(from Maine Townsman, April 2002)
by Geoff Herman, Director of State & Federal Relations, MMA

The House debate on tax reform was both frank and spirited. What follows is not a verbatim transcription. It is only what we heard when the various legislators in the House stood up to speak to the entire assembly about tax reform. At some point in the future, a printed transcript of the House debate will be available in the Legislative Record. Assuming MMA’s notes to be roughly accurate, it is for the reader to decide if at the end of the day the effort initiated by Rep. McGowan in the neighborhoods of Pittsfield two years ago, and picked up by municipal leaders all across the state, has moved this state any further toward the goal of repairing a broken tax code.

Representative Bonnie Green (Monmouth) opened the debate by moving the Taxation Committee’s “ought to pass” report on LD 2086. Rep. Green stressed that LD 2086 was tax reform, not tax burden reduction, not tax expansion, but tax reform…a redesign of the overall tax code to achieve greater balance and equity. Rep. Green urged the House members to take action on comprehensive tax reform because the state’s tax code is clearly out of balance, has been for a long time, and the state should change the way the costs of K-12 education are shared among the municipalities. Rep. Green pointed out that LD 2086 would: (1) create a special Rainy Day Fund to make sure state revenues would be available for education funding even in slow economic periods; (2) establish a 6 mill/12 mill property tax cap for education purposes on the local level; (3) retain the homestead property tax exemption and the Business Equipment Tax Reimbursement program; (4) expand eligibility for the Circuit Breaker property tax relief program; (5) direct the Taxation Committee in 2003 to design tax code changes for the next Legislature’s consideration that would expand the sales tax base, increase the meals and lodging tax by 1%, and address the steep progessivity of the individual income tax; and (6) implement the Essential Programs and Services school funding model that is designed to distribute school funding based on realistic accounting.

Representative Randy Bumps (China) said that the prime sponsor of LD 2086, Rep. Barney McGowan (Pittsfield), had the most honorable intentions in designing this tax reform plan, but said that he could not support the measure. Rep. Bumps said that the grossly expanded sales tax base would guarantee a tax increase, but the reduced property tax rates could not guarantee a proportionate tax decrease. The state tax increases were certain, the property tax relief was merely hopeful. Rep. Bumps agreed that comprehensive tax reform was desperately needed, but it would take at least two years to completely design. Rep. Bumps pointed out that the next biennial budget was already facing a $600 million gap between projected revenues and expenditures, and the tax capacity of the state will be challenged by that shortfall. Rep. Bumps said that he agreed with the supporters of LD 2086 that property taxes were too high and tax reform was a matter of the highest priority, but that LD 2086 would not reduce the overall tax burden. He said LD 2086 was still a work in progress, and the final tax reform package should tell the whole story.

Rep. Barney McGowan (Pittsfield) told the House that when he was campaigning for the Legislature in the fall of 2000, the voters he talked with when he went from door to door had two major concerns – the cost of health insurance and the burden of property taxes. Rep. McGowan said that he decided to devote himself to addressing the property tax problem. When he got to the State House in January 2001, he was delighted to find out that almost all the other legislators were very positive about moving forward on comprehensive tax reform. Rep. McGowan could also hear the lobbyists saying that tax reform was “dead on arrival” and he knew about the legislative studies going back 20 years or more suggesting different types of comprehensive reform, studies that now gather dust on the shelves, but he was nonetheless prepared to go forward.

Rep. McGowan said that after presenting his tax reform idea to the Taxation Committee in 2001, the Committee didn’t think there was time in the first session to fully develop the package, and the tax reform process was converted into the study committee (the Education Funding Reform Committee).  Even though the group was made up of seven Republicans and seven Democrats, Rep. McGowan said that partisanship did not interfere and he was encouraged when the special Committee began moving in the same direction and after four meetings developed the blue print of tax reform.  Rep. McGowan said that the work on tax reform received full input from the education folks, the taxation folks and municipalities to create the best package possible.  He stressed that the legislation did nothing more than send the proposal out to the people for the voters’ good judgment, and he urged the Taxation Committee and the House to act as a team and allow an important initiative to get busted out of the “concrete bunker” of the Taxation Committee room and the lobbyists that surround it.

