The December, 2006 edition of the Maine Townsman described the Maine Municipal Association’s legislative agenda for the 123 rd Legislature. This article provides an update on the status of the MMA agenda following the conclusion of the First Session of the 123 rd Legislature.
The centerpiece of MMA’s legislative agenda was a multi-dimensional bill known as An Act To Ensure Responsible Government Spending, Investment and Educational Efficiency; it was printed as LD 804. This legislation was aimed at instilling discipline in various aspects of government spending, borrowing and financing. It also sought to improve school administrative efficiency and foster government spending reform at all levels. It was developed by a coalition of groups including the Maine Education Association, the Maine Service Centers Coalition, the Maine Hospital Association and the Maine State Chamber of Commerce. It was presented by this Coalition as a sensible response to the problems which the unsuccessful tax-cap initiative in 2006 known as TABOR sought to solve.
The Legislature did not take action on LD 804 as such; it has been carried-over to the second session of the Legislature. The Legislature did review many of the topics covered by LD 804 in the course of its work on other bills.
In December, prior to the Governor’s proposed budget being printed, MMA and the Coalition declared that one of the primary goals for the legislative session was an improvement in the efficiency in the way school administrative services are delivered. Part C of LD 804 established clear goals (including a 10% reduction of administrative and other non-instructional costs), created a structure to accomplish those goals (26 regional planning alliances) and flexibility for these planning alliances to meet these goals.
While Part C of LD 804 was not enacted, it was clearly the countervailing weight to the administration’s school restructuring program. The school consolidation bill that was ultimately enacted is not a perfect piece of legislation. However, it is in many ways the middle-ground between the top-down, mandatory consolidation-of-power approach put forward by the Governor, and the flexible, planning approach put forward by MMA and the Coalition.
There are certainly elements of the school consolidation legislation that municipal officials have concerns about. However, the issue of school administrative costs does deserve careful scrutiny. Ultimately, the implementation phase will determine if this legislation was sound policy.
A second priority of the coalition was a tightening of the so-called “LD 1” spending limits that were enacted into law in 2005. Municipal officials recognized that many TABOR supporters were expressing a genuine belief that all levels of Maine government needed stricter spending controls. MMA opposed TABOR for several reasons; two of the primary ones being that TABOR’s spending formulas and override procedures were irrational and poorly constructed.
However, many municipal officials felt that the sentiment behind TABOR should be taken seriously. They further believe that LD 1 should be the foundation for a responsible approach to controlling spending. Part A of LD 804 would have put more teeth into the LD 1 spending limits by tightening the override requirements whenever a local unit of government was receiving increased state subsidies for the purpose of providing property tax relief. It did so by increasing the threshold to override the LD 1 limits from a simple majority vote of the legislative body to either a 2/3 vote of the legislative body, or a majority vote by the citizens at referendum.
State government presents a challenge when drafting comprehensive spending control legislation. TABOR was destined to be unenforceable with respect to state spending since a mere statute can not effectively bind the Legislature; a simple majority of state legislators could vote to ignore TABOR or any another statute-based control. The only way to effectively bind the Legislature is by means of the Constitution. But to get a constitutional change out to the voters requires a 2/3 vote of the Legislature and that is unlikely to occur.
So, the December, 2006 Townsman urged the adoption of a legislative “joint rule” as the means to tighten the state spending control. A joint rule is appealing because the adoption of a joint rule, if done within the first three weeks of the session, only requires a simple majority to pass. Yet, undoing a joint rule after the third week requires a 2/3 vote of the Legislature. As such, it more effectively binds the Legislature than a statute would, at least for the biennium.
At the coalition’s urging, a joint rule was introduced which would have required a 2/3 vote of the Legislature to exceed the LD 1 spending limit on the state (Senate Paper #10). This joint rule was unanimously supported in the Senate. Following the Senate vote, the Speaker of the House asked the Attorney General’s Office to take a look at the joint rule. The AG’s opinion cast doubt on the constitutionality of the proposed rule on the theory that it potentially conflicts with the Constitution’s “budget presentment” provisions. The Joint Rule was subsequently rejected along partisan lines in the House.
The failure of the State to take a lead on this issue helped doom all of the subsequent pieces of legislation that dealt with spending caps of any kind.
