Unfair, Unnecessary & Unwise
(from Maine Townsman, August/September 2009)
By Jeffrey Austin, Legislative Advocate, MMA
Two citizen initiatives will be on the statewide ballot on November 3 that are of great concern to Maine’s municipal leaders. Those two initiatives are: An Act to Decrease the Automobile Excise Tax and Promote Energy Efficiency (LD 974), and An Act to Provide Tax Relief (LD 976), commonly referred to as “ TABOR II” (which stands for Taxpayer Bill of Rights).
The Maine Municipal Association strongly opposes the Motor Vehicle Excise Tax initiative and the TABOR II initiative. Here’s why.
Excise Tax Initiative
Question to the voters: “Do you want to cut the rate of the municipal excise tax by an average of 55% on motor vehicles less than six years old and exempt hybrid and other alternative-energy and highly fuel-efficient motor vehicles from sales tax and three years of excise tax?”
With this question, voters are being asked whether they want to significantly cut the motor vehicle excise tax rates that are applied when cars and trucks are registered each year. For the newest cars (four years old or newer), the rates are cut between 50% and 70%. For vehicles in their 5th year, the rate is cut by just under 40%. There would be no reduction in excise taxes for any motor vehicle older than five years. Approximately 68% of all registered motor vehicles in Maine are older than five years.
These excise tax revenues are collected and retained by the towns and cities and both as a matter of practice and a mater of fact they are used to maintain and repair Maine’s local roads and bridges. According to the data collected in MMA’s 2007 Fiscal Survey report, it was projected that municipalities statewide received $210.4 million in motor vehicle excise tax revenues and spent $235.4 million on roads and bridges. The difference was made-up with $25.4 million in state aid for local roads (Urban/Rural Initiative Program). Therefore, the total amount of money in both accounts available to repair and maintain local roads and bridges was $235.8 million. Accordingly, all the towns and cities in Maine, taken together, spent 99.83% of the combined revenues from the excise tax and state aid for roads on road and bridge-related expenditures in 2007.
Based on the total amount of motor vehicle excise tax revenue collected in 2008, the initiative to cut motor vehicle excise taxes, if approved by the voters, will remove approximately $82 million in municipal revenue each year. As just noted, that revenue is collected by the towns and cities and actually used in the statewide aggregate to plow and sand, maintain, repair and rebuild nearly 14,000 miles of local roads and 850 local bridges in Maine.
Supporters of the initiative attempt to obfuscate the impacts by suggesting that excise revenues are not “required” to be used for roads. That is true only because the Maine Constitution effectively prohibits the Legislature from enacting such a requirement for historical reasons. As anyone who has attended a town meeting or read a town report knows, motor vehicle revenues are often specifically dedicated in the local budgets to be used for road and bridge repair and maintenance. Even in the larger municipalities where the legislative body is the town or city council, the general equivalence between road expenditures and motor vehicle excise revenues (plus state road aid) is no coincidence. The public expects these revenues to be used for road repairs and they are.
In addition to slashing road repair revenue, the Excise Tax initiative promotes a fundamentally unfair public policy. All car owners benefit from the maintenance of local roads and certainly all vehicles contribute to wear and tear on the roads. This initiative, however, provides a special tax benefit to the 30% of Mainers who own newer cars. It also provides super-special tax benefits for hybrid or “alternative fuel” vehicles. The excise tax is vital to keeping local roads plowed in the winter and repaired in the summer. Changing this 80-year old law now so that a few people get a free ride is unfair.
Question to the voters: “Do you want to change the existing formulas that limit state and local government spending and require voter approval by referendum for spending over those limits and for increases in state taxes?”
As the question to the voters indicates, TABOR II makes changes to the current law that since 2005 has imposed spending limits on Maine’s State, county, and municipal governments and all school systems. That law, many elements of which were developed by the Maine State Chamber of Commerce, is referred to as “LD 1”. TABOR II repeals the LD 1 spending limit system as it applies to State government and replaces it with a structurally different system. TABOR II modifies the LD 1 spending limit system as it applies to municipalities and counties without totally replacing it.
Generally, the changes TABOR II makes to the existing governmental spending limitation system would place additional limits on the authority of: (1) the voters at town meeting; (2) the representative town or city councils; (3) the boards of county commissioners and the county budget advisory committees, and (4) the Maine Legislature to adopt budgets or enact tax changes that exceed certain limits established by formula in the TABOR II initiative.
