In the early morning hours of June 22, 2001, the First Legislative Session of Maine’s 120th Legislature finally adjourned. The six-month legislative session was characterized by sharp divisions between the House and the Senate, a dominant focus on state finances and the biennial state budget, and finding the balance between the level of state services Maine citizens expect to receive and the level of taxation they are willing to sustain.
The shortcomings in a legislative process that might be observed fade quickly from memory, but the enactments endure. To the extent this is true, the 120th Legislature in its first session will be remembered for doing a solid job in the face of tight budget constraints, addressing several initiatives in the areas of domestic violence and health care, raising the sales tax on meals in certain restaurants from 5% to 7%, boosting the tax on cigarettes by 35%, and otherwise carefully (if not somewhat modestly) maintaining, adjusting and extending public policy initiatives over the entire range of state services. Although not getting much play in the statewide media, this Legislature also saw fit to provide some targeted and much-needed property tax relief and otherwise react to the issues of municipal concern very positively.
MMA’s Legislative Agenda. MMA’s legislative platform consisted of seven initiatives. Two of those initiatives were killed in Committee. Four were enacted into law. One has been carried over. In addition, the municipalities received two bonus pieces of legislation with the establishment of an extremely important comprehensive tax reform commission, and the proposed environmental bond issue which, if approved by the voters next November 6, will cause $300,000 of seed money to be placed into the Municipal Investment Trust Fund for the first time in the Fund’s 8-year history. Both of these bonus enactments are also described below.
Revenue Sharing II. The predominant municipal issue this legislative session was the full implementation of a tax policy change that was initiated by the previous Legislature in 2000. That initiative is known as “Revenue Sharing II”. Revenue Sharing II is a modification of the municipal revenue sharing distribution formula that directs unexpected revenues that accrue to the Local Government Fund to municipalities with higher-than-average property tax rates. The goal of Revenue Sharing II is to address the disparity that exists between the painfully high property tax rates that typically exist in Maine’s “service center” communities (where the mill rates are often in the 20s) and the somewhat less burdensome mill rates that are found in the suburban and rural communities in Maine.
The Revenue Sharing II proposal that was presented to the Legislature last year consisted of two parts. First, the distribution formula was modified so that state sales and income tax revenues dedicated to the Local Government Fund which exceeded traditional projections would be more targeted to high mill rate communities than would be the case with the traditional revenue sharing distribution formula. Second, the percentage of sales and income taxes dedicated to the Local Government Fund would be slightly increased, from 5.1% to 5.3%, in order to deliver some needed relief to those high mill rate communities and to ensure that the change to the distribution formula would not be to the financial disadvantage of the communities that were not the direct beneficiaries of Revenue Sharing II proceeds.
The 119th Legislature enacted the change to the distribution formula, but it did not increase the percentage of revenues dedicated to the Local Government Fund. Instead, a one-time appropriation of $3.6 million was enacted but a structural increase to revenue sharing was not.
This legislative session, MMA worked as a matter of highest priority to implement the second component of the Revenue Sharing II proposal. As part of the biennial budget ultimately enacted by the Legislature and signed by the Governor, the percentage of sales and income tax revenue dedicated to the Local Government Fund will be increased, beginning on January 1, 2003, from 5.1% to 5.2%. Over the course of a state fiscal year, that increase will represent an additional $2.5 million in property tax relief each year, measured in today’s dollars. The bill that was submitted this session to effect this extremely important, structural contribution to property tax relief was sponsored by Senator Ken Gagnon (Kennebec Cty.). (See LD 855 under the Appropriations section of New Laws article in this edition of the Townsman).
>Growth Management and the “Voiding” of Municipal Ordinances. The second highest priority item in MMA’s legislative platform was a bill that addressed a highly objectionable element of Maine’s Growth Management Law that would have “voided” all municipal land use ordinances on January 1, 2003 that were not entirely consistent with the municipality’s comprehensive plan (which was not itself entirely “consistent” with the state’s Growth Management Act).
Only about one-third of the state’s municipalities have comprehensive plans that are deemed “consistent” with the Growth Management Act, and the effect of this January 1, 2003 drop-dead deadline would have been the eradication of a huge body of land use regulation on the local level.
>Thanks to the bill’s sponsor (Rep. David Tobin of Windham), the work of the Legislature’s Natural Resources Committee and the State Planning Office’s willingness to compromise on the issue, that objectionable piece of law has been successfully transformed into a constructive statute. The very concept of state law “voiding” otherwise lawful municipal ordinances is gone. Instead, the law simply states that there are three types of municipal ordinances that must be consistent with a “consistent” comprehensive plan: zoning ordinances (which has always been the case), "growth rate" ordinances which limit the number of building permits issued in any year, and impact fee ordinances which assess special fees on development to pay for related infrastructure costs. In addition, the Act clarifies that if there were an inconsistency between one of these three types of ordinances and a comprehensive plan, only the inconsistent portion of the ordinance would be subject to legal challenge, not the entire ordinance. (See LD 1693 under the Natural Resources section of New Laws article in this edition of the Townsman).