Rep. McGowan pleaded with the House members to look at the big picture.  He said that LD 2086 provided property tax relief, income tax relief and expanded the sales tax base.  He urged his colleagues in the House to not let the special interests separate the legislators in the goal of tax reform.  Again he urged the House to focus on the big picture – property tax relief for the senior citizens, small business, and a majority of the state’s population.  Under LD 2086, Rep. McGowan said, the state will no longer be using the property tax to do Augusta’s business.  He pleaded with the House to send the measure out to the people.  Don’t say ‘no’, he pleaded.  Say ‘yes’.

Rep. Janet McLaughlin (Cape Elizabeth) said that she had been working with Rep. McGowan for over a year, but she still had concerns with the bill.  Rep. McLaughlin said that under LD 2086, if a community had to raise school revenue over the cap, the extra costs could only be assessed against primary residential property owners unless it is raised for school renovation.  Rep. McLaughlin said that this meant that certain school construction costs would only be borne by the homesteaders, and while that may not be the intent, it was the way the bill was worded.  A second concern raised by Rep. McLaughlin was that if a community had to raise school revenue over the cap, the business community would not share in those costs and that wasn’t fair…business should be the school funding partners along with everyone else.  Rep. McLaughlin also said that details were missing from the plan, that the amount of money to be raised to fully implement the Essential Programs and Services funding model was not entirely accounted for, and that without full details the legislation could be raising expectations without providing all the impacts.

Rep. Joe Bruno (Raymond) said that the Republicans were interested in tax reform, but LD 2086 was flawed.  Rep. Bruno likened the bill to “concept draft” legislation that was lacking details.  It was unclear under the terms of the bill exactly how the sales tax would be broadened.  LD 2086, according to Rep. Bruno, placed too much faith in the 121st Legislature, and as the leader of the minority party in the House, he was unwilling to do that.  If approved by the Legislature, LD 2086 would create a constitutional amendment for the majority party to do what it wanted with the tax code.  Rep. Bruno said that both parties had to be at the table to implement tax reform.  He pointed out that LD 2086 raised $437 million to solve a $260 million education funding requirement, all of this in advance of a $600 million budget shortfall on the horizon.  Rep. Bruno said that the Educational Rainy Day Fund created by the bill was not even properly protected. He said that the bill laid out a lot of good groundwork, and provided a lot of data, but it needs to be fine-tuned.  Rep. Bruno said it could take years to come up with the perfect solution, but he applauded all the effort that went into the creation of LD 2086.

Rep. John Buck (Yarmouth) also commended Rep. McGowan, and said tax reform is the most important issue facing this and the next legislative session.  LD 2086, according to Rep. Buck, addresses the most serious issue of funding public education – an issue that needs to be resolved.  The Legislature needs to solve the problem of where the money to pay for schools comes from and how it is distributed.  Rep. Buck said he hopes the bill has generated enough focus on this problem, and he reiterated that it is the most important issue facing the Legislature in the next two years.

Rep. Pat Colwell (Gardiner) said that he wanted to address the claim that the Legislature needs to take more time to address tax reform.  He said that the issue has been studied for 20 years or better, study after study, and it has become the time to act.  Rep. Colwell said that he has been told that the Legislature can’t enact tax reform in good times or bad times, comprehensively or incrementally…but now a plan for reform is before them, a plan that even paves the way to address the overly sharp progressivity of the individual income tax.  With respect to the concerns of the minority party about not being at the table to design tax reform, Rep. Colwell extended an open offer to accomplish tax reform with both parties together.