It should be noted, however, that the school consolidation legislation includes a requirement that all school budgets – whether they exceed the LD 1/EPS spending cap or not – must be adopted by the voters at referendum.
Prior to the session, it was widely anticipated that the Legislature was going to approve a borrowing package of some amount. Municipal officials believe that a coherent policy of borrowing and investment is needed in order to keep Maine economically attractive to business.
As part of that coherency, MMA and the Coalition supported giving the public some degree of certainty that the Legislature will follow responsible borrowing principles and not jeopardize the state’s fiscal health. Accordingly, Part B of LD 804 proposed that the Legislature adopt into statute the current “rule of thumb” that the state’s borrowing be limited to such an amount that the debt service will not exceed 5% General Fund revenues.
The Legislature did support a bond package that roughly mirrors the priorities of municipal officials. The $295 million bond package authorized by the Legislature also conforms to the 5% limit. However, the Legislature did not enhance this rule of thumb by putting it into statute. A codification of that rule would have sent the right message to the taxpayers who are responsible for paying off this debt.
Unfunded State Liabilities
Perhaps the biggest turnaround and most inexplicable act of this Legislature was its failure to adopt a constitutional amendment to deal with Maine’s enormous unfunded liability stemming from the Legislature’s decisions to provide subsidized health insurance to retired teachers and state workers.
The state has promised to subsidize the health care premiums of approximately 17,000 retired and 44,000 active state employees and teachers. Until recently, no one knew just how much this benefit would cost because the state did not have to account for it in it’s financial statements. Then the Government Accounting Standards Board changed its rules to require an accounting of the liability if the benefit is actuarially unfunded. The benefit system is “unfunded” to the extent the State does not have any current savings to offset the future cost.
This future cost is known as the unfunded actuarial liability in the retiree health care program or “health care benefit UAL”. In December, the State’s health care benefit UAL was estimated to be a staggering $4.5 billion dollars. In other words, the Legislature knows that it has promised future benefits that will cost approximately $4.5 billion dollars to cover – and it has no money in the cookie jar.
Prior to that number being announced, the Coalition urged the Legislature to focus its attention on the UAL issue. Part B of LD 804 would have required that the state analyze Maine’s health care benefit UAL and compare it to other states.
Other bills on this issue were filed by Senators Karl Turner of Cumberland County (LD 1511) and Peter Mills of Somerset County (LD 1492). LD 1511 was a constitutional amendment. It was modeled on the constitutional amendment that Maine voters overwhelmingly supported a dozen years ago regarding the pension UAL. That provision both prohibits the creation of more pension-related UALs and requires the existing pension UAL to be fully funded within 30-years (2028). MMA supported this legislation.
The Labor Committee endorsed a watered-down version of LD 1511. The Committee Amendment to LD 1511 required the existing health care benefit UAL to be funded within 30 years but did not prohibit the creation of “new” health care based UALs.
While a stronger bill would have been better, an amended LD 1511 garnered unanimous support by the Labor Committee and was unanimously supported by the House. On the last day of the session, it failed final enactment in the Senate along mostly party lines.
The press has reported on the lack of Dirigo reform and tax reform by this Legislature. The press has largely ignored the demise of this responsible approach to the looming $4.5 billion liability. With strong bipartisan support of the Labor Committee and strong support in the Legislature generally, the defeat of LD 1511 is one of the most inexplicable failures of this Legislature.
Monitor Government Spending
Lastly, municipal officials believe that the state needs to do more than simply cap spending. It needs to start looking in a careful and thoughtful way at government spending to identify those areas of excess or inefficiency in order to create targeted solutions. A similar approach to government revenues for purposes of tax reform is also needed.
With respect to spending, the Brookings Institution report issued last Fall contained very good analysis of spending at all levels of government. It largely relied on Professor Philip Trostel’s analysis of government spending data compiled by the US Census. MMA believes that continuing this thoughtful approach by statutorily creating a mechanism to compile and review spending data would serve the public interest.
Part D of LD 804 would have established a spending and revenue review process. It is unclear if this work will be assigned to any of a number of groups or committees created by the Legislature. The best hope would appear to be the Brooking-inspired Joint Select Committee on Prosperity created by a Joint Resolution of the Legislature (HP 1018). The work-plan of this group has not yet been developed. MMA hopes that this group will consider Part D of LD 804.
