Legislative Session Finally Over

(from Maine Townsman, May 2006)
By Geoff Herman, Director of State & Federal Relations, MMA

The 122nd Maine State Legislature finally adjourned in the fourth week of May after putting the finishing touches on a two-year legacy that began with the promise of deep property tax relief and comprehensive tax reform and ended far short of either. Special-interest property tax exemptions got dressed up as ‘reform” and teacher-pay mandates were enacted to dress down relief.

It was a legislative biennium characterized by delayed-impact legislation, “ramp-ups” and “ramp-downs”, phase-ins and phase-outs, a string of legislative promises pushed out as far as the eye can see, bills that were not good for municipalities but not as bad as they might have been, and squandered opportunities.

There were at least two major opportunities over this legislative biennium to put real reform into motion.

The Legislature’s first and most obvious opportunity was in response to the Question 1A citizen initiative adopted by the voters on June 8, 2004 that directed the Legislature to engage in comprehensive tax reform.

As a result of Question 1A, the Legislature is infusing more state resources into public education, and that cannot be denied. But instead of a comprehensive tax reform effort to redesign and modernize the interrelated state tax code, this Legislature has engaged in tax politics as usual and enacted two major property tax exemptions: the unreimbursed homestead exemption and the business equipment tax exemption. Two naked exemptions, nothing more and nothing less, with the ultimate result of exempting approximately $5 billion of property value from taxation and putting upward pressure on the property tax rates throughout Maine.

This Legislature’s second opportunity for another type of reform – governmental reform — was created by the proposed exemption for businesses from their personal property tax obligations. As laid out in detail by the municipalities, this new business tax exemption could have been parlayed neatly into more direct and efficient ways of paying for certain governmental services, particularly the county jails.

The reform opportunities that might have been wrapped into the repeal of the business equipment tax were given a resounding back-of-the-hand by both the Legislature and the Administration. As long as it could get its tax exemption without it, the business lobby was completely uninterested in reform.

And instead of otherwise developing a coherent proposal to encourage restructured service delivery systems, the Legislature raided the municipal revenue sharing resources that were supposed to capitalize the Local Government Efficiency Fund. The Local Government Efficiency Fund was another element of Question 1A that has been essentially crushed by the 122nd Legislature. Last year the Efficiency Fund (and the municipal revenue sharing funds within it) was entirely raided. This year, as a concession of some kind, the Legislature decided to raid only 80% of the Fund instead of wiping it out entirely.

The municipalities have been actively trying to engage the Legislature in real tax reform for a solid decade, but after this legislative session there can be no doubt. Whether it’s the state’s archaic and exemption-riddled tax code or the 19th Century manner by which certain governmental services are provided and financed, the political powers in Augusta have now made it absolutely clear. The word “reform” is not in their dictionary.

All the municipal legislation enacted this session is described in complete detail in the “New Laws” article in this edition of the Maine Townsman. The most significant enactments – both in terms of their impact on local government and as a snapshot of the true nature of the 122nd Legislature – are briefly summarized below.

Supplemental State Budget
To start on a positive note, within the enactment of the supplemental state budget (LD 1968)the Legislature held true to its schedule to increase its financial support for K-12 public education for the next fiscal year (FY 07). The appropriation of $914 million for General Purpose Aid to Education is the correct second-year contribution with respect to the Legislature’s four-year plan to “ramp-up” to “55%” state funding. For people keeping score, $914 million represents just under 50% of the amount to be spent on K-12 education according to the EPS model for FY 07 ($1.832 billion). As another measure (in recognition that the EPS model is one thing and real-life spending is another), $914 million will likely provide approximately 46% of total state and local spending on K-12 public education for FY 07, according to current trends ($1.979 billion).
A full description of the municipal impacts of the supplemental budget bill (LD 1968) is found in the New Laws article, under Appropriations and Financial Affairs.

