Federal Update
by Kirsten Hebert, Legislative Advocate, MMA
(from Maine Townsman, December 2000)

After more than a month of what became a legal chess match with both sides appearing to have the advantage at various times, the Presidential election of 2000 is over. A 5-4 U.S. Supreme Court decision on December 12 was the check that Republican-candidate Governor George W. Bush had been fighting for, and checkmate came the following day in a concession speech by the Democratic candidate, Vice President Al Gore.

On January 20, 2001, George W. Bush will be sworn in as the 43rd President of the United States. Overshadowed by the drama of the Presidential election, the November election also produced a new Congress which will convene on January 3, 2001.

COMPOSITION OF 107TH CONGRESS
The race for control over the two houses of Congress had some excitement of its own.

In the House of Representatives, all 435 House seats were at stake. In order for the Democrats to win the House, they needed to gain seven seats. They were only able to pick up two seats, thus leaving the Republicans in the majority.

An incumbent Republican lost in a recount in the State of Washington creating a first time in history even split in the Senate with 50 Democrats and 50 Republicans. However, the Vice President serves as the President of the Senate and is allowed to vote when the Senate is deadlocked. The outcome of the Presidential election does give the edge to the Republicans on straight party line votes. However, it is unclear at this time how the Vice President's role in the Senate will affect the selection of leadership and committee chairs.

The Republican Party unanimously reelected Dennis Hasert of Illinois to the position of House Speaker. The Republican Majority Leader is Dick Armey of Texas. Majority Whip is Tom DeLay of Texas and the Conference Chairman is J.C. Watts, of Oklahoma.

The leadership of the House Democrats is as follows: the Minority Leader is Richard A. Gephardt of Missouri, Minority Whip is David E. Bonior of Michigan, Caucus Chairman is Martin Frost of Texas, and Caucus Vice Chairman is Robert Menendez of New Jersey.
 
This year's election will be remembered for many reasons, including the most females in U.S. history serving in the Senate. There are 13 female senators, four of whom won election this term. The newcomers are all Democrats and include: Maria Cantwell (Washington), Hillary Rodham Clinton (New York), Debbie Stabenow (Michigan), and Jean Carnahan (Missouri).

The Senatorial election in Missouri had a tragic and unusual story behind it. Democratic candidate, Governor Mel Carnahan was killed in a plane crash in October. With ballots already printed, the Governor's name remained on the ballot. He won the election and the interim governor appointed Jean Carnahan (who had said she would accept the position if her husband won the election) to the Senate.

In Maine, Republican Olympia Snowe defeated Democrat Mark Lawrence. Maine is one of three states with two female senators, the others being California with Dianne Feinstein (D) and Barbara Boxer (D), and Washington with Maria Cantwell (D) and Patty Murrary (D).

E-COMMERCE AND INTERNET TAXATION
One of the initiatives found on the presidential platform this election was the issue of Internet taxation. The issue appears to be a simple question of to tax or not to tax. Though the question may be simple, the answer has various repercussions. The decision that faces the new Congress and Administration is whether to continue exempting Internet sales from taxation, and if they decide to to that, how do they intend to make states and local governments whole from the lost revenues.

Currently, there is an Internet taxation moratorium in effect until October 21, 2001. The e-commerce taxation moratorium is two-fold. First, it shelters the user from proposed taxation on the Internet access fees. Second, it effectively prevents taxation of most e-commerce in the United States.
 
President-elect George W. Bush supports the present moratorium, however, he has refused to commit to anti-taxation of e-commerce. Governor Bush has commented that he is in favor of banning any taxes on Internet access. Bush is convinced that the ban on Internet access fees will make the Internet more affordable, as well as more accessible to all communities. He is also in favor of extending the moratorium to 2004 in order to fully assess the magnitude of e-commerce.

The Advisory Committee on Electronic Commerce (ACEC) was appointed in order to assist Congress with the many facets of Internet taxation. Virginia Governor, James Gilmore (R), chaired the ACEC. Another commissioner was Republican Governor Michael Leavitt of Utah, also chairman of the National Governors Association.

E-Commerce and Municipalities
The decision to exempt e-commerce from taxation will have the greatest impact at the state level, but will trickle down to the local government level as the State has less revenues to share.

The current moratorium does not expire until October 21, 2001. Any extensions of this moratorium will only result in a prolonged loss of tax revenues. It is estimated by the National Governors Association (NGA) that between the years of 1999 and 2003, the State of Maine will lose an estimated $78.5 million of sales tax revenue annually. These are sales tax dollars that could be used to fund programs like K-12 education.

Maine has a Sales and Use Tax that is 5%. Sales tax revenues for fiscal year 2000-2001 is expected to reach $815 million. The "Use Tax" applies to Maine resident purchases outside the state, including all catalog and Internet purchases. However, the Use Tax is subject to self-reporting and the reality is that the purchases often go unreported. The retailer is obliged to collect the tax only when there is a "physical nexus." The nexus exists if the retailer is physically located within the state.

This escape from state taxation provides Internet retailers with a strong advantage over the "Main Street" stores. The National League of Cities has expressed a concern that the mass migration of retail commerce onto the World Wide Web may be final blow to "Main Street" retailing. Many small Mom-and-Pop stores found in rural Maine will atrophy as a result of the powers of the dot.com industries.

According to the National Governors Association, e-commerce is growing at a rate of 150% per year. NGA opposes the continued ban on Internet taxation because it results in a government subsidy for e-commerce industries. The billion dollar dot.com industry is not one which requires a subsidy from the government. According to the ACEC the nation's Internet based economy grew 68% in 1999 and produced over $507 billion in business revenue.