From the perspective of December 2006, the enactment of LD 804 in its entirety was probably too much to expect from this Legislature; from the perspective of July 2007, it is certainly fair to have expected more.
With school reform, the Legislature showed that it was willing to tackle very difficult issues that require “complicated” and “less than perfect” legislative solutions. This makes the Legislature’s failure to do more on the LD 804 issues of spending governance, borrowing governance, unfunded liability governance and monitoring long-term spending habits all the more glaring.
LD 804 was carried over to the second session. Perhaps more will be accomplished next year.
SIDEBAR: Other Planks in MMA’s Legislative Agenda
There were three other “planks” in MMA’s legislative platform. Each received the carry-over type treatment that LD 804 received.
Property Tax Exemptions
Maine’s municipal leaders once again asked the Legislature to look at improving the equity of the property tax code by addressing the extent to which the owners of major chunks of property throughout the state are completely exempt from taxation. LD 1413, An Act To Set Fees for Services for Tax-exempt Property in Municipalities, (sponsored by Rep. Patricia Blanchette, Bangor) would look at ways to have the owners of approximately $3.5 billion worth of non-governmental exempt property in Maine help cover the cost of municipal services including road construction, maintenance and traffic control; police, fire and emergency services; and solid waste disposal services.
In the context of structural property tax reform, and with the advent of meaningful spending limitation systems that should allow for tax restructuring, municipalities offered legislation that would establish fee-for-service obligations that could be assessed, by a decision of the local legislative body, against only those tax exempt corporations with considerable recorded assets.
The Taxation Committee voted to carryover this bill and further suggested a willingness to thoroughly review, update, modernize and expand the so-called “service fee” element of Maine’s property tax exemption law.
Revenue Sharing Study
For the just-ended 2007 fiscal year 278 municipalities (57%) lost revenue sharing as compared to fiscal year 2006. And 132 municipalities (27%) received a cut of 10% or more in this property tax relief program between FY 06 and FY 07.
There are a number of reasons for this relatively dramatic reduction in municipal revenue sharing. In 2005, the Legislature reduced the amount of revenue sharing distributed through the original distribution formula and increased the amount distributed through the so-called “Revenue Sharing II” formula. Following-up that decision, the Legislature then raided the original “Revenue Sharing I” distribution to the tune of $5 million, resulting in a 5% reduction in FY 07. Different communities were impacted differently by these changes.
With LD 355, Resolve, To Establish a Committee To Examine Issues Relating to the Administration and Distribution of Municipal Revenue Sharing (sponsored by Rep. William Browne, Vassalboro) MMA sought a formal review of the revenue sharing program convened by the Treasurer’s Office, with the option of developing a range of recommendations for consideration by the Legislature in 2008. The Treasurer’s Office and the Department of Administrative and Financial Services opposed this study and the bill was killed.
However, the Taxation Committee invited MMA to conduct this study and if the municipalities can agree to some adjustments to the formula, the Committee indicated that it would give serious consideration to those suggestions.
Tree Growth Study
Not unlike the municipal revenue sharing program, the way the Tree Growth program is being administered is a matter of increasing concern among municipal officials. The Legislature has caused the delay of Tree Growth reimbursements due in one fiscal year by pushing those payments to the next. Some communities are no longer receiving Tree Growth reimbursement because of a change in way the property tax loss experienced by a community is now calculated. The mandatory per-acre Tree Growth values are in many cases absurdly low, and the reimbursement formula is extremely difficult to comprehend. From what can be determined, it seems clear that the reimbursement system fails to even recognize, much less respond to, actual impacts in many cases.
For those reasons and more, the municipalities had filed LD543, Resolve, To Establish the Maine Tree Growth Tax Law Review Committee (sponsored by Rep. Tom Saviello, Wilton) This bill proposed the formation of a working group, convened by Maine Revenue Services and tapping into pertinent information provided by both the Maine Forest Service and the Department of Education, to thoroughly examine how the Tree Growth program works and develop a set of recommendations for improvements.
Like the charitable exemption bill (LD 1413), this bill was carried-over and the Taxation Committee suggested that it would be the study group on this issue sometime this fall.