(from Maine Townsman, May 2000)
by Geoff Herman, Director of State & Federal Relations, MMA
Almost two years ago, in the fall of 1998, MMA’s Legislative Policy Committee undertook a process to identify the key public policy issues of municipal interest and develop a legislative agenda for the consideration of the 119th Legislature. The Policy Committee staked out its positions, the bills were drafted, we sought legislative sponsors for our various initiatives, and in the December, 1998 MAINE TOWNSMAN, the platform was laid out plank by plank.
Five planks made up that legislative platform. The municipalities were looking to:
• Strengthen the financial support for the state’s Highway Fund and, as an element of the Highway Fund, the Local Road Assistance Program;
• Establish meaningful standards of eligibility for non-governmental tax exempt property;
• Improve the quality of the information exchange and governance procedures with respect to the development and adoption of school budgets;
• Protect local roadways when the utility companies excavate the right-of-way to install their underground facilities; and
• Expand the information exchange and more clearly define the scope of local authority with regard to the practice of landspreading wastewater treatment plant sludge.
On Friday, May 12 the 119th Legislature finally adjourned, closing out a very busy and productive biennium. With the adjournment, it is time to evaluate how much of the Association’s Legislative Policy Committee’s platform was ultimately adopted by the Legislature. Now that the two-year legislative has concluded, to what degree was the Association successful in advancing its agenda?
The first, "long" session of the 119th Legislature, conducted during the first six months of 1999, was characterized by the extraordinary number of legislative initiatives that were submitted for consideration – some 3,000 in number, initially – which set the pace for the full two-year cycle at somewhere between daunting and hectic.
Three of the five planks of MMA’s legislative platform were dealt with successfully in the first legislative session.
In 1999, the Highway Fund was given the financial support it needed to adequately maintain the state’s transportation infrastructure through an increase to the state’s fuel tax and motor vehicle registration fees. To buttress that increased financial support, the flat-funded Local Road Assistance Program was both increased and revamped into a potentially dynamic system that provides state Highway Fund revenues to local communities for capital road projects. The program was also designed to provide an opportunity for a very direