EDITOR’S NOTE: The following is a condensed and edited version of a report that was to be submitted to MMA’s Legislative Policy Committee on June 29. MMA is looking for feedback on this report and policy recommendations contained in it. If you have comments about the report, please submit them to Chris Lockwood ( firstname.lastname@example.org) or Michael Starn ( email@example.com) at MMA. Phone comments are welcome as well at 1-800-452-8786.
In January, the Service Center-Rural Community Working Group was established by the MMA Legislative Policy Committee (LPC). The Working Group’s formation was triggered by a legislative proposal that would have changed the way the county budget was assessed among the municipalities so that the costs of the rural sheriff’s patrol would be apportioned according to use rather than the municipality’s state valuation. The rural communities that are more directly dependent on sheriff services objected to that change on the belief that focusing only on the apportionment of costs of that specific county service failed to take into account other county services that from the rural perspective are provided disproportionately to the citizens of Maine’s more urban municipalities.
The debate over that specific initiative served to bring to the forefront a more fundamental concern of the service center municipalities, which is identified as the disparity in property tax mill rate between the service centers and all other municipalities.
LPC Chairman Ryan Pelletier, in consultation with MMA President Dana Lee and the MMA Executive Committee, appointed a 13-member Working Group. The group was composed of 10 LPC members, with three members of the MMA Executive Committee serving as ex-officio, non-voting members. Larry Mead, assistant city manager of Portland, and John Sylvester, selectman in Alfred, were named co-chairs of the Working Group. The Working Group’s regular members included: Don Shepley, Hermon councilor, John Simko, Greenville town manager, Errol Additon, Leeds selectman, Steve Aucoin, Waterville councilor, Michael Thorne, Harrison town manager, Elaine Aloes, Solon selectman, Eugene Conologue, Millinocket town manager, and Phil Nadeau, Lewiston assistant city administrator. Ex-officio members included: Andrew Hart, Union town manager, Linda Pagels, Calais city manager, and Anne Swift-Kayatta, Cape Elizabeth councilor.
In making appointments to the Working Group, a number of factors were weighed, such as maintaining a workable size committee, ensuring a balance of service center – non service center communities, and striving for a good geographical spread and mix of elected and appointed officials. It was also determined it would be important to maintain a linkage with the MMA Executive Committee, in the event issues arose related to MMA’s overall policy-making processes or structure.
Given the high level of interest in participation on the Working Group, MMA maintained an “Interested Parties” list to enable all interested municipal officials to keep posted on the Working Group (meeting notices and materials, open invitation to attend meetings, etc.).
Charge to Working Group
The phenomenon of property tax rate disparity between service centers and non-service center municipalities was the focus of the Service Center-Rural Community Working Group. The specific charge to the working group was to develop a recommendation for consideration by the full LPC that includes: (1) MMA’s position on the disparity in property tax rate between service centers and other municipalities; (2) the degree to which, and the manner by which, that disparity needs to be reduced as a matter of public policy; and (3) the action plan that should be implemented to reduce the disparity in property tax rates in accordance with the working group’s overall recommendation. In the course of developing its recommendation, the common demands that are placed on both rural and urban municipal governments, as well as the demands that are unique to each, should be given full consideration by the working group.
Function of Working Group
The Working Group conducted six meetings from February to May to develop this report and draft findings and recommendations for the consideration of the MMA Legislative Policy Committee and general MMA membership. The Working Group established the following timetable at its initial meeting on February 17:
Phase 1: Fact finding and charting the course (to be completed by June 1, 2005) This phase included a review of data and discussion of issues affecting service center and non-service center communities. The intent of the Working Group during this phase was to formulate draft policy/legislative proposal(s), at least in a conceptual framework, to be presented to the LPC and broader MMA membership.
Phase 2: Review and Comment (to be completed by July 31, 2005) This phase will entail presentation of the Working Group’s draft report and recommendations to the LPC and the broader MMA membership for review and comments.
Phase 3:Refine and finalize recommendations (to be completed for action at the September LPC meeting)
The Service Center – Rural Community Working Group made four key findings based on data and other information presented to the group.
