of Local Government Limitations
Colorado TABOR and proposed Maine TABOR
On January 20, 2005, the Maine Legislature enacted “LD 1” which included the establishment of spending limitation systems that apply to municipalities, counties, school systems and the state. All of the school systems, about half the municipalities, and one of the counties had to immediately implement the new spending limitation procedures. They went into effect this year for local governments with a fiscal year that began on July 1, 2005. The rest of the municipalities and the counties are presently wrestling with the new spending limitation system as they develop their 2006 calendar year budgets.
Now it would appear that Maine’s voters are going to be asked if they want to adopt a new and different spending limitation system, known as the “Taxpayers’ Bill of Rights” proposal, or TABOR. In the United States, the TABOR system was instituted in Colorado in 1992 as an amendment to that state’s constitution proposed as a citizens’ initiative. In Maine, the TABOR proposal has been brought forward by Mary Adams of Garland as a citizen initiative, with support from the conservative Maine Heritage Policy Center. Other signatories on the TABOR petition include former supporters of the failed Palesky tax cap initiative, including Jack Wibby of Yarmouth, Pem Schaeffer of Brunswick and Gary Foster of Gray.
Like the Palesky tax cap proposal that was soundly defeated by the voters in 2004, this TABOR proposal will not implement any legally enforceable limitations on state government spending because it does not amend Maine’s Constitution. State legislative actions can only be ultimately controlled by constitutional law. Although its supporters may try to assert otherwise, its legal effects will apply only to local government in Maine – the municipalities, schools and counties.
It is anticipated that Maine’s Secretary of State will ultimately certify the TABOR petition as having the requisite number of signatures to move the proposal forward. If certified, TABOR will go first to the Legislature during the upcoming legislative session in February or March. Because the Legislature will undoubtedly reject TABOR, the proposal will then be sent to the voters, presumably at the November 7, 2006 state election.
In its broadest description, TABOR is designed to establish limits on the growth of year-to-year expenditures for all levels of government and it establishes limits on the ability of governments to establish new taxes.
As both a tax limitation system and an expenditure limitation system, the Colorado version of TABOR was acknowledged as the strictest system of limiting governmental operations in the nation. In fact, it was so strict that on November 1 of this year the voters in Colorado elected to suspend the effect of TABOR for a period of five years so that the state would be able to fulfill its obligations to its public educational systems and health care programs.
For all of that, Mary Adams is apparently of the opinion that the Colorado version of TABOR is not strict enough. The Adams’ version of TABOR for Maine, as described below, is much stricter than Colorado’s in its treatment of the municipalities, schools and the counties.
In short, the Mary Adams version of TABOR would replace the LD 1 spending limitation formulas with less rational formulas, and then obstruct a town meeting’s ability to consciously make the spending decisions the local voters support in their exercise of direct democracy.
When the voters in Colorado decided last month to suspend that state’s version of TABOR they showed that when a spending limitation system goes too far, it replaces the organic intelligence of a legislative body with the artificial intelligence of a formula. That dysfunctional autopilot which occurred in Colorado is doubly likely with Mary Adam’s approach. For example, Mary Adams’ TABOR would require the following for all three categories of local governments in Maine — the municipalities, school districts and counties:
• A population-based growth limitation formula at the local level, which is not a part of Colorado’s TABOR and doesn’t work coherently in a state like Maine;
• A year-to-year growth allowance that constricts local budgets much more forcefully than both the Colorado version of TABOR and LD 1, in many cases requiring negative budgets;
• No reasonably accessible process to override the local growth limitation when necessary, unlike both the Colorado version of TABOR and LD 1;
• Two-thirds “supermajority” voting at town meetings, to be followed by mandated town-wide referendums, before any fee (such as the fee to dump a truckload of roofing shingles at the transfer station) can be increased by so much as a penny; and
• Annual or near-annual revaluations to avoid engaging in extensive, “supermajority” voting procedures just to adopt the town budget.
Mary Adams’ TABOR proposal is a slap in the face to both home rule and majority rule, under the apparent belief that the town meeting doesn’t know how to conduct its business.
