It's Time… for Tax Reform
(from Maine Townsman, August/September 2002)
By Geoff Herman, Director of State & Federal Relations, MMA

Intense concerns about rising property taxes, wide and unpredictable swings in short-term state revenue projections, and an impending long term “structural state deficit” that will rival the $1 billion shortfall of 1991 are getting a lot of folks “talking-the-talk” these days on comprehensive tax reform.

The Maine Municipal Association has been pushing the Legislature for comprehensive tax reform most of the past decade, since the recession of 1991 gave a harsh demonstration of the inadequacies of Maine’s tax code and how the property tax is used as a back-stop to make up for those inadequacies.

It now appears that MMA is going to be taking the next step and “walking-the-walk” by advancing a tax reform proposal as a citizen initiative.

Developed as a unanimous recommendation of an 18-member Tax Reform Steering Committee specially appointed by MMA’s President Gary Brown, the three-page tax reform initiative has now been approved, also with unanimous support, by both MMA’s 70-member Legislative Policy Committee and the Association’s Executive Committee.

Going the route of citizen-initiated tax reform is certainly new ground for the Association, and the leaders in Maine’s towns and cities weighed their options very carefully before making the decision. Even now, there is one more decision-making hurdle that needs to be jumped before the final green light is given to this effort, and that will be the vote of  the full membership at MMA’s annual convention in October. The steps that were taken that led to the development of the tax reform initiative are encapsulated as a side-bar to this article.

The MMA Proposal

Relief, Reform, Restructuring,  and Reduction are the key elements of the initiative developed by MMA’s Tax Reform Steering Committee.  The proposal will provide substantial property tax relief, compel comprehensive tax reform, create investments in structural changes to achieve efficiencies in the delivery of governmental services, and accomplish the development of an action plan to address Maine’s overall tax burden. If adopted by the voters, the MMA proposal would:

• Require the state to provide $200 million more per year in financial support for public education. This requirement will relieve the overburdened property tax, fulfill a long-standing promise of state government, apportion the appropriate financial responsibilities in light of the relentless unfunded educational mandates that come out of Augusta and Washington, and force a restructuring of Maine’s tax code.

• Create two parallel funds designed to obtain long-term efficiencies in the delivery of local and regional educational and governmental services.

• Direct the Legislature to adopt a comprehensive tax burden management plan that will integrate the efforts of state, county, local governments and schools to reduce unnecessary spending, identify cost savings in the delivery of governmental services and otherwise address the issue of Maine’s overall tax burden.

Specifically, the three-page initiative would provide:

Relief and Reform.  The initiative would require the state to increase its financial support for elementary and secondary public school education by obligating the Legislature to fulfill the long-neglected legislative “intention” to pay 55% of the cost of K-12 education.

• The 55% state cost-share for public education is not new public policy. For over 30 years the State has promised to pay at least a majority share of K-12 education, but that promise has never been honored. Since 1985, the legislative “intention” stated in Maine law has been to pay 55% of the total educational allocation. The MMA initiative would merely make the state’s longstanding obligation legally enforceable.

• In FY 02, the state paid $702 million in General Purpose Aid to Education (GPA), or 43.6% of the total. The property tax contribution was $909 million, or 56.4% of the total.

• To lift the state’s contribution from 43% to 55% of the total would provide $200 million of property tax relief every year.

• In 2002, the property tax generated $1.4 billion of revenue. $200 million in reduced property taxes represents statewide property tax relief of nearly 15%.

Special Education.  As part of the state obligation to provide 55% of the cost of K-12 education, the state would also be obligated under this initiative to pay 100% of the costs of special education services mandated by state or federal law.

• Special education services are extremely expensive, unevenly provided across the state, and seriously underfunded, especially by the federal government which enacted the mandates and then passed the costs along to the property tax.

• In FY 01, approximately $95 million worth of unreimbursed, mandated special education services were provided with property tax dollars.

• Requiring 100% reimbursement for special education mandates serves to provide property tax relief even in those “low receiver” municipalities that do not get much financial support for education through the GPA formula.

Requiring the Legislature to fully fund its obligation to K-12 education would compel a long-overdue restructuring of Maine’s tax code. Over the past 20 years, there have been numerous studies and reports issued by tax experts, special commissions and blue ribbon panels that outline the steps that should be made to improve Maine’s tax code to achieve greater fairness, balance, and predictability of state revenues. MMA has advanced or supported several comprehensive tax reform proposals that have been rejected by the Legislature. The essential components of comprehensive tax reform are well known. This initiative would compel their implementation.

Restructuring.  Funds will be set aside for the efficient delivery of local and regional educational and governmental services. 2% of the total annual appropriation for K-12 education required by this initiative, about $18 million annually, would be dedicated to a fund that would provide incentive-based support to school administrative units that make changes in structure or policy that deliver significant and sustained cost savings in the delivery of educational services. A parallel fund would be established in the municipal revenue sharing system whereby 2% of that existing funding would be dedicated to an incentive-based fund to stimulate intermunicipal, and municipal-regional collaborations.

Reduction.  The third major element of this initiative is a Comprehensive Tax Burden Management Plan that would direct the Legislature to develop and adopt a comprehensive tax burden management plan that would integrate the efforts at cost savings across all lines of state, regional and local government and implement other strategies to guide the citizens of Maine and their state and local legislatures toward a lower overall tax burden.

Next Steps

On Thursday, August 22, MMA’s 70-member Legislative Policy Committee unanimously supported the continued advancement of this tax reform initiative. As mentioned above, the final step in the approval process is scheduled to occur at MMA’s annual convention on October 17th in Bangor when delegates from all 492 of the Association’s member municipalities will have an opportunity to vote on moving forward with the signature-gathering effort that will be necessary to bring this initiative before the Legislature and, ultimately, the voters of Maine.

Much work must be done between now and Convention. MMA will be seeking collaborations with other groups who are equally committed to comprehensive tax reform. A political action committee (PAC) will be formed to encompass the wider group of supporters and fully account for the financial effort to advance this proposal to the general public. The mechanics of gathering 50,000-plus signatures on a citizen petition will be organized, ready to be implemented in mid-October. 

But most importantly, MMA will be making sure municipal officials across the State are fully informed about the details of this proposal and aware of the effort that will be necessary to move this tax reform plan into the public arena.

For that purpose, MMA has committed to at least 17 regional meetings to be held throughout Maine in September and early October so that municipal and other local officials can become completely familiar with this tax reform proposal and learn more about how they can help in its promotion. A schedule of those meetings is provided in a sidebar to this article.

All municipal officials are strongly encouraged to mark their calendars and plan to attend the regional meeting in their area. Property tax relief, state revenue stability and predictability, comprehensive tax reform, finding cost savings in the delivery of governmental services, and developing a plan to address Maine’s overall tax burden are all issues of primary concern to municipal government and we need the full involvement of town and city leaders from all the communities in order to bring about the changes that need to be made in the best interests of the State.