combination of both.

Equating revenue reduction to an efficiency tool, Governor Baldacci ruled out state tax increases; a decision that seemed to conform comfortably, more or less, with the sensibilities of this second-session Legislature. Few state politicians want to raise state taxes in an election year, especially with their constituents struggling in a tough economy. In addition, a second-session tax increase would certainly muddy the waters with respect to the comprehensive tax reform legislation facing a “peoples’ veto” attempt on June 8th.

Therefore, the only answer seemed to be securing other-source revenue (principally from the federal government and state employee health insurance reserves), cutting state financial support for various programs, including local programs such as K-12 public education and municipal revenue sharing, and counting on the property tax to pick up some of the slack.

But were those the only choices?

Maine’s municipal leaders recognized early-on that the towns and cities were going to have to take their fair share of the hits. Whether at the end of the day they got more than their fair share is an open question (see “Proportionality” sidebar on page 8), but town and city leaders fully expected to participate in helping balance the state budget, especially on the school side of the ledger.

At the same time, however, the municipalities asked the Legislature to provide some substantive help in mitigating the upcoming financial impacts by taking a hard look at a range of unfunded state mandates as well as the design of certain programs towns and cities are required to administer that need to be fixed. A list of those ideas was published and provided specifically to the Taxation Committee and generally to the Legislature in the January 22, 2010 edition of MMA’s Legislative Bulletin.

Very little of that critical review and “program drill-down” with respect to municipal programs actually happened.

To start on a positive note, the municipalities asked the Legislature to refrain from enacting any new unfunded state mandates as a first step. A very expensive example was working through the system in the form of LD 1725, known as the “culvert” bill, which would have required municipalities to build significantly more expansive infrastructure wherever roads cross perennial or intermittent streams in order to enhance the passage of fish and other aquatic organisms. LD 1725 was pushed by the Department of Environmental Protection and initially endorsed by a majority of the Natural Resources Committee despite the concerns about financial impacts expressed by municipal officials. Ultimately, after the financial impacts to the state’s Department of Transportation finally became apparent, LD 1725 was modified to significantly reduce the short-term impact on municipalities and allow time to develop a revised set of rules that might be workable. Building municipal input into the development of environmental regulations before they get promulgated is the key to reducing the concern of Maine’s town and city leaders about state-level environmental mandates.

The municipalities also asked the Legislature to extend the allowed period of time between the provisional adoption of a school budget by an open-meeting vote and the mandated “school budget validation referendum” from 14 days to 30 days. The limited 14-day requirement was generating scheduling problems and interfering with uniform absentee voting procedures, creating the need for off-schedule elections which cost money. That change was enacted as part of the supplemental budget (see sidebar on page 9).

Having focused on the positive, here is a list of the ideas that were offered but never saw the light of day.

Passing on Some Relief from Federal Mandates. The Legislature had an opportunity this session to include in the bond package it enacted on the last day of the session a $5.2 million component for the revolving loan programs that help capitalize necessary improvements to the drinking water and wastewater facilities throughout the state. (See the description of LD 1826 under the “Appropriations” section of the New Laws article.) Because of the extremely attractive 5:1 federal matching ratio, the $5.2 million state share would have leveraged $26 million in federal funds for the same purpose. On a regular basis, Maine’s municipal leaders ask the Congressional Delegation to provide solid funding opportunities for drinking water and wastewater infrastructure, the construction and renovation of which is so powerfully driven by the mandated standards of the federal Clean Water Act. Finally, when the federal government comes through and puts $26 million on the table, the State Legislature decided to take a pass. An opportunity lost.

Tree Growth Tax Program Abuses. The municipal request was that if the Legislature was going to cut the reimbursement due to the towns for the tax losses suffered by virtue of the Tree Growth tax program, the Legislature could at least fix the elements of the Tree Growth program that allow residential waterfront property owners to dodge their rightful property tax obligations through a bogus claim that they are managing their small-acreage residential properties for “commercial harvesting” purposes. MMA submitted to the Taxation Committee several versions of corrective language that would tighten up the program to deal with abuses. Nothing was done.

Service Charges on Large Tax Exempt Institutions. In 2009, MMA’s Legislative Policy Committee caused a bill to be submitted (LD 1290) that would authorize a municipality to adopt an ordinance permitting an assessment of carefully limited service fees against tax exempt institutions with a property value or annual income exceeding $1 million. The service fees would be calculated on the basis of the value of road services and public safety services (fire and police) the institutions directly receive from the town or city. LD 1290 was killed by the Taxation Committee in 2009, but the concept was resurrected in the budget debate this year as a possible way to help those communities where tax exempt institutions congregate cope with the negative financial impacts delivered by the supplement budget. The talk was simply talk, and nothing was done.