Rep. Tom Murphy (Kennebunk) said that LD 2086 has started a dialogue for the next Legislature.  Rep. Murphy said that the linking of tax policy and education funding policy started a positive debate, but his disagreement was with the timing.  Rep. Murphy pointed out that in 1984, there was a special legislative session on education reform.  Rep. Murphy said that at that time he felt it necessary to urge the inclusion of the “55% rule” in state law to establish a goal of state funding for education so that among all the state funding priorities, the Legislature would be constantly reminded of its education funding obligations. Rep. Murphy said that what needs to be done with respect to tax reform is:  (1) address the concerns about the minority party’s participation in reform; (2) create a constitutional “super majority” requirement before money could be drained from the Educational Rainy Day Fund; and (3) establish a guarantee of revenue neutrality regarding the tax reform plan.  Rep. Murphy said that people link tax reform and tax reduction in their thinking, and there are risks involved in reform.  Rep. Murphy said that his experience is that every time there is a fiscal crisis, the municipalities and the schools take it between the eyes.  He closed by saying that tax reform should be in contract form.

Rep. Gerald Bouffard (Lewiston) recalled input he had received from a poll or a study of some kind, conducted several years ago, which asked which tax the voters would most like reduced – the sales tax or the income tax. He said that the response was neither one. It was the property tax that the voters wanted reduced. Rep. Bouffard said that the adoption of the homestead property tax exemption was a step forward, but at the same time the Legislature has reduced the sales tax rate from 6% to 5% over the last several years, and the state is facing repeated tax revenue shortfalls. He said that whenever there is a state tax revenue crisis, the property taxpayers get hit with the consequences. He said that the tax reform plan was not a bad idea, and the Legislature should let the people decided. Rep. Bouffard said that there might be a possibility of expanding the sales tax base and at the same time reducing the sales tax rate.

Rep. Steve Stanley (Medway) said that for 20 years the Legislature has been creating a tax code on a piecemeal basis. He praised the hard work of the various tax reform committees, and indicated he would be supporting the proposal even though he felt it had some flaws. Rep. Stanley said that the state was overtaxing the people of Maine, but over the last 20 years the piecemeal approach has done nothing to address the problems with the tax code. He said the Legislature can not avoid the issue much longer, and it should act in the best interests of the people.

Rep. John Morrison (Baileyville) said that the problem with the proposal is that the state would be given too much control over the property tax. The answer, according to Rep. Morrison, is to cap state spending. He said that in the Legislature it is hard to say ‘no’ to spending ideas because they often have merit. Rep. Morrison said that the tax reform effort is valuable because it moves the Legislature one more step toward a solution. He asked the proponents to put all the details into the bill, and suggested that maybe the Essential Programs and Services (EPS) funding model, when further implemented, will set the standard, and then tax reform can be fit into EPS.

Rep. Charles Laverdiere (Wilton) said that two years ago, at a party caucus, he met Rep. McGowan and was impressed by the vision the Pittsfield representative had on tax reform…a vision of a tax system that was coherent and made sense. Rep. Laverdiere said that throughout the two legislative sessions he continued to be extremely impressed with the hard work put into the tax reform effort. He said it was about time the Legislature changed the system so that the whole code could make sense again. Rep. Laverdiere asked whether the state really needs 493 municipal fiefdoms which under the guise of home rule authority each need their own fire departments and town offices.

Rep. Joe Brannigan (Portland) said that he agreed with the accolades being bestowed on Rep. McGowan. He pointed out that the reform effort was being criticized as merely a concept, but that the state needed a bold concept to put steam in to the tax reform effort. In order to expand the sales tax base to include some of the business and professional services not presently subject to the sales tax, Rep. Brannigan said that the Legislature will need the courage that only a bold concept can instill.

Rep. William Savage (Buxton) said that tax reform will not occur without a gun being held to the head of the next Legislature, but for reform to occur, the state will need to know who the next Governor will be. In order to execute comprehensive tax reform, Rep. Savage suggested it would need to be done by a single Legislature in a two-year legislative session.

Rep. Ross Paradis (Frenchville) said that the Legislature should listen to the voters. He asked his colleagues to gather up the courage to provide property tax relief.

