Municipalities Take LD 1 Seriously (sidebar)
Q & A On LD 1 Municipal Spending Limits (sidebar)
A Profile of Two Communities (sidebar)
City Manager Jeffrey Kobrock learned how to run Gardiner on the cheap long before LD 1 and its confusing tangle of numbers became such a focus of municipal budgeting in Maine.
He’s never been given much choice and this year was no different. The city council is expected to adopt a 2007 budget this week that reduces the property tax commitment by 1.3 percent, or about $73,000, in the city of 6,200.
It will be the ninth time in 11 years that Gardiner’s mill rate has remained flat or decreased.
“We are a skinny organization,” Kobrock told the 7-member city council last month after a painstaking review of the proposed budget.
“We are really skinny in the finance area,” he said.
Kobrock’s latest budget doesn’t even approach the spending and tax-increase limits set by the state LD 1 budget law. The city has been frugal enough over the past decade and enjoyed enough new economic activity in recent years to maintain all services while keeping up – if only barely – with increased costs and new mandates without raising taxes.
Even this year, the city can afford to bulk up its public safety staff, bond $630,000 for a new sidewalk repair program and finance a capital improvement plan that includes a $7.2 million storm water overflow project and still reduce taxes a fraction.
“We were doing better than LD 1 long before LD 1 came along,” Kobrock told the Townsman in early May, “but I think (the law) helps us build a really healthy trust with the public” by assuring them that local government not only takes the state’s tax burden concerns seriously but has worked for years to address them.
Enacted in January 2005, the spending limitation systems contained in LD 1 apply to state, county and municipal governments, and schools. The spending limits are intended to keep state and local tax increases below the state’s growth in personal income, resulting in a steadily reduced tax burden over time. The goal of LD 1, as stated in the legislation that was enacted, is “that by 2015 the total state and local tax burden be reduced to the national average total state and local tax burden . . .”.
Data over the past three budget years show the majority of Maine municipalities have spent at or below their limits. In the remaining communities, local voters at town meeting or elected councils have decided to override the limits after weighing the alternatives.
Twenty miles to the east of Gardiner, voters in Vassalboro agreed this month to override the school spending limits – based on the state’s education funding model known as Essential Programs and Services (EPS) – like many other school systems. According to MMA’s second year analysis of LD 1, over 80 percent of the school administrative units in Maine exceeded their LD 1 limit, meaning that the school budget was in excess of the EPS benchmark.
But the municipal budget for Vassalboro, as with Gardiner, hasn’t yet approached the state-imposed limits.
Vassalboro Town Manager Michael Vashon echoes Kobrock’s general theme that municipal officials have been frugal and accountable as a matter of tradition and practice in Maine and did not need a stick from the state to keep their local budgets in line with the expectations of their respective residents.
In fact, the state has again reduced its financial commitment to many Maine towns as it wrestles with its own budget challenges, Vashon noted, including taking almost $90,000 in State Revenue Sharing from the small town in what Vashon said was unprecedented in his experience.
Vashon expresses the feelings of many municipal leaders who have worked on the skinny for years in large part because the state continues to shift costs and tax burden to property tax payers by cutting state funding or imposing expensive new mandates.
“We have been very frugal and careful with taxpayers’ money,” Vashon said. “We haven’t even approached the LD 1 limits (for municipal spending) and we won’t again this year. But we are running so tight right now, all I can do is cross my fingers and hope nothing breaks in the coming year.”
The budget that went to town meeting last week kept the mill rate flat for the fifth straight year, but only because officials decided to use $158,000 from surplus to cover the lost state revenue and other basic needs.
In a process repeated throughout Maine this spring, the Vassalboro selectmen and budget committee scrutinized every budget line, pinched pennies and stretched dollars wherever possible, and came in with a budget that stays well below the LD 1 limits for the third year.
Too tight for comfort?
New Gardiner City Councilor Bryan Blanchard said he’d never seen such a tight budget. He was amazed, he said, by the city staff’s ingenuity in saving money, working more efficiently and getting grants to maintain services despite cost increases.
And then in a remarkable discussion for public life in Maine, especially six months after the contentious debate over the TABOR tax cap initiative, the city council began debating whether the city had become too frugal in recent years.