Now that local government officials are becoming familiar with the mechanics of the LD 1 spending limitation systems, the TABOR proposal can be put into a clearer context. A table on page 13 compares the pertinent local government provisions of LD 1, Colorado TABOR and the proposed TABOR for Maine. (For the purposes of this article, and because they are ultimately unenforceable, the various provisions regarding the state-level spending limitation systems are not discussed.)
TABOR Growth Factor
All rational spending limitation systems identify what it is that should be limited, either expenditures, revenues or taxes, or some combination of the three. Using various ways to define it, the typical focus is on governmental revenue. The spending limit system then develops a formula that identifies the maximum amount a government’s revenue should be allowed to grow from one year to the next. That formula is often referred to as the “growth index” or the “growth factor”.
That growth factor in most spending limitation systems is made up of a blend of two indexes. There is often a base index which is provided in a uniform way to governments at all levels within the state. Each governmental entity is also provided a second growth factor based on criteria unique to that jurisdiction that is added to the base factor to make up the total growth factor.
Municipal officials are now familiar with the formula that creates the LD 1 growth factor. The base factor under LD 1 is the “average annual real growth in total personal income”. “Total Personal Income” (TPI) is a term that describes all wages, salaries, dividend and interest income, social security and other forms of income generated or received in Maine. Maine’s lawmakers decided to use the “TPI” index within LD 1 because the formula to calculate each state’s overall tax burden is also based on total personal income. The theory is that if the spending of all local governments and the state government in Maine is linked to total personal income, the state’s overall tax burden will be reduced over time.
For any municipal fiscal year that begins sometime in 2006, the base TPI factor will be 2.62%.
The local growth factor under LD 1, which is added to the base TPI factor, is the “property growth factor”. The property growth factor is the percentage of the municipality’s total taxable value that is new value – new construction, newly created house lots, and the net new value of additions and improvements. The theory is that newly created property will create a demand for additional services, and the town’s total growth allowance should be designed to adjust to that increased demand.
In this regard, Colorado’s TABOR hardly deviates from LD 1. For the base factor, Colorado’s TABOR uses the Consumer Price Index (CPI) instead of the Total Personal Income (TPI) factor. Other than that, the Colorado TABOR’s growth factor is calculated the same way as LD 1 growth factor; that is, CPI plus the local growth factor.
The local government growth factor under Mary Adams’ version of TABOR, however, deviates significantly both from the Colorado TABOR and from the LD 1 growth limitation system.
For the municipalities and the counties, the Mary Adams’ version of TABOR creates two ways to calculate the applicable growth factor. The local government must apply whichever growth factor is smaller and more restrictive.
The first of the two growth factors is nothing more than the local property growth factor. Under the Mary Adams’ version of TABOR, the town does not get to combine the local property growth factor with any base factor whatsoever, either CPI (as is the case with the Colorado TABOR) or “real TPI” (as is the case with the LD 1 system). As a general rule, that single difference would slash the local government growth allowance provided under LD 1 in half.
The alternative growth factor allowance for local government is inflation (CPI) adjusted for the annual change in population for that town or county. If the municipality or county is experiencing a negative population growth, that negative factor is applied against CPI to create a potentially negative growth factor.
As discussed above, after making both calculations, the town or county must use the smaller of the two growth factors. On page 16, there is a list of 137 municipalities, who responded to an MMA survey, that had to apply the LD 1 limitation system in 2005. The list compares each municipality’s LD 1 growth factor with the growth factor that would have applied had the Mary Adams’ version of TABOR been in effect. Under the Mary Adams’ version of TABOR, all municipalities would be required to operate with a much smaller growth allowance. About 50% of the municipalities would have to operate on the basis of their property growth factor alone because of the two approaches the property growth factor produces the more restrictive limit. The other 50% of the municipalities would have to operate on an even smaller limit because of the influence of a declining population. Approximately 10% of the municipalities would have to operate on a negative growth factor, meaning they would have to actually cut expenditures from one year to the next.
For the schools, the Mary Adams’ version of TABOR creates a special growth limitation factor, which is simply CPI as adjusted by the year-to-year change in student population. As is the case with the municipal calculation, if the school population is undergoing a decline, the school’s growth factor could easily go entirely negative. On pages 14 and 15, each Maine school system’s growth factor for 2005 under Mary Adams’ version of TABOR is listed. As will be noted, a growth factor based on student population swings would be very volatile. The range of growth factors for Maine’s 285 school systems would run from +503% to -37%. Of all Maine’s school systems, 44% would be forced to apply a negative growth factor.