The issue of the "digital divide" has spurred the ACEC to investigate methods of leveling the playing field. The "digital divide" is created when wealthier taxpayers have access to online purchasing power, thus avoiding taxation and lower income taxpayers without access to the Internet are left with shopping at the Main Street stores and thus subject to taxation.
 
In an effort to rectify this concern, the ACEC has made a formal recommendation to Congress. This recommendation requires that Internet access must become as accessible and as commonplace as the telephone. This will enable the lower income families to have the same level of access as wealthier people. The Commission proposed to increase access by providing tax incentives and federal matching funds to the states in an effort to resolve the inequity coined the "digital divide."
 
AFFORDABLE HOUSING IN AMERICA
Another big ticket item in this year's election was the issue of providing and promoting affordable housing. Governor Bush promotes the "American Dream Down Payment Fund." This fund is designed to provide low-income families with the opportunity to use a HUD rental voucher as a down payment on a home. According to Bush, this program would assist 650,000 families in home ownership. The program would require the family to provide 25% of the down payment with the federal government picking up the remaining 75%, up to $1500.

President-elect Bush has also proposed a $1.75 billion federal tax credit, over five years, for real estate developers. This tax credit would work as an incentive for developers to work in low-to-moderate income housing.
 
On the Local Level
The Maine State Housing Authority (MSHA) has increased income limits to be eligible for LIHEAP (Low Income Home Energy Assistance Program). Maine's distribution of LIHEAP will total $19 million this winter. This increased income threshold will provide a family of four with an annual income of $25,575 with LIHEAP services. An additional 10,000 families in Maine will now be eligible for energy assistance.

According to Coastal Enterprises Inc., a nonprofit community development corporation, the "Housing Wage" within the State of Maine is $10.83. The "Housing Wage" is defined as the per hour wage that an employee in Maine would have to earn during a 40-hour work week in order to afford a two bedroom home/apartment priced at the Fair Market Rental Value. CEI's data finds that between 1999 and 2000 the "Housing Wage" in Maine increased by 2.03%.
 
Recently, the MSHA awarded $200,000 in planning grants to 10 communities in an effort to combat the housing problem Maine is facing. According to MSHA Director, Michael Finnegan, "planning grants are an excellent method for stimulating local innovative answers. The response we received after announcing the grants were available show the level of interest in addressing difficult housing problems."

ENVIRONMENTAL ISSUES
One of the issues that left the Presidential candidates most notably divided is that of environmental regulation. During the campaign, Vice President Gore publicly criticized Governor Bush for having one of the dirtiest states in the nation. Texas has had twice as many violations of the Clean Air Act as any other state. Governor Bush defended himself and his state by pointing out that Texas has more industrial sites than other states.
 
During the campaign, Governor Bush did express his support for the redevelopment of Brownfields- abandoned toxic waste sites. He has suggested various methods of reform to clean up these sites.

The underpinnings of his agenda lie in the cooperation of state and local communities to redevelop contaminated industrial sites. In an effort to encourage voluntary compliance, Bush has proposed immunity from federal liability for those sites cleaned under a federally delegated state environmental program. This would serve as an incentive to buy contaminated property and clean it according to the state standards. The developer would then be released of both state and federal liability.

Under the current CERCLA regulations, compliance with the state standards does not protect the developer from federal liability. The Environmental Protection Agency can keep the developer swinging on the hook of federal liability.
 
President-elect Bush also supports a permanent Brownfields tax incentive. Equally important, Bush has proposed holding contaminated federal sites accountable and forcing environmental compliance on them as well.

Currently, Maine's Voluntary Response Action Program (VRAP) allows anyone interested in the redevelopment of a contaminated site to enter into a partnership with the Department of Environmental Protection (DEP). After the site evaluation has been performed, the remediation plan is drafted according to DEP's standards. Compliance with the DEP's remediation standards results in a release of state liability, however, the party remains subject to the grip of the federal government. Under Bush's proposal, the developer would be released from liability once compliance with state DEP standards had been satisfied.
 
TAX REFORM
President-elect Bush's tax reform policy proposes a $1.3 trillion tax cut, implemented over the next 10 years. Rather than the current five level rate structure, 15%, 28%, 31% 36%, and 39.6 %, Bush has proposed four lower tax brackets 10%, 15%, 25%, and 33%. The purpose of the 4-tiered progressive structure is to cut taxes for all taxpayers through a lower marginal tax rate. Another reform measure is to double the child credit from $500 to $1000 per child. Bush has also suggested alleviating the marriage penalty. This would be accomplished through a 10% deduction on the income of the lower-earning spouse, with the cut-off being $30,000. Bush has proposed terminating the estate tax and permanently providing tax credits to those industries that engage in technology research.
 
Gore has publicly commented on his fear that Bush's tax reduction will send the U.S. into a deficit and "wreck our good economy." Bush countered that taxes have not been this high since World War II and promised to return the surplus to the working people rather than allowing government to spend it.

SUBMISSIONS FOR FEDERAL ISSUES PAPER
Once again the deadline for MMA's Federal Issues Paper (FIP) is close at hand. MMA is requesting from municipal officials, ideas, comments, or examples relating to your community's experience with a particular federal program or mandate. If you have something to say, contact Kirsten Hebert at MMA, 1-800-452-8786.

A draft of the Issues Paper will be given to the MMA Executive Committee for review the last week of January. The final Federal Issues Paper will be sent to and then discussed with Maine's Congressional Delegation during the first week of March in conjunction with the NLC Congressional-City Conference in Washington, DC.