> Assessing the Tree Growth Penalty. MMA’s legislative platform also contained an initiative that would correct the unfair circumstance where a small lot is conveyed out of a larger parcel of land enrolled in the Tree Growth tax program. Under current law, as is appropriately the case generally speaking, the financial penalty for withdrawing a parcel of land from the Tree Growth program is assessed against the owner of the withdrawn parcel. The problem the municipal officers had identified occurs when the owner of a relatively large parcel in the Tree Growth program conveys a house lot out of the “mother parcel”. In that circumstance, the municipality had to assess the withdrawal penalty against the person who purchased the house lot, allowing the seller of the property to avoid the penalty. It struck the selectmen in these circumstances as unfair that the person who enjoyed the Tree Growth tax break and received the additional financial reward from selling off the house lot was not legally exposed to the withdrawal penalty. Thanks to the bill’s sponsor (Sen. Peggy Pendleton of Cumberland Cty.), the efforts of the Taxation Committee and the able assistance of Maine Revenue Services and the Office of Fiscal and Program Review in developing the appropriate language, the law has been changed to ensure that when a parcel of land less than 10 acres is conveyed out of a larger parcel that remains in the Tree Growth program, the owner of that “mother parcel” is the individual who will be responsible to pay the Tree Growth withdrawal penalty. (See LD 1007 under the Taxation section of New Laws article in this edition of the Townsman).
>Motor Vehicle Excise Tax Efficiencies. The motor vehicle excise tax is assessed on the basis of the motor vehicle’s Manufacturer’s Suggested Retail Price (MSRP). The problem is determining the precise MSRP for older vehicles with respect to which the municipality has no records. Because the precise MSRP depends on a number of variables associated with the make and model of the vehicle and all the extra amenities that came with that specific car, it is a time-consuming and frustrating process to determine the precise MSRP when the motor vehicle owner is registering the car in a municipality for the first time.
>To create an administrative efficiency in that process, MMA caused a bill to be submitted that would require the MSRP to be recorded on the motor vehicle title document when the car is sold at retail for the first time. Thanks to the bill’s sponsor (Rep. Irvin Belanger of Caribou) and the work of the Transportation Committee, that initiative was enacted into law. (See LD 74 under the Transportation section of New Laws article in this edition of the Townsman).
>Pollution Control Equipment Exemption, Carried Over. MMA also tried to get the Legislature to take up the issue of the property tax exemption that is provided to “pollution control equipment”. From the municipal perspective, the statute governing this property tax exemption is ambiguous, unworkable, broken and needs to be fixed. The “pollution control equipment” exemption is granted by the Department of Environmental Protection, with no municipal involvement, for equipment installed by the property owner “for the primary purpose of reducing pollution”. That statutory standard has been interpreted to mean that production equipment is eligible for the exemption depending on the subjective intent of the owner in causing the production equipment to be installed. From the municipal perspective, eligibility for a property tax exemption based on the subjective intent of the owner runs contrary to basic principles of accountability in tax exemption policy.
>In conjunction with the Natural Resources Council of Maine and other interested parties, MMA participated in the development of a bill that would fundamentally redesign the pollution control exemption. That bill, sponsored by Rep. Scott Cowger (Hallowell) was “carried over” by the Taxation Committee from the first to the second legislative session. (See LD 1570 in the Carry Over Bills article in this edition of the Townsman).
>Killed in Committee. Two planks of MMA’s legislative platform went nowhere this session. Both received unanimous “ought not to pass” votes in the Taxation Committee.
>LD 765, An Act to Establish a Municipal Reimbursement Formula for Current Use Taxation Programs, would have installed some coherency in the municipal reimbursement formula for the lost tax revenues associated with the enrollment of property in the Tree Growth program. Sponsored by Rep. David Etnier (Harpswell), the bill would also have extended a parallel reimbursement formula for the lost tax revenues associated with the enrollment of property in the Farmland and Open Space tax break programs, with respect to which the state has never financially participated. The Tree Growth reimbursement formula is a tortured section of statute that few people understand, and the reimbursements received by the municipalities can fluctuate significantly from year to year for reasons that cannot be explained. In addition, the Legislature is perennially interested in expanding or creating new “current use” taxation programs, an effort which will undoubtedly be resisted by the municipalities as long as the state’s financial participation in the taxation consequences is incomprehensible (as is the case with Tree Growth enrollments) or nonexistent (as is the case with Farmland and Open Space enrollments). In any event, the Taxation Committee apparently felt that it was an issue of low priority.