The discussion would be unusual in most Maine communities, but perhaps even more so in Gardiner, still separated less than 15 years from near-bankruptcy and an explosive political divide whose sorry legacy still lingers over the community.
“This budget is as near to the bone as I have ever seen,” Blanchard told his colleagues, noting with apparent surprise that the schools, with no direct ability to raise money, were so much better off financially and structurally than the city.
Blanchard lamented the condition of the city’s infrastructure and argued the community’s self-esteem and reputation could benefit from a cosmetic overhaul, starting with roads and sidewalks, a new much-coveted community playground and maybe some equally-desired improvements to The Common.
He suggested the city “bond like hell ... and drain the surplus” to finance the capital work, a stark change from the long discussions in May over relatively minor spending items or how the city could get grants to pay some of the cost of even basic needs such as a new firetruck.
Kobrock reminded the council about LD 1 and predicted it would begin impacting the city budget next year for two basic reasons: the tax base has suddenly become stagnant after three straight years of impressive growth; and the city budget has been sliced and diced over the past 10 years to hold down taxes and maximize efficiencies.
That frugality could in fact hurt the city next year because it holds down the base budget on which the LD 1 limits are figured each year.
Gardiner has been frugal enough and its tax base has grown sufficiently to stay far below the LD 1 limits in the first three years of the new system.
“This is by far the tightest budget we’ve ever had and I think very quickly we’re going to be talking about levels of service,” Kobrock told the Townsman in a May interview. “But this is absolutely old news for anyone who’s been on the (Gardiner) council. This is the tradition. This is the expectation. This is the norm.”
Kobrock said the city staff has continued for years to improve services while finding new ways to cut costs and increase productivity. But at some point, which the staff has reached, there is nowhere to dig for future savings without also cutting direct services.
Vassalboro: Going without
Life is much different in Vassalboro, a sleepy town of 4,000 in the China Lakes Region of Maine just east of Augusta, than in Gardiner, a city that has aggressively sought economic development in the shadow of the retail boom still taking place in the nearby state capital.
But while there are differences in size and landscape and focus, the budget process is the same in both communities: a grueling weeks-long exercise in how cheap you can be and still get the job done.
For the town budget committee, an elected body of 13, the biggest budget discussions turned on whether to replace the roof on the historical society museum for $18,000 and the seasonal advantages of spending an extra $6,000 for a cab for the new tractor.
“We’re in dire need of a facility that doesn’t leak,” museum President Kent London told the budget committee in April, reminding the board and selectmen as diplomatically as possible that the town owned the building and had promised in writing to maintain it – an obligation it already had delayed for years.
After considerable thought, both boards approved the expense but not before asking the museum trustees to go halves with them. In the end, the society offered to pay to have the new metal roof painted for an extra $4,000.
In a quintessential Maine budget occurrence, a volunteer from a social service agency wrested $500 from the budget committee to support a walking program for elderly town residents, some of whom used a cane to participate.
But the board rejected Vashon’s request to convert the tax assessor’s job to full-time despite an ongoing revaluation, mounting paperwork and a dearth of qualified people willing to work part-time these days.
The bottom line for Vassalboro property tax payers, again like their regional counterparts in Gardiner, is another annual budget that keeps the mill rate stable by putting off infrastructure needs and raising only what is absolutely needed.
In both Gardiner and Vassalboro, officials worried about an obvious lack of public interest in the municipal and school budgets, at the same time they pinch dollars and go without because they believe that’s what their constituents want.
In Gardiner, both the council and school board noted an especially deep voter apathy this year, just months after the hotly-debated Taxpayer Bill of Rights (TABOR) was defeated at the polls 54 percent to 46 percent. Some dared to wonder aloud where the property tax revolt was taking place in Maine, agreeing it was not in Gardiner.
“We had a budget hearing last night, and one person showed up,” SAD 11 Chairman Richard “Dick” Rogers told the council in early June. “Last year, no one showed up.”
Days later, Blanchard waited for his turn to raise any final concerns about this year’s proposed budget to declare the council should assume the public is satisfied rather than just apathetic, stop being so tight while the community suffers, and propose a long-term bond to finance much-needed community improvements.