A property tax mill rate disparity exists between service center and non-service center communities.
MMA staff provided data to the group that compared mill rates in the 63 service center communities to the mill rates in their “rim” communities. Rim communities were defined as communities that border the service center. The service center-rim community analysis supported the conclusion that there was a mill rate disparity between service centers and non-service center municipalities. On a statewide basis, the average service center to “rim” community disparity was 3.83 mills. That disparity varied depending on where the communities were located and was affected by the mill rate of the service center.
Key factors that contribute to the mill rate disparity include the cost of public safety services, high levels of exempt property in service centers, and the concentration of multi-family housing in service centers.
The Working Group discussed at length what might be contributing factors to the disparity. MMA staff pulled together data on public safety, exempt property, and residential property tax burden.
Public Safety. It came as no surprise that the data showed larger communities, with a municipal police department and mostly, full-time, paid firefighters, spend more on public safety than smaller communities.
Exempt Property. MMA presented data on exempt property in the Working Group communities. Waterville and Lewiston have the most exempt value in relation to taxable value. According the MMA analysis, if the exempt property in those two cities were taxable, the tax rate in Waterville would drop 3.5 mills and the tax rate in Lewiston would drop almost 4 mills. The mill rate impact of taxing exempts in the seven non-service center communities was negligible.
Residential Property Tax Burden. MMA analyzed the residential property tax burden for the communities represented on the Working Group. The group found that rental housing units appear to place as much of a demand on certain municipal services, such as education and public safety, as single family homes, but without a comparable amount of property taxes being paid toward those services.
The mill rate disparity is being addressed to some degree through LD 1. More progress could be made towards reducing the mill rate disparity if the state were to increase its funding for county government services and the Municipal Investment Trust Fund.
LD 1. The impact of LD 1 and Essential Programs & Services (EPS) will be of significant benefit to most service center communities. LD 1 increases state support for education to 55% of the total EPS cost over a four-year period. Data from the Department of Education that shows FY 06 and FY 07 anticipated state funding for education clearly demonstrates a significant gain for service center communities, and a much smaller gain for non-service centers.
The Homestead Exemption expansion and partial funding under LD 1 will, in most cases, allow service center communities to moderate the amount of increase of mill rates because the cost of the unreimbursed exemption will be shifted mostly to the commercial/industrial properties. That is, residential, single family homeowners in service centers should realize more property tax relief from the Homestead changes than non-service center homeowners.
Paying for County Government. The state’s obligation to fund county government was identified as a matter of long-standing concern by the Working Group. Funding county government through property taxes is an artifact from earlier times. The Working Group’s recommendation to study county services based on use is an effort to document and justify the demand for increased state support for county government.
Municipal Investment Trust Fund. The Municipal Investment Trust Fund has been around since the early 1990s, but has never been adequately funded. Despite its limited use, the Fund has been particularly helpful to service center communities. In 2003, 27 communities received funding for capital projects through this program. Of those funding recipients, 23 were service center communities. If properly funded, the Municipal Investment Trust Fund would help address the mill rate disparity issue.
Recognizing the political and financial realities of increased state funding, the group also studied and found alternative ways of reducing the mill rate disparity, including expanded local taxing authority and state tax policy changes regarding exemptions.
Local Option Taxing Authority. The Working Group acknowledged that a local option sales tax could make headway towards bridging the mill rate disparity. One of the factors that distinguishes a service center from other communities is retail activity. Service centers tend to be hubs for retail economic activity. Unfortunately, service centers get all the increased demand for services that comes with being a regional retail center but without sufficient tax revenue to pay for those services. A local option sales tax could be used to replace property tax revenues that are currently being used to support infrastructure and public safety services to these retail centers.
Exempt Property Tax Policy Changes. Exempt property, as noted above, places a heavy burden on certain communities, often service centers. The Working Group discussed MMA’s numerous unsuccessful attempts to tighten up eligibility requirements for property tax exemptions. As an alternative approach, the group looked at payments-in-lieu-of-taxes (PILOTs) and determined that a PILOT program could be funded if the Legislature removed certain sales tax exemptions and dedicated that money to reimbursing municipalities for exempt property.