Repeal of Personal Property Taxes
When the Red Sox leave runners on base, Boston’s venerable radio announcer Joe Castiglione closes out the inning by pointing out with thinly-disguised annoyance that the team has committed “yet another squander”. That is how the municipalities characterize the Legislature’s enactment of LD 2056. Maine’s tax code is riddled with exemptions, and the narrowness of both the property and sales tax bases has long been recognized as a serious public policy problem. It should go without saying that major tax exemptions should never be enacted without simultaneously reforming and modernizing the whole tax system. This Legislature was presented with the ideal opportunity to do just that, but it rejected that opportunity in favor of doing what it does best, which is enacting yet another exemption of a municipal tax. For the 122nd Legislature it was business as usual, but unless you’re the business owner enjoying the new exemption, LD 2056 is certainly nothing to crow about. A full description of LD 2056 is found in the New Laws article, under Taxation.

“Working Waterfront” Taxation
The details of the new “working waterfront” tax program (LD 1972) are provided in the New Laws article in the Taxation section. The purpose of the program is to establish a system of “current use” taxation for land that is used for commercial fishing activities. The voters approved the necessary constitutional change at the general election last November, but the voters’ specific intentions were less than clear. As is often the case with constitutional amendments, there quickly appeared a sizable gap between the conceptual change in tax policy articulated in the Constitution and the devilish details of its implementation. All current use taxation up until now has been provided only for undeveloped land, whether farmland, forest land or simple open space. In contrast, the working waterfront tax program is available to developed land, and a good number of commercial interests expressed an interest in being linked to commercial fishing activities in such a way to be provided a property tax break. With regard to the program finally enacted, the Legislature acted in an appropriately cautious way and avoided some mistakes of the past where tax break programs (such as the original Tree Growth program and the Business Equipment Tax Reimbursement program (BETR)) were too generously or unaccountably provided and then had to be scaled back.

Restricting Citizen Initiatives
For every legislative session there is a squirrelly bill that no one seems to entirely understand but with respect to which there is great passion on many sides. This session, that specially-charged legislation was LD 1481.

The real estate developers have been working for years at the legislative level to pinch the ability of citizens using the local initiative process to change ordinances with the effect of overturning a land use permit that was issued by a municipal planning board. All the developers’ earlier attempts have been unsuccessful because Maine’s Constitution provides that any such restrictions on the local citizen initiative process must be adopted locally and not by the Legislature in Augusta.

A year ago, in an attempt to restrict the citizen initiatives in a manner that does not trigger the constitutional issues, a majority of the members on the State and Local Government Committee decided to apply the restrictions on local authority to all of municipal government, not just the citizen initiative process. With that decision, LD 1481 was born as a fairly ugly baby.

After taking a truly torturous path through the legislative process, LD 1481 was finally enacted as a fairly ugly new law. The details of bill are described in the New Laws article, under State and Local Government.

From the municipal perspective, LD 1481 epitomizes a distinct characteristic of this session’s legislative activities. The “problem” that LD 1481 was claiming to solve certainly does not exist on anything resembling a statewide basis. In fact, a strong majority of the dozen-or-so citizen-based initiatives of this type that have occurred over the last 20 years (and that the proponents of LD 1481 are trying to prevent from occurring in the future) resulted in no significant detriment to the developers, and several others resulted in extremely positive results for the communities. The working waterfront of the state’s largest city was protected in one instance, and a community’s overwhelming support for affordable housing was demonstrated in another.

The “solution” developed by the State and Local Government Committee was a very poorly thought-out piece of legislation reflecting either a deep animosity toward citizen-based efforts or a lack of understanding of local process, or both. By the time the actual implementation of LD 1481 was fully understood, it was determined by both MMA and the state’s Attorney General that LD 1481 was a mandate. Because of the way LD 1481 interacts with existing law regarding the local citizen initiative process, this new legislation will sometimes force municipalities to hold special referendum elections entirely off a normal schedule. In a disregard of the opinion of the Attorney General, a majority of legislators in both the House and the Senate refused to recognize the bill as a mandate and refused to pay for the special elections that will be required.

Eminent Domain
Following the Supreme Court decision last summer that allowed the City of New London, Connecticut to take an occupied residential property by eminent domain for economic development, municipalities knew that the Legislature would “do something” with respect to eminent domain this session. We knew this despite documentation that Maine municipalities do not exercise eminent domain in this fashion and that Maine’s courts would appear to prohibit the use of eminent domain in this manner.