Rep. Joe Brooks (Winterport) posed two questions through the Speaker of the House: (1) Was the text of the question to the voters printed in LD 2086? and (2) what services was the measure proposing to tax?

Rep. Green (Monmouth) responded by reading the question to the voters as it was written in LD 2086.

Rep. John Richardson (Brunswick) said that he would support the measure. The bill contained some elements that could contribute to positive economic development. He urged his House colleagues to “keep the rock moving up the hill”.

Rep. Brian Duprey (Hampden) said that he would vote for the tax reform in a second if it did not expand the sales tax base. Otherwise, Rep. Duprey said, he thought it was merely a shell game.

Rep. David Bowles (Sandford) said that the debate on tax reform is probably the most important debate of the session. The negative impact on the property tax that occurred in the 1980s and 1990s was very significant, and the efforts of the proponents of the tax reform bill were very comprehensive and very noble. Rep. Bowles said that the Legislature does have a gun to its head in the form of the tax cap initiative that was presented to the Secretary of State’s Office. He said that the Legislature may have dodged that bullet, but it won’t dodge the next one. The Legislature is facing some choices that have to be made. The sales tax is declining in tax revenue production for several reasons, including growing Internet sales and boarder hopping. Rep. Bowles said that the sales tax is becoming more and more of a problem, and the ever-rising costs of education are coming down on the state’s tax system.

Rep. Bowles said that it is very easy to criticize the tax reform bill. He said it is not a perfect bill, but no legislation is perfect. He asked why there were so many exemptions in Maine’s tax code and said the answer is because the Legislature creates them. We, the Legislature, are the problem, he said. We have met the enemy and the enemy is us. Rep. Bowles said that he would vote for the tax reform measure because the alternative is to do nothing, and doing nothing is no longer acceptable.

Rep. Eleanor Murphy (Berwick) said that she has served on the Taxation Committee for 10 years, and she served on the Education Funding Reform Committee and the special subcommittee on LD 2086 created by the Taxation Committee. She said she agreed with Rep. Bowles that the Legislature provides tax exemptions too freely. She said that the municipalities have gone without and now they are screaming. Rep. Murphy said that if the tax cap initiative had gone to the voters and passed, her school district would have to close. She said that LD 2086 provided big property tax relief to the municipalities, but she didn’t like to hear the claims by some that the municipalities would respond by increasing their spending and cancel the effective relief. Municipal officials are frugal, Rep. Murphy said, and the voters in the communities watch over local spending very carefully.

Rep. Murphy also said that when the Legislature adopted the Sinclair Act in the 1950s, to create the school district system, one of the benefits was to equalize the tax efforts among the participating municipalities. She said that with all the band aids that have been attached to the tax code over the years, the equalization of tax effort within the school districts is no longer the case. She urged the members of the House to put the measure out the people and give the voters a choice.

Rep. Mary Andrews (York) said that the citizens are watching the Legislature. It is true that the bill might be flawed and isn’t perfect, she said, but the Legislature should take the first step and see if the people want to put the Legislature’s feet to the fire.

Rep. Peter Rines (Wiscasset) said that when he was on the campaign trail he heard from the voters a major concern that property taxes were too high. He said the state needs to reform the tax code. There is big state revenue shortfall looming and the political will for reform is difficult to muster. Rep. Rines said the bill was not perfect and it would need to be tweaked if the voters ratified it, but the Legislature should allow that opportunity to be created.

The House proceeded to vote on LD 2086, and by a 80-58 vote adopted the Taxation Committee’s “ought to pass” report. The House then, by an overwhelming margin, adopted an amendment to the bill offered by Rep. Bowles (Sanford) which tightened up the language in the bill that called for the sales tax expansion to be revenue neutral, after the state’s cost of K-12 education was covered.

      The House then gave its vote of approval (79-56) on the amended tax reform bill. That roll call vote is included in this article. Also included is the roll call vote in the Senate on LD 2086 which occurred on April 5.