A week later, after Kobrock ran some numbers and made some suggestions, the council agreed to borrow $630,000 for the city’s first ever significant sidewalk repair program.
The council also agreed city officials needed to do a better job telling residents and taxpayers what a good job the city staff and their elected officials have done in keeping down taxes while improving services and finding savings to pay for basic inflationary costs.
“I think it’s just really remarkable that we’re in a position” to improve services while keeping the tax rate stable for another year, said Gardiner Councilor Richard Rambo.
Mayor Andrew McLean agreed, “It’s truly remarkable what we have achieved without raising taxes.”
Municipalities Take LD 1 Seriously (sidebar)
Gardiner and Vassalboro are not the only Maine municipalities to take the LD 1 spending limits seriously.
In fact, MMA and the State Planning Office analyses of governmental spending limit compliance under LD 1 during the first two years of this 2005 law show that the majority of Maine municipalities are staying below the limits. With rising energy costs, needed road improvements, and steadily increasing health insurance premium, municipal officials have had to work hard this year to prepare budgets that stay within the limits.
Compounding the problem, new property value, which is a component of the LD 1 growth factor, has fallen off dramatically in some communities.
A review of reports in newspapers throughout Maine during the last couple of months shows municipal officials and town residents taking the LD 1 law seriously and working hard to stay within the annual spending limits.
• In Bridgton, selectmen sliced $400,000 off the proposed town budget to meet the LD 1 limits, with the budget coming in $14,505 below the town’s LD 1 limit.
• In Topsham, voters told selectmen and the finance committee to cut the proposed budget to fit the LD 1 spending cap of $3.01 million, rejecting town leaders’ request for an override of at least $772,000. A second town meeting was scheduled for June to consider a slimmer budget plan.
• In Skowhegan, a crowd of 400 town meeting voters rejected the town’s request for $709,175 override on LD 1 and recessed the meeting until June 25 to give selectmen and the budget committee time to trim the spending plan back to $7 million.
• In Waldoboro, selectmen agreed to ask town meeting voters in June to approve three override expenses, including boosting the fire chief’s position to full-time. The vote results were not available by press time.
Q & A On LD 1 Municipal Spending Limits (sidebar)
Municipal officials in fiscal year communities now have prepared their third budget under the municipal spending limitation system contained in LD 1. In 2007, the budgets of calendar year communities came under LD 1 spending limits for the second year.
LD 1 was enacted into law in mid-January 2005. The spending limitation systems under LD 1 apply to state government, counties, municipalities and schools. MMA’s analysis of LD 1 compliance during the first and second year of the law shows that municipalities, in the aggregate, have stayed well within the limits of LD 1. Nevertheless, compliance with LD 1 has not been easy for many municipal officials because of the confusion that often occurs when trying to impose the LD 1 formula into the municipal budgeting process.
What follows is a short Q & A on LD 1 to help those who may still be struggling with the LD 1 municipal spending limit system.
1) Do we still have to calculate a “core municipal commitment” to determine our levy limit?
No. The calculation of a “core municipal commitment” was only in the first year’s budget under LD 1. After the first year, a municipality uses its “property tax levy limit” from the previous year, unless they’ve voted to increase that levy limit. It is important to keep paperwork with the “property tax levy limit” calculation each year. MMA’s LD 1 worksheet (on the MMA website) should be retained each year, if you are using it to make the “levy limit” calculation. Remember, if you vote to “increase” the levy limit, then you are establishing a new levy limit. An easy way to determine your new levy limit is to take the Municipal Tax Assessment Warrant for the previous year (filed in the Valuation Book) and subtract Line 10 (Total Deductions) from Line 2 (Municipal Appropriations). The resulting number is the part of the Municipal Tax Commitment that went to fund the municipal side of the budget. A few communities include state education aid (GPA) in their “Total Deductions”. If you do this, then you will want to take out that amount from Line 10 before doing the subtraction from Line 2.
2) How do we calculate our “new value” to get a Property Growth factor?