None of the Mary Adams’ approach resembles either the Colorado TABOR or the LD 1 spending limitation system. Under Colorado TABOR, the schools are treated just like the counties and the municipalities; that is, they are given a positive growth factor based on CPI plus the local property growth factor. Under LD 1, the school’s spending limitation system is based entirely on the Essential Programs and Services program, a complicated model that attempts to identify the total operating revenue that every school should have in order to provide a “Learning Results” education.
Growth Factor Override
Under both Colorado TABOR and LD 1, if the application of the growth factor is perceived by the affected government as too constricting, the growth factor can be directly increased (under LD 1) or effectively ignored (under Colorado TABOR) by a simple majority vote of the applicable legislative body or electorate.
In Colorado, the act of suspending the effect of TABOR is called “de-Brucing”, which is a reference to Douglas Bruce, a chief proponent there of TABOR. According to an extensive legal analysis of the impact on TABOR on Colorado’s towns and cities published by the Colorado Municipal League, the wording of Colorado TABOR, as interpreted by that state’s highest court, did not restrict the ability of local governments from effectively canceling the impact of TABOR by formally and expressly voting to do so, either on a year-to-year basis or indefinitely.
Similarly, in Maine under LD 1, the municipal voters or their elected representatives can vote — by written ballot at the town meeting — to increase the growth allowance provided by formula if it is perceived as too constricting.
Those opportunities are not provided in Mary Adams’ version of TABOR. Instead, the town meeting or city council would have to vote by at least a two-thirds margin to override the TABOR impacts, and then a mandatory referendum vote would have to follow, before the limitations of TABOR could be relaxed.
The supporters of TABOR in Maine may try to claim that the Colorado version of TABOR also includes this belt-and-suspenders, “super-majority” requirement, but that’s not the case. Unlike Maine, the municipalities in Colorado are authorized to enact sales taxes. In the Colorado TABOR, the super-majority-plus-referendum requirement only applies when the local legislative body believes there is a need to impose “emergency” sales tax increases immediately, without waiting until the next election. That “emergency” sales tax increase can only go into effect on a temporary basis by a two-thirds vote of the legislative body until it is ultimately ratified by the voters at the next general election. The special super-majority procedures do not apply with respect to a normal budget adoption process that does not involve any newly-imposed sales taxes. It is also entirely inapplicable to Maine, where the municipalities and counties have no sales tax authority.
Neither Colorado TABOR nor LD 1 interfere with local decision-making with respect to establishing local fees or recalibrating fee schedules, such as towns might typically impose for building permits, reviewing development proposals, or dumping certain items at the transfer station. Municipalities in Maine have chosen over the years not to rely very heavily on revenue from fees. According to MMA’s most recent Municipal Fiscal Survey (2004), only 2% of all revenue actually collected or generated by municipalities (excluding all state subsidies) is from permitting fees and just 3% of all collected revenue is from fees for specific services.
Mary Adams’ version of TABOR, however, amends the Colorado version to require the special “emergency taxation” procedures before any local fee can be established or increased. No municipality, school or county could create or increase any fee unless the town meeting, district meeting, city council, or board of commissioners voted to do so by a two-thirds vote, and that decision was then ratified by a mandatory referendum process.
Public Notice Requirements
Mary Adams’ version of TABOR includes expensive new mandates. Specifically, greatly expanded notice requirements must be implemented anytime a municipality, school or county is proposing any expansion of its tax base or increase in its tax rate, or when any new fee or increased fee is being proposed. In all those circumstances, the local government would have to mail out a special notice to every registered voter within the jurisdiction. The notice would have to include all the basic information about the election (date of the vote, polling place hours, etc.), the text of the proposal to be voted on, a four-year history of spending by the local district, estimates of the increased tax or fee revenue over the next four years, and two 500-word summaries of the written comments received by the election clerks both for and against the proposal.