Tax Increment Financing. Tax increment financing (TIF) districts are also more prevalent in service centers than non-service centers. If tax revenues from the TIF value that is currently sheltered were used to lower property tax rates instead of being returned to the business, it is estimated that the service center communities would see an average tax rate reduction of about one mill.
Commercial vs. Residential. Service centers typically have more commercial property as a percentage of total taxable property than do non-service center communities. With education costs comprising a significant part of most municipalities’ total budget, it seems fair to conclude that commercial property is a “net gain” for most municipalities when taxes paid are compared to the demand on services from the property.
1) Comprehensively study the costs of county government on the basis of use.
The Maine Municipal Association and Maine Service Center Coalition, working with the Maine County Commissioners’ Association and other county government representatives, will undertake a comprehensive study of the provision of county services from a user-based perspective, with a focus on the various public safety services, including the provision of:
• Jail services,
• Rural patrol services,
• District Attorney services, and
• Emergency public safety communication services.
The purpose of the study is to provide an adequate database to both fully evaluate and potentially recommend changing the system of financing county government in two significant ways.
First, from the present county-financing system that is overly reliant on property tax revenue to a new system that rationally distributes the costs of providing county services between municipal and state government.
Second, from the current system that uses a valuation-based allocation to identify each municipality’s share of the annual cost of county government to a system that uses, either entirely or in part, a use-based allocation.
As part of this effort, the Working Group suggests that the group charged with assembling the use-based data keep in mind several potential recommendations to the extent the recommendations fit the data that emerge from the analysis:
Recalibrating the length-of-sentence standards that presently define a “state prisoner” from a “county prisoner”;
• Establishing a clear state financial responsibility for county prisoner health care costs;
• Allocate the costs of all county-based public safety services on a use basis;
• Merge the operation of jails into state government; and
• Merge the operation of jails into state government and allocate the costs of sheriff services on a use basis.
In making this recommendation, the Working Group recognizes that the specific charge to the group undertaking this study will need to be carefully constructed to fairly identify the residency of the individuals who are receiving county services, particularly in light of the transitory residency of many individuals investigated and arrested by county sheriffs and incarcerated in county jails. The Working Group also recognizes that service centers, due to the concentration of rental housing units as well as the concentration of health, legal and various social service providers, will have a disproportionate share of the inmate population of county jails identified as residents when compared to non-service centers. This factor will need to be carefully weighed by the group undertaking this study when making recommendations regarding allocation of costs on a use basis.
In making this recommendation, the Working Group also recognizes that the composition of the group charged with conducting this study include, at a minimum, a fair representation of both municipal and county government. The initiation of this recommendation could be accomplished simply by an agreement between and among the Maine Municipal Association, the Maine Service Center Coalition, the Maine County Commissioners’ Association, and potentially other groups representing county government.
An alternative would be to seek a legislative resolve that would initiate the study in order to ensure legislatively-approved state involvement in the study process, along with state financial assistance with the comprehensive analysis. The Working Group deferred that strategy decision in order to obtain input and advice from the full Legislative Policy Committee.
2) Advance proposals that provide municipalities access to non-property tax resources.
• The Maine Municipal Association and Maine Service Center Coalition will jointly initiate and support a legislative proposal to authorize municipalities to adopt a locally or regionally imposed sales tax.
• The Maine Municipal Association and Maine Service Center Coalition will continue to advocate for the annual capitalization, through bond issues or otherwise, of the Municipal Investment Trust Fund.
3) Advance politically viable approaches that address the problem of tax exempt property.
• The Maine Municipal Association and Service Center Coalition will continue to advocate for the enactment of legislation that would authorize municipalities to create single or multi-municipal fire districts which allow for the establishment of fire service fees that would be applied to all structural property on the basis of the property’s structural dimensions and regardless of the property’s taxable status. LD 1414, which has been carried over into the 2006 legislative session, is an example of that legislation.