LD 1870 is the “something” the Legislature wound up doing. It essentially prohibits the use of eminent domain for economic development or simply to increase property taxes. However, it protects the ability to use eminent domain for typical purposes such as roads and municipal buildings. It also protects the use of eminent domain for affordable housing and for the removal of “blight.” LD 1870 is fairly moderate compared to some of the legislation being enacted in other states. However, it’s a moderate response to a basically non-existent problem at the municipal level in Maine. LD 1870 is described in the New Laws article under the Judiciary section.

Minimum Teachers’ Salaries
Aside from the general minimum wage, the Legislature does not establish minimum salaries for specific professions. You won’t find minimum annual salaries established in the state’s law books for any class of professionals in Maine, except one. The Maine Education Association (the state’s teachers’ union) convinced the Legislature to get involved in what would normally fall to the jurisdiction of the local labor negotiation process. Specifically, the Legislature enacted a new minimum salary for Maine’s public school teachers for the stated purpose of increasing the attractiveness of the profession as a career. The details of LD 1381 are described in the New Laws article under the Education section.

There is nothing wrong with that purpose or that goal. What is wrong is that if increasing the level of teacher starting salaries was truly the goal of the teachers’ union, it has every capacity to work for that outcome at the local level…to make higher entry-level salaries a union priority in any local negotiation. Generally, that is not the union’s stated goal or priority in a local negotiation. It is the most senior teachers who negotiate labor contracts, and their focus is typically at the top of the ladder. But why should the labor union pay any attention to the low end of the contract if the Legislature will come in from time to time and engage in statewide “negotiations” on the union’s behalf?

TABOR on November Ballot
Local government officials and the general public will be hearing a great deal about the so-called “Taxpayer Bill of Rights” between now and November 7, when the voters will decide whether this Colorado-style governmental restriction system should be implemented in Maine. Before casting its vote on the initiative, the Legislature was given a lot of information about the proposal, such as how TABOR would:

• make 172 municipalities (35%) and an equivalent percentage of all school systems actually cut their budgets if it was in effect this year;
• tell Maine’s local legislative bodies (town meetings, town councils, etc.) exactly how they may be allowed to make certain decisions, regardless of those communities’ charters, by-laws, and historical rights of self governance;
• establish overbearing voting procedures — including required two-thirds votes by the town meeting followed by mandated town-wide or city-wide referendum elections — to approve even mundane municipal budgets, the most minimal user-fee increases, or any bond or borrowing proposals.

After being provided this information regarding the way TABOR tramples over local decision-making procedures, the Legislature voted along party lines to reject the TABOR proposal, with the Democrats in overwhelming opposition and the Republicans in general support. The Legislature’s rejection sends the initiative out to the voters on the general election ballot in November. Without debate, the members of the House of Representatives adopted an “ought not to pass” motion on TABOR, but avoided recording their individual votes. The Maine Senate fully debated the issue, however, and conducted a roll-call vote. The position your State Senators took on TABOR is recorded in a sidebar to this article.

….And meanwhile, back on the Homestead Exemption. In the supplemental state budget (LD 1968) enacted on March 29th, the Legislature deappropriated $3.8 million from the Homestead Exemption reimbursement account for the current fiscal year (FY 06) to help balance the state’s budget. The money was taken because the municipal reimbursement claims were lower than anticipated. Instead of $35 million to support the $13,000 homestead property tax exemption (that is now reimbursed at just the 50% level), only $31 million was needed. These state “savings” are the result of a general reduction in property tax rates statewide.

In the last days of the session, the Legislature decided to extend its appropriation of Homestead Exemption “savings” by removing an additional $5.1 million from the Homestead Exemption reimbursement account that had been earmarked for the upcoming fiscal year (FY 07). This money was taken because Maine Revenue Services has estimated that the trend will continue and just $30 million will be necessary to reimburse the municipalities for next year. (To put that number in context, when the Legislature created the homestead exemption in 1998, it appropriated $46 million for reimbursement purposes for that first year.)

In sum, $8.9 million has been re-routed from the $71 million originally appropriated for the Homestead Exemption over this biennium, a deappropriation of 13%. If the Legislature had decided, instead, to reinvest those “savings” into the purpose for which they were appropriated, the level of reimbursement for the homestead exemption could have been increased from its current 50% level or the overall value of the exemption could have been increased. Instead, the resources were rerouted for purposes other than property tax relief.