In the fall of 2006, MMA's 70-member Legislative Policy Committee developed four legislative proposals it wanted advanced during the 2007-2008 biennium. Those four bills became:
• LD 355, Resolve, To Establish a Committee to Examine Issues Relating to the Administration and Distribution of Municipal Revenue Sharing, sponsored by Rep. Bill Browne of Vassalboro;
• LD 543, Resolve, To Establish the Tree Growth Tax Law Review Committee, sponsored by Rep. Tom Saviello of Wilton;
• LD 804, An Act to Ensure Responsible Government Spending, Investment and Educational Efficiency, sponsored by Sen. Beth Edmonds (Cumberland Cty.); and
• LD 1413, An Act to Set Fees for Services for Tax-exempt Property in Municipalities, sponsored by Rep. Pat Blanchette of Bangor.
LD 804 was a comprehensive bill dealing with school reorganization, debt limit ceilings, the state's unfunded actuarial liability, and governmental spending limits. It is technically still alive as a carryover bill, but most of the guts were taken out of it by other enactments in 2007 dealing with the same topics. A complete update of LD 804 was provided in the July issue of the Maine Townsman.
The other three bills are still very much alive and being “worked” by the Taxation Committee. Here’s the update.
Municipal Revenue Sharing
LD 355 was submitted in response to the highly volatile and largely negative impacts of the FY 2007 revenue sharing distribution. The purpose of the bill was to study why the FY 2007 distribution was so sharply volatile and to examine what changes to the program could be implemented to create a more stable and predictable property tax relief system.
The revenue sharing program is becoming increasingly complicated. It is now divided into its "Rev I" and "Rev II" components. Part of all revenue sharing funds are being diverted into the Local Government Efficiency Fund and part of that diversion is being re-diverted to the state's General Fund. There is a growing tendency in recent years for the Legislature to raid the revenue sharing funds. And revenue sharing receipts are now part of the mathematics of determining each municipality's LD 1-based "property tax levy limit".
LD 355 was opposed by the Administration as well as State Treasurer, David Lemoine. Perhaps in response to this opposition, the Taxation Committee killed the bill during the 2007 legislative session. When the Committee took that action, however, it invited MMA to convene its own working group to study the problem, and invited the municipally-based working group to bring back to the Tax Committee any recommendations the working group might develop for consideration during this upcoming legislative session.
We took the Tax Committee up on its offer, and a volunteer 12-member working group (see sidebar below) convened four times over the last several months and developed a range of administrative recommendations which should help both the state and the municipalities in the administration of the program.
Those recommendations have been reviewed and approved by MMA's full Legislative Policy Committee and conveyed back to the Taxation Committee in the form of draft legislation. That draft legislation would do the following:
1. Stop the raids. The draft legislation would stop the annual $2 million legislative raid on municipal revenue sharing that is accomplished each year when the Legislature takes the revenue sharing funds dedicated by law to the Local Government Efficiency Fund and diverts them to the state's General Fund. Blocking the Legislature's annual raids on revenue sharing is accomplished by dedicating a clean $500,000 of revenue sharing funds each year to the Local Government Efficiency Fund rather than 2% of all revenue sharing funds (which represents $2.6 million each year) as originally enacted. (For more about the Legislature's raids on the Local Government Efficiency Fund and a state-level tendency to reframe the origin and funding source of this program, see the Efficiency Fund sidebar on page 7)
2. Focus the Efficiency Fund. The draft legislation also amends the administration of the Local Government Efficiency Fund to require dollar-for-dollar matching requirements for planning grants (vs. implementation or "cooperative services" grants) and limit the overall distribution of planning grants in any year to no more than 10% of all grants as measured by value. This percentage reflects the approximate amount of planning grants awarded in 2005.
3. Post Revenue Sharing projections in a timely manner. To better assist municipalities in their budgeting process, the draft legislation requires the State Treasurer to post projected revenue sharing distributions by April 15th, on the basis of the most recent projections of the Revenue Forecasting Committee.
4. Use actual revenue sharing receipts for LD 1 purposes. With respect to the calculation of a municipality's property tax levy limit, the draft legislation establishes that the "net new funding" analysis applies to previous calendar year receipts of revenue sharing rather than current (and therefore projected) fiscal year receipts. Property tax levy limits are subject to miscalculation when they are based on projected data; and
5. Net new (state) funding as a two-way valve. The draft legislation also allows "net new funding" adjustments to the "LD 1" property tax levy limit to operate either as a negative or a positive adjustment in response to annual revenue sharing increases or decreases.
The MMA working group on revenue sharing issues has also developed a recommendation regarding the revenue sharing distribution formula. Staff is currently preparing the spreadsheets that demonstrate the impacts of that recommendation over a five-year period, and the Association's full Legislative Policy Committee will be reviewing that recommendation when it convenes in January.
TREE GROWTH ISSUES
There is considerable municipal frustration with the administration of the Tree Growth program. That frustration is focused in the areas of:
• The Tree Growth land valuation rates. The Tree Growth acreage rates are extremely conservative and in over half of Maine's counties have either gone negative or been flat over the last 15 years in at least one wood-type category, usually the softwood category. The 2007 Tree Growth acreage valuations is provided in the sidebar below);
• The Tree Growth municipal reimbursement formula. The formula is: (1) misleading where it alleges a 90% reimbursement; (2) incomprehensible in its design; and (3) yields volatile results on a year-to-year basis for no apparent reason;
• Certain enrollment issues, such as putting 10 acre waterfront lots into the Tree Growth program as a tax dodge; and
• Some Tree Growth-related legislative activities, such as underfunding or "prorating" reimbursements and delaying reimbursement payments into subsequent fiscal years to balance the state budget on paper.
As a result of that building frustration, MMA's Legislative Policy Committee developed a bill that would create a working group made up of municipal officials and landowners to study these various concerns. When LD 543 was presented to the Taxation Committee in 2007, the lobbyists representing the small and large landowners and the forest products industry opposed the bill, particularly with respect to any element of the study that might impact the standards regarding Tree Growth enrollment.
Although LD 543 proposed to create a stakeholders' working group, the Taxation Committee decided to appoint itself as the committee that would undertake the study of the current Tree Growth program. The Committee then carried the bill over into the 2008 legislative session with the intention of undertaking the Tree Growth study this fall.
The Tax Committee has conducted three work sessions on the topic, initially to air out the municipal concerns and review some data. During the initial work sessions, the landowners characterized Tree Growth as a program with few if any flaws in design…a program that deserves a reprieve from any legislative tinkering for at least the next decade.
For their part, most members of the Taxation Committee seemed to recognize the acreage rate and municipal reimbursement problems but were more focused on the enrollment issues. They were particularly attentive when the "North Haven" issue came up for discussion.
The North Haven issue concerns two applications for Tree Growth enrollment in the town of North Haven that were ultimately denied by the town. Denials of Tree Growth applications are almost unheard of because the fundamental qualification is a forestry management plan prepared by a licensed forester. There are very few standards with respect to those plans. In the North Haven case, however, the forestry plans for the two parcels were unusually straightforward in that they actually articulated: (1) property tax reduction as a primary reason for Tree Growth enrollment; and (2) a lack of interest on the part of the landowners in any commercial timber harvesting activities.
Even though the town was able to deny these two applications, no one observing the North Haven events can fail to recognize that forestry plans are submitted every year that achieve the exact same results desired by these North Haven applicants. Those plans are just not quite so up-front about the landowners' true intentions. For a complete discussion of the North Haven issue, see the North Haven sidebar on page 8).
The next step of the Tax Committee was to invite the stakeholders to convene on their own time to see if any ideas to fix the identified problems could be developed into recommendations by the consensus of the interested parties. A seven-member working group was informally established, including a representative from the Maine Forest Products Council, the Maine Small Woodlot Owners Association of Maine, the Maine Forest Service, Maine Revenue Services, a forester and University professor, MMA and Bill Van Tuinen, a municipal assessor.
The Taxation Committee held its final work session on the Tree Growth topic on December 6th. At that time MMA provided the Committee with a memo that describes the results of the stakeholders' discussions and MMA's recommendations about moving forward with LD 543. (The entire memo is provided as a sidebar at the end of this article).
Conclusion of the Tree Growth effort. After reviewing the MMA memo, and then hearing the Tree Growth landowners object to the "dangers" of formally collecting any data regarding the actual sales of forested land, and after explaining that the politics of open land protection do not support making any changes to the Tree Growth acreage rates (even at their remarkably low values), the Taxation Committee chose not to implement MMA's primary recommendation.
Review of enrollment problems. Instead, the Tax Committee will be supporting legislation that directs Maine Forest Services to keep track of all the request it gets from municipalities to review questionable Tree Growth applications, forestry management plans or forestry plan updates. The idea is to gather information about the various categories of Tree Growth enrollment that should be reviewed to see if their inclusion in this tax benefit program is advancing a primarily public purpose or private advantage.
The Committee's legislation will also direct Maine Forest Services to analyze the impacts of creating fewer Tree Growth regions, which are currently organized according to county lines. Some of the landowner groups are advocating consolidating the 16 regions into nine, and Maine Forest Services is advocating the creation of just four Tree Growth regions.
Assuming this legislative resolve will be enacted, municipal assessors or the municipal officers are encouraged to contact Maine Forest Services if there are any Tree Growth properties in the community that seem inappropriate because:
• the land is not being managed for commercial forestry purposes; or
• the primary purpose of enrollment appears to be a property tax dodge; or
• the purchase price of the property precludes the realistic possibility of a commercial forestry purpose; or
• the forestry management plans are being ignored; or
• the standards of forestry practice are being compromised; or
• for any other reason.
The person to contact at Maine Forest Services for that agency's review, investigation and advisory services is Donald Mansius, Director of Forest Policy and Management, Maine Forest Service, Department of Conservation, 22 State House Station, Augusta, ME 04333-0022 (tel: 287-2791).
Tree Growth reimbursement. The Taxation Committee also agreed to seek the Legislature's permission to report out a separate bill to restructure the Tree Growth reimbursement system as recommended by MMA. If the Legislature allows that bill to be advanced, there will be a full opportunity for a complete review of the impacts of the proposed changes (as described in the memo the Tax Committee) along with a public hearing on the bill. MMA's Legislative Policy Committee will be reviewing the proposed restructuring of the reimbursement formula at its next meeting in January. It is certain that at the end of the process, if the municipalities are uncomfortable with the proposed restructuring of the reimbursement formula, it will not go forward.
TAX EXEMPT PROPERTY
The MMA bill regarding tax exempt property, LD1413, did not get very much attention during the 2007 legislative session. The Tax Committee, after all, was basically consumed by its comprehensive tax reform effort and the Committee decided early-on that the tax reform package was not going to include any rethinking of the tax exemption statutes.
The printed bill developed by MMA's Legislative Policy Committee – LD 1413 – was focused on the "service charges" section of Maine's property tax law. On the face of it, that subsection of law authorizes municipalities to adopt ordinances that govern the assessment of service charges to cover the municipal costs of public services provided directly to tax exempt institutions. After providing that general authority, the "service charge" statute limits its application to low income housing corporations that are 100% exempt from taxation. LD 1413 would allow the application of service charges against any tax exempt institution that could presumptively contribute to the public charge because it owned over $10 million is property assets.
The Tax Committee is doing something constructive with LD 1413 but its moving in another direction.
During the 2007 legislative session, the Tax Committee dealt with a somewhat related issue when the operators of certain group homes for disabled persons brought legislation before the Committee seeking to exempt those group homes from the service charges being applied by the City of Saco. It became clear to many members of the Tax Committee during those deliberations that the "service charge" statute needed to be dusted off and modernized before it could be applied to tax exempt institutions generally. There was a brief discussion at the Committee level about using LD 1413 as a vehicle for that purpose. It was about that time in the 2007 legislative session that the tax reform effort began to consume the Committee's time, and LD 1413 was carried over at the last minute at the end of the legislative session, almost as an afterthought.