General Assistance Accountability Standards. As originally proposed by the Governor, the supplemental budget would have cut General Assistance (GA) reimbursement by about $2 million, particularly affecting those municipalities with unusually high GA demands, such as the service centers like Portland, Bangor and Caribou. The Governor’s GA proposal was eventually pulled-out of the proposed budget because the Department of Health and Human Services addressed the $2 million shortfall in a different way. Facing a $200 million cut to local government over the biennium, however, the municipalities were still interested in beefing-up the accountability standards in GA law. A few years ago, the Maine Welfare Directors Association developed a proposal that addressed the obligations of applicants who come into Maine from other states and have recently broken the rules of the social service programs they were receiving in the states they had left. Under current GA law, a person who has already received GA cannot forfeit a public benefit, such as a housing voucher or heating assistance, and then expect to get GA to replace that forfeited benefit. That law doesn’t apply, however, to first-time applicants. MMA advanced the legislation to buck-up that element of GA law, but nothing was done.

Relax Mandate on Publication of Legal Notes. For a long time the municipalities having been seeking a relaxation of the law that requires legal notes to be published in the most expensive and often least widely circulated daily papers. It is particularly frustrating when the publication of those notices in the “shopping notes” newspapers achieves 100% circulation at substantially lower costs. The legislation to fix that problem has been advanced unsuccessfully to the Legislature many times over the last decade, and the idea was put forward again this session, but nothing was done.

Over-determined Department of Labor “OSHA” Inspections. Municipal officials are becoming increasingly concerned about the attitude and aggressiveness of the Maine Department of Labor officials who conduct workplace inspections at the town offices, transfer stations, fire departments, etc. There isn’t a municipal official responsible for a workplace that isn’t completely motivated to provide a safe environment, but the way Maine law is designed, the Department of Labor inspectors are supplied an encyclopedic arsenal of more-or-less applicable OSHA standards which are themselves so complicated, removed, overbroad or inexact that a nearly subjective regulatory authority is at play. In almost every case, if the inspector wishes, violations can be cited, fines can be threatened or applied, and a dizzying array of paperwork can be initiated. The applicable law is so heavily cross-referenced with codes from other jurisdictions that are “adopted by reference”, it is hard to know where to begin in the effort to give the municipality subject to these inspections a clearer sense of the standards with which it is expected to comply. Perhaps the municipal request that the Legislature address this bureaucratic over-determination was too broad. In any event, the municipal request to make this regulatory system more objective, rational and coherent went nowhere.

Animal Welfare. In 1994, shortly after the state’s Constitution was amended to limit the enactment of unfunded state mandates, the Legislature enacted a law placing the immediate obligation on towns and cities to control undomesticated animals posing a threat to public health or safety. Since 1987, municipalities have been mandated to provide all necessary medical attention to stray domestic animals whose owners are not known. MMA suggested that both of these mandates deserve review. In the first case, the state’s Inland Fisheries and Wildlife Department should have primary and lead responsibility for all undomesticated animal control. In the second case, municipalities should be authorized to order the euthanasia of stray animals picked up by local animal control officers and found to be in need of expensive medical treatment. No progress was made on these issues.

End Mandatory State-level Boiler Non-Inspections. Although not technically a “mandate” issue, the state should end the practice of charging municipalities for boiler inspections that the state never actually conducts. It’s a $50 per boiler fee for essentially filing a piece of paper the municipalities must provide to the state certifying an inspection has occurred. The inspection is actually conducted and paid for by the municipalities, typically through their insurance companies. All of this stems from an underlying law that exempts most normal boilers from the state inspection process except the boilers of “schoolhouses and municipalities”. It has never been explained why school and municipal buildings do not get the exemption state law provides to every other place of public accommodation. The required fee for municipal boiler non-inspection was not eliminated this session.

Conclusion. This short list of state mandates municipalities would like to see reviewed and improved may seem like small potatoes in the scheme of things, but it all adds up. Those who prognosticate on such issues are giving warning that based on three observations the state will be facing very difficult financial circumstances over the next several years.

First, even if an economic recovery from the 2008 recession is beginning to emerge, history suggests that state income and sales tax revenues do not instantaneously rebound with a rebuilding economy.

Second, although the state budget over this biennium has been propped up with federal stimulus funding, stabilization resources and changes to the Medicaid matching rates that are advantageous to the states, that type of extraordinary financial support to the states from the federal government will not likely be sustained past the next fiscal year.

Third, the state is facing very significant internal financial obligations to buy-down the size of the unfunded liabilities it is carrying with respect to the pension and health insurance promises it has made to state employees and school teachers.

If that grim prognosis is accurate, the failure of the Legislature to work on this short and initial list of municipal “mandate issues” is truly unfortunate. The entire list described in this article is just the beginning. Many more ideas of the same type could easily be generated and should be dealt with squarely by the next Legislature, not merely as a matter of partisan rhetoric but by actually changing the laws that effectively prevent municipalities from adapting to a much leaner financial environment. Without legislative action, the towns and cities will have to submit to the priorities they are forced to accept as a result of these archaic and unexamined laws, codes and regulations handed down by legislatures long since adjourned. If state government deficits are going to dominate the future, the municipalities ask not to be handcuffed to the expensive and unexamined state mandates of the past.

Rep. Briggs and Senator McCormick