Tax Base and Mill Rates
When attempts are made to transplant law from one state into another, there are often inadvertent consequences. That was certainly the case with the Palesky tax cap proposal in 2004 that attempted to insert California constitutional law into Maine’s statute with sharply negative consequences. That is also the case with the TABOR proposal.
As explained at the beginning of this article, TABOR is constitutional law in Colorado but will have no constitutional effect in Maine, and is therefore legally unenforceable with respect to state government.
As also explained above, Colorado’s version of TABOR was written to control the ability of local government to create or increase a sales tax, which municipalities in Colorado are authorized to impose. Maine’s local governments do not have the authority to impose a sales tax, so when the language of TABOR is transplanted to Maine, there is an immediate disconnect.
Maine’s courts, however, do not have the luxury of ignoring law just because it’s nonsensical. Courts are charged with interpreting law and under that charge they must make every attempt to give meaning and coherency to any enacted law. In order to do that with Mary Adams’ version of TABOR, the courts would have to give meaning to the provision designed for the Colorado sales tax code which prohibits municipalities, schools and counties from either “increasing a tax base” or “increasing a tax rate” without going through special procedures, including a two-thirds vote of the town meeting followed by a mandatory ratification referendum. Although it is a provision written to apply to local sales taxes, it would be forced to apply to the administration of property taxes in Maine.
Every year without exception the municipal tax base changes, and increases as a general rule. Even though municipalities have no authority in Maine to vote to change or expand the property tax code on the local level, the property tax base is almost universally expanded on a year-to-year basis just in the implementation of the current law. Although it is obvious that those naturally occurring annual changes to the property tax base are not what the Colorado TABOR envisioned to be controlled by the special voting process, when those same provisions are transplanted to Maine law, an equally compelling argument can be made that the words in this version of TABOR have to apply to changes in the property tax base, otherwise the statute adopted by the voters would be meaningless.
It is also the case that from one year to the next the municipal mill rate can increase, especially when the property tax base is not undergoing any adjustment. If the overall cost of providing local services goes up and the tax base is held generally flat, the mill rate will go up. If the words governing the approval of tax rate changes in Mary Adams’ TABOR are given any functional meaning, towns will either have to go through an extended “super majority” special election process to adopt the town budget (because the adoption of the budget will increase the mill rate), or they will have to perform revaluations very frequently – almost on an annual basis – to ensure that no there will be no mill rate increase.
In the weeks ahead it is likely that the Secretary of State will certify Mary Adams’ petition to advance a TABOR proposal for Maine. That certification, in turn, will unleash a torrent of tax cap rhetoric throughout 2006 until the November election, all reminiscent of the Palesky tax campaign in 2004.
TABOR is a Colorado concoction, introduced in that state 13 years ago as a constitutional amendment. As a revenue limitation and tax limitation system, the Colorado TABOR was acknowledged as the strictest limitation system in the nation, particularly with respect to Colorado state government. With respect to local government, the Colorado version of TABOR was very similar to the spending limitation system established in LD 1.
The Colorado TABOR so limited that state’s government, the voters just suspended the effect of TABOR in the Centennial State for five years so that some fundamental state financial obligations could be met.
The Colorado TABOR was super-strict with respect to state government and more reasonably applied to local government. The version of TABOR that is being advanced in Maine is just the reverse.
Because it is not being offered as a constitutional amendment, its provisions that attempt to limit state government will not be legally enforceable.
With respect to municipal government, school districts and the counties, this Maine version of TABOR employs irrational growth allowances, requires heavy-handed “super majority” voting to process routine town meeting decisions, prohibits simple fee adjustments on the local level without mandatory town-wide referendum votes, and effectively requires annual or near-annual revaluations.
The proponents of TABOR in Maine will be pitching an array of claims over the next 10 months. They will claim they amended the Colorado version of TABOR to make it a better fit for Maine. Although it is entirely correct that the version of TABOR being presented to Maine deviates significantly from the Colorado version, there is nothing about Mary Adams’ amendments that make this version of TABOR a better fit for Maine. Like the Palesky tax cap that came before it, TABOR was written for another state with a different tax system and very different demographics. TABOR has been rejected in the western state where it was born. It clearly doesn’t transplant well into New England.