>LD 1375, An Act to Establish Minimum Standards of Eligibility for the Property Tax Exemption for Charitable Institutions, would have established a standard of eligibility for the property tax exemption that is provided to “charitable” institutions. The bill was sponsored by Rep. Walter Gooley (Farmington). Paralleled on just one of the five standards charitable institutions must meet under Pennsylvania law, the proposed standard would be that the charitable institution must “donate or render gratuitously a substantial portion of its services”, which is the classic definition of “charity”. The bill also established five alternative ways for that standard to be met. Current Maine law on the subject, which was written in the 19th Century, contains no meaningful standards of eligibility for the charitable exemption. MMA has been working on putting some accountability into the “charitable” exemption law for decades, but the Legislature steadfastly refuses. The Pennsylvania model offered in LD 1375 was a responsible, time-tested solution to this extremely frustrating public policy problem on the local level. The failure of this initiative to make any progress during the legislative session suggests that the municipalities should reconsider their strategy to advance this public policy issue.
>The Bonus Legislation, The Tax Reform Commission. Rep. Barney McGowan (Pittsfield) introduced a piece of legislation this session of extraordinary importance to the municipalities. Finally enacted as part of the biennial state budget, Rep. McGowan’s bill establishes a 14-member legislative panel known as the “Education Funding Reform Committee”. The Committee make-up is to be evenly divided between the political parties and three members are to come from the Education Committee, three members from the Appropriations Committee and eight members from the Taxation Committee. The Committee is charged with developing a package of comprehensive tax reform legislation for the consideration of the 120th Legislature during its second legislative session, in 2002. The tax reform package is to be designed to provide more state money for education, provide property tax relief for homeowners and businesses, and balance the primary methods of raising taxes between the property tax, sales tax and personal income tax. The Committee’s recommendation is to be presented to the Legislature in 2002 and the lawmakers can either reject or adopt the proposal or send it out to the voters in a November, 2002 referendum.
class="MsoBodyTextIndent">MMA has been advocating for comprehensive tax reform for many years. The recession of the early 1990s, and the concomitant reduction in state revenues, resulted in extensive new burdens being placed on the property tax, primarily to support K-12 education. No one disputes the fact that the sales tax base in Maine is remarkably narrow and the tax code is riddled with exemptions and exclusions, which combine to make the tax code in Maine highly volatile. It can also be stipulated that the state’s sales tax code, written in 1953, has never been modernized to reflect the significantly different economy that exists in Maine today compared to a half-century ago. Over the last five years, MMA has tried several strategies to effect some kind of tax reform for the purpose of creating a more appropriate balance among the state’s three major taxes (property, sales and income), none of which have been successful. A 1997 effort to comprehensively reform the tax code was soundly rejected as being too sweeping. Subsequent efforts to incrementally change the state’s tax code were found to be too narrowly focused and not sweeping enough.
>It seems that Rep. McGowan’s bill, supported by the full Legislature in the budget document, will provide all the citizens of Maine with an honest opportunity to look at a comprehensive tax reform package.
>The Municipal Investment Trust Fund. The Municipal Investment Trust Fund (MITF) was created in 1993 for the purpose of providing municipalities some access to non-property tax revenues for the purpose of financing capital projects that are necessary to implement the municipality’s capacity to accommodate growth and economic development.
>One of the public policy tenets supporting the MITF is that the state’s overall economic development is dependent on the infrastructure that is provided locally, and the capacity of the property tax to pay for that infrastructure is at a breaking point.
>Another public policy foundation of the MITF is that any meaningful state support for growth management involves some state financial participation in the development of the infrastructure necessary to make designated growth areas livable, attractive, and cost-effective to develop.
>Administered by the Department of Economic and Community Development (DECD), the MITF is designed to resemble a state-level Community Development Block Grant (CDBG) program without the various federal requirements that often prevent municipalities from accessing CDBG funds for important capital projects. Unfortunately, although there is extensive statutory language as to how the MITF is to be administered, the Legislature has never appropriated a penny for the Fund, up until now.
>LD 1663 is the proposed $17 million environmental bond issue that will be put before the voters on November 6, 2001. A complete description of the bond proposal is found under LD 1663 in the Appropriations section of the New Laws article in this edition of the Townsman. Almost every element of that bond issue is very important to municipalities to further their wastewater, drinking water, and landfill remediation programs. In addition, that bond issue contains a $300,000 appropriation to fund the MITF for the first time in its existence.
>Compared to the hundreds of millions of dollars of critically-necessary capital needs that municipalities could easily identify, the $300,000 might appear to be a very small starting point…but it is a starting point. Should the voters of Maine ultimately approve the environmental bond issue, the municipalities will hopefully be able to respond by submitting many high-quality applications for those funds, and the project that is ultimately awarded those non-property tax resources for an important capital project will serve as an example and a model that will support higher levels of state support for the MITF in the future.
>Other Enactments of Municipal Interest. There was, of course, much more legislation of municipal import enacted during this first session of the 120th Legislature. In all, just over 1,830 bills were submitted to the Legislature and MMA was tracking 465 (25%) separate pieces of legislation. At the end of the process, 300 of the bills MMA was tracking were killed, 25 were “carried over” into the second legislative session beginning next year, and 140 municipally-related bills were enacted. What follows is an article that describes all the new laws that were enacted which somehow impact on municipal government. The new laws are organized according to the legislative committees that have jurisdiction over the subject matter of the enacted legislation.