The overall Growth Factor that is used in the spending limit calculations is a combination of two numbers: (1) the average real growth in total personal income in Maine during the past 10 years – a number supplied each year by the State Planning Office; and (2) the percentage growth in “new value”.
Little confusion exists regarding the first part of the growth factor. For both calendar year and fiscal year communities in 2007, that number was 2.47% ( or .0247). The property growth factor – new value over total value – can be determined using the short method or the long method. If you have not had a revaluation or factored up your values, the short method will probably work for you.
The short method works like this. Use “available numbers”. For the FY 07-08 budget, most communities will use the total taxable (municipal) valuation as of April 1, 2006 and the valuation from April 1, 2005. Subtract the 2005 number from the 2006 number to get your “new value”. Then, divide that “new value” by the 2006 municipal valuation to get percentage that “new value” represents of the total value. Round off the fraction to make it the same as the state’s TPI number (for example, if your new value is .02346, round it off to 2.35% or .0235…that number added to 2.47% is 4.82% or .0482 which is your combined Growth Factor).
Do not use the short method if you have done a revaluation or factoring.
3) How do we calculate the “new value” if there has been a revaluation?
The answer to this question depends on what you have for assessment records. It’s probably easiest if you think about the “new value” calculation in conceptual terms. You want to extract from your total municipal valuation the property that was subject to taxation for the first time during the tax year (April 1 to April 1). Prior to your revaluation, you should be thinking of a way to separate property “taxed for the first time” from other property. Identifying new property on property tax records and building permit information are two good ways to separate “new value” from existing value. Inflationary value that comes from a revaluation is not to be considered “new value” in the LD 1 calculation. The “new value” (numerator) and total municipal value (denominator) that are used in the calculation need to be at the same percentage of market value (same assessment ratio).
4) How does “net new state funding” affect the levy limit?
The only state funding that is included in the calculation of the Property Tax Levy Limit is Revenue Sharing. General Assistance and Local Road Assistance (or URIP) are no longer considered. Because of last year’s snafu with Revenue Sharing payment at the end of the fiscal year, MMA recommends that you base your “net new funding” calculation on calendar years. For example, in 2007 for both calendar year and fiscal year budgets, the 2005 (Jan-Dec) Revenue Sharing amount would be adjusted by the total Growth Factor and then compared to the 2006 (Jan-Dec.) Revenue Sharing total. If the adjusted 2005 amount is equal to or greater than the 2006 amount, then you have no “net new funding” and your preliminary Levy Limit becomes the final one. If the calendar year 2006 revenue sharing is greater than the adjusted calendar year 2005 revenue sharing, then that difference is subtracted from the preliminary Levy Limit to get to the final one.
5) Who do I call at MMA for advice on LD 1?
Kate Dufour in the State & Federal Relations department or Michael Starn, Communications Director, are MMA’s key contacts on LD 1. Their emails are firstname.lastname@example.org and email@example.com. The MMA phone number is 1-800-452-8786.
6) What other resources are available?
MMA’s LD 1 worksheet (pdf and Excel formats) is available on the MMA website and should be helpful in streamlining your “Property Tax Levy Limit” calculation.
As previously mentioned, another helpful form is the “Municipal Tax Assessment Warrant”, filed in the Valuation Book. This form is especially helpful if you have increased your Levy Limit. It is also helpful in estimating whether your budget is going to be able to stay under the newly-calculated levy limit or not.
You will also need your Total Taxable (Municipal) Valuation. This number is put on line 11 of the Muncipal Valuation Return (MVR) or on line 3 of the Municipal Tax Rate Calculation Form.
Two articles on LD 1 have been published in the Maine Townsman — March 2005 and February 2006.
A Profile of Two Communities (sidebar)
Size: 16.6 square miles
Location: Kennebec County
8 miles south of Augusta
Median age: 38
Median income: $35,103
LD 1 Compliance:
FY 08 Levy Limit: $2,476,398
FY 08 Est. Levy: $2,395,214
Below limit by: $81,184
Size: 47.8 miles
Location: Kennebec County
North of and adjoining Augusta
Median age: 37
Median income: $37,923
LD 1 Compliance:
FY 08 Levy Limit: $294,186
FY 08 Est. Levy: $236,120
Below limit by: $58,066