On the county and municipal level, TABOR II requires a referendum vote to approve any budget that exceeds the municipal or county spending limit, and those limits would be specially capped by TABOR II in high-growth communities.
TABOR II is essentially a warmed-over version of the TABOR I initiative that was rejected by Maine voters in 2006. The primary municipal concerns with TABOR II are generally the same as in 2006. TABOR II strips local citizens of their power to decide how local decisions should be made, and severely limits the state’s capacity to cover a fair share of the cost of public education and highway maintenance.
On the first point, TABOR II compels all municipalities to submit certain budget and tax decisions to referendum. Referendum voting is a perfectly valid governance tool if that is the way the voters in a community want to make their decisions. Having said that, referendum voting is currently and always has been an option available to all municipalities, and the voters in several towns have locally chosen to utilize this governance tool. But TABOR II takes away local control over this issue, compels all municipalities and counties to use the referendum system and in so doing gives control over to the state Legislature over the future of this mandatory referendum law. It is unnecessary and inappropriate to mandate a system that is already a local option.
TABOR II is even more intrusive with respect to state operations. First, TABOR II imposes growth limits on all state spending, and requires a statewide referendum vote to exceed the limits that are separately applied to the state’s General Fund, the Highway Fund and hundreds of small single-issue dedicated accounts as diverse as the “Maine Black Bear Scholarship Fund”, the “Maine Dairy Farm Stabilization Fund”, the “Snowmobile Trail and Trail Grooming Equipment Fund”, the “Maine Outdoor Heritage Fund”, the “Eel and Elver Management Fund”, and the “Saco River Corridor Commission”.
In the act of repealing and replacing the entire spending limit system for state government, TABOR II establishes Fiscal Year 2010 as the baseline year for all future growth in the state’s General Fund, Highway Fund and each of the hundreds of “Other Special Revenue” accounts. Because of the current nationwide economic recession, the FY 2010 General Fund and Highway Fund revenues are currently projected to come in at unusually low levels. For example, the General Fund appropriations for the current year, which would make up the TABOR II baseline, are fully $202 million less than the total General Fund appropriations two years ago, in FY 2008. The FY 2010 General Fund appropriations are $51 million less than the appropriations of FY 2007, which represents the period of time the first version of TABOR was rejected by the voters. Similarly, Highway Fund appropriations for the current “baseline” year are $40 million less than the Highway Fund appropriations of three years ago. Going forward, therefore, TABOR II will have the effect of locking-in state-level spending at historically low levels. This element of TABOR-based spending cap proposals is known as the “ratchet down effect”.
TABOR II also imposes significant additional costs on state and local governments by requiring statewide referendum voter approval for tax rate increases and statewide, county-wide and local referenda for expenditure increases above the growth limit. On the state level, this includes: (1) any increases in General Fund, Highway Fund, and “Other Special Revenue” Fund spending over the newly-designed TABOR II limits; (2) any state-level tax rate increase, tax base expansion or repeal of any tax exemption that net generates more than one-hundredth of one percent of the state’s General Fund (approximately $300,000 a year); and (3) the annual increases to the motor fuel taxes, which are currently indexed to inflation.
Prior to any statewide referendum vote, TABOR II requires that certain notices and financial information be mailed to every registered voter in the state. The direct costs of mailing special notice to the state’s 994,000 active registered voters are estimated to be approximately $800,000 for each mandated referendum. In addition to the costs of providing the special mailed notice that the state would pay, the municipal costs to the property taxpayers associated with conducting a statewide referendum election are approximately $1 million.
Taken together, the Motor Vehicle Excise Tax initiative and the TABOR II initiative run roughshod over municipal operations, intrude inappropriately on municipal home rule authority, make the motor vehicle excise tax substantially more regressive, severely limit both the state and municipal capacity to adequately maintain our roads, highways and bridges, make it all but impossible for the state to appropriately fund K-12 education, and put enormous pressure on the real estate property tax. TABOR II and the Excise Tax initiatives are not good faith efforts at government reform. They represent, instead, a slash-and-burn type approach to public policy and are ultimately unfair, unnecessary and unwise. MMA urges municipal officials to educate their citizens about these issues before November 3.