• The Maine Municipal Association and Maine Service Center Coalition will explore the establishment of a state-financed payment in lieu of taxes (PILOT) program whereby municipalities that host large tax exempt institutions be provided some share of that lost property tax revenue by the state. In order to fund this PILOT program, the Working Group recommends that sales tax exemptions for all organizations be repealed and the increased state revenues targeted to communities who host tax exempt properties with an assessed value that exceeds a certain percentage threshold (e.g., 10%) of the total taxable municipal valuation.
4) Region-based planning.
• The Maine Municipal Association will support and encourage enhanced local land use planning from regional planning commissions and councils of government, and work to foster a sharing relationship between communities with planning staff and those without staff.
Proposed policy changes considered by the Working Group but not included in the final recommendations:
• Require counties to issue their own tax bills.
• Require all county budget committees to have final authority over the county budget.
• Establish stricter rules governing eligibility for property tax exemptions
• Require exempt, non-governmental institutions to pay 25% of property tax obligation
• Prohibit restrictions on public access for land enrolled in the Tree Growth program
• Establish a new General Assistance standard that would apply when a person seeks General Assistance for housing (and other basic needs) in a new municipality on his or her own, without first seeking relocation assistance from the municipality the person is leaving. In that circumstance, the municipality where that person resided prior to seeking the General Assistance in the new municipality would be financially responsible for the person’s first 60 days of General Assistance benefits in the new municipality.
A ‘UNIFIED VOICE’
In the course of developing its recommendations, the Working Group was charged with giving full consideration to the common demands that are placed on both rural and urban municipal governments, as well as the demands that are unique to each. This aspect of the charge led the Working Group to an important discussion that in many ways lies at the heart of the issues that led to the formation of the Working Group – namely, maintaining a policy development framework which allows for respectful consideration and dialogue among the spectrum of municipalities, with the goal of united efforts to advocate on behalf of the collective interests of local self government.
In many ways, the Working Group itself served as a microcosm. The divisions and tensions evident at the outset among members of the Working Group dissipated as the Working Group began to review data and engage in “give and take” discussions. The “Community Profile” presentations were particularly helpful in bringing out factors not readily apparent from strict data analyses and in fostering a keener understanding of the challenges facing different communities.
Based on this experience, the Working Group offers the following recommendations:
Unified voice. The municipal position on state legislative issues is strongest when a “unified municipal voice” is heard at the State House. The Working Group hopes to strengthen municipal advocacy and cooperation between MMA and the Maine Service Center Coalition. The Working Group recognizes that small and large communities are often confronted with very different issues and problems. In the spirit of cooperation and recognizing strength in a unified voice, the Working Group recommends: (1) that MMA and the Maine Service Center Coalition keep an open dialogue on legislative matters and to the greatest extent possible take advantage of the natural alliance on local government issues that exists between the two organizations; (2) that the legislative platform of the Service Center Coalition be given due consideration by MMA’s Legislative Policy Committee as it develops the MMA legislative platform; (3) that MMA and the Maine Service Center Coalition should set up a process to work out disagreements over specific pieces of legislation or policy positions.
LPC subcommittee process. Explore ways in which the LPC subcommittee process might be refined to provide an ongoing mechanism to flag potentially divisive issues to ensure appropriate consideration and dialogue. Specific suggestions include: (1) establishing a protocol in the existing subcommittee process to set aside such items to ensure discussion, rather than including them on the consent agenda;
and (2) considering the establishment of another subcommittee to deal with Service Center – non-service center community issues.
Annual tracking system. MMA staff should maintain an ongoing system to analyze and track “mill rate disparities,” as discussed in the “Findings Section,” and present this information to the MMA Legislative Policy Committee.
Educational efforts. The Working Group recommends ongoing efforts to develop broader understanding and support for service center and non-service center issues among municipal officials and legislators. Specific suggestions include arranging meetings with members of the Legislature’s Rural Caucus in which representatives of both service centers and rural communities could discuss MMA’s legislative platform; arranging opportunities for service center representatives to meet with rural municipal groups (such as the York County “11 town group” or various county municipal associations).
The Working Group submits this draft report for consideration of the MMA Legislative Policy Committee, the MMA Executive Committee and the Maine Service Center Coalition Executive Committee. A final report will be completed by September.