On December 6th, the Tax Committee revisited the issue when it picked up LD 1413 as a carryover bill. Reminded of its resolve to bring the service charge statute into the 21st Century, the Tax Committee unanimously endorsed a new version of LD 1413 that creates a study commission of municipal assessors, municipal officers, service center communities, and several representatives of charitable and "literary and scientific" institutions, large and small.
The charge to the study commission is to thoroughly review the service charge law and develop recommended changes to that statute so the calculation of service charges is rational and coherent, along with the assessment, collection and appeal procedures. In addition, the study commission is charged with developing the categories or characteristics of tax exempt institutions that should allow for their exemption from the application of any service charges. The study commission’s report is to be reported back to the Taxation Committee before the start of the 2009 legislative session.
Side Bar 1
Municipal Revenue Sharing Working Group
Ed Barrett – Bangor City Manager
Gordon Billington – Standish Town Manager
Joe Bruno – Raymond Selectman
Mike Byron – Augusta City Councilor
Bud Finch – Eastport City Manager
Chet Garrison – West Bath School Committee
Jane Scease – Topsham Selectperson
Ed Suslovic – Portland City Councilor
Michael Thorne – Harrison Town Manager
Mike Vashon – Vassalboro Town Manager
Abbe Yacoben – Bath Finance Director
Side Bar 2
Local Government Efficiency Fund
The origin of the Fund for the Efficient Delivery of Local and Regional Services (a.k.a., the Local Government Efficiency Fund) was Question 1A – the citizen initiative designed to (among other goals) compel the state to provide 55% funding for public education.
Adopted by the voters on June 8, 2004, the text of Question 1A was first published in October, 2002 and the language of that initiative included the creation of the Local Government Efficiency Fund, to be capitalized annually with 2% of all municipal revenue sharing funds.
In short, the Local Government Efficiency Fund was a municipal idea that was made law because of a municipal initiative and was to be capitalized with municipal revenue sharing funds.
Although Governor Baldacci and the Legislature, generally, strongly opposed Question 1A, the Governor seized on the idea of the Local Government Efficiency Fund and in the first state budget he submitted to the Legislature in 2003, $1 million in municipal revenue sharing money was diverted from normal distribution during FY 05 and redirected to the Local Government Efficiency Fund.
This history is sometimes buried in the way the Local Government Efficiency Fund is explained today in state government circles. That the Local Government Efficiency Fund was an idea of local government, and funded from resources already dedicated to local government, is often underemphasized in state-level reports.
In support of that observation, the Maine Development Foundation (MDF) recently issued a report on the first distribution in 2005 of the Local Government Efficiency Fund. That generally informative report can be found at www.mdf.org.
We are told that the wording of the MDF report may be amended, but in its original October 2007 version, the report never mentioned the true origins of the Local Government Efficiency Fund. The thrust of the report is that the Local Government Efficiency Fund was created and capitalized as result of the vision of Governor Baldacci and the Legislature.
Unless it is being subsequently amended, the MDF report never mentions the fact that the Local Government Efficiency Fund is capitalized with revenue sharing funds. Instead, the report points out that “Governor Baldacci provided $1,000,000 in his FY 2005 budget to launch the first round of grants from this fund”…and…”The State incentives for municipal collaboration are critical for overcoming inertia…”…and… “Maine State Government is actively pursuing a course of providing incentives in an effort to build a more efficient and effective delivery system for government services.”
In addition to being remarkably incomplete with respect to the origin of the Local Government Efficiency Fund and its initial source of funding, the October 2007 MDF report does not mention that the second and subsequent rounds of grant distribution by the Local Government Efficiency Fund have been capitalized with just one-fifth of the funding established by the voters when they adopted Question 1A, with the remaining four-fifths of the dedicated municipal funds being siphoned off to balance the state budget.
Here’s the history of the legislative borrowing from the Local Government Efficiency Fund.
Efficiency Fund “Borrowing”. Many members of the Legislature and the Administration have voiced strong support for finding government efficiency, particularly through the regionalization of various government services. To that end, municipalities stepped-up to the plate and dedicated municipal revenue sharing money to the task of finding and implementing local efficiencies through regional service delivery. Unfortunately, the Legislature and the Administration have severely undercut the regionalization effort by diverting to state government 78% of the revenues that were otherwise dedicated to regionalization efforts. Since the legislators and the administration continue to promote regionalization even as they raid the Efficiency Fund, it is perhaps their intent to someday return this revenue to the Efficiency Fund.
North Haven Tree Growth Enrollment
At the October 29, 2007 work session of the Taxation Committee, the Maine Forest Service explained to the Committee how the agency was called upon to review two forestry plans filed in the town of North Haven. A memo describing the Maine Forest Services’ review of those plans was provided to the Committee.
The memo is interesting reading. Anyone who would like a copy should feel free to contact MMA’s Laura Veilleux at 1-800-452-8786.
The two forest management plans under review included one that involved what the town described as an “open field” and what Maine Forest Services described as land “in the early stages of succession from open land to forest land”.
Unbelievably, the forestry-related goals of the parcel were described in the forestry plan as follows: “The primary objectives are forest aesthetics and property tax reduction through enrollment in the Tree Growth program. Secondary goals include recreation and wildlife habitat. Timber production, for either income or personal use, is not a priority.”
Similarly, the forestry-related goal of the other parcel under review was “The highest priorities for the…woodlot are forest health, aesthetics and soil and water conservation. Recreation and wildlife habitat are also important. The (owners) hope to use some of the salvaged wood for their personal firewood. Timber production for income is of low interest.”
The ultimate conclusion of the Maine Forest Service was that while it is authorized and required by law to provide investigation and assistance services to municipalities to review the forestry plans on request, it is not authorized to make direct recommendations regarding eligibility, which can only be done by the municipal assessor.
The Maine Forest Service did conclude, however, that the open field parcel did not meet the definition of “forest land”.
When reviewing this memo, several members of the Taxation Committee expressed significant concerns with regard to the standards of eligibility whereby express attempts to use the Tree Growth program as a tax dodge could be viewed by professional foresters and others as a legitimate reason for enrollment.
In addition, some Taxation Committee members pointed out that because of the attention being provided to the North Haven applications, licensed professional foresters will probably not expressly include their client’s primary intentions to ignore timber harvesting and avoid taxation when they prepare forest management plans in the future. The forester’s next client, however, could clearly have those exact same intentions — and implement their plans in the same passive manner — and there is no meaningful way for those intentions to be measured by the municipality.
In any event, the activities in North Haven should remind all municipal assessors that if they believe an enrollment in the Tree Growth program is based on an insufficient or inappropriately implemented forest management plan, they should feel free to take advantage of the investigation and assistance services now offered by the Maine Forest Service. The North Haven experience serves to remind the municipal assessors that they have the authority to review and potentially reject questionable applications for enrollment in Tree Growth. The assistance program is detailed at 36 MRSA §575-A, which is provided below.
The contact person at MFS is Donald Mansius, Director of Forest Policy and Management (tel: 287-2791).
36 MRSA:
§575-A. Assistance in determining compliance with forest management and harvest plan. Upon request of a municipal assessor or the State Tax Assessor and in accordance with section 579, the Director of the Bureau of Forestry within the Department of Conservation may provide assistance in evaluating a forest management and harvest plan to determine whether the plan meets the definition of a forest management and harvest plan in section 573, subsection 3-A. Upon request of a municipal assessor or the State Tax Assessor, the Director of the Bureau of Forestry may provide assistance in determining whether a harvest or other silvicultural activity conducted on land enrolled under this subchapter complies with the forest management and harvest plan prepared for that parcel of land. When assistance is requested under this section and section 579, the Director of the Bureau of Forestry or the director’s designee may enter and examine forest land for the purpose of determining compliance with the forest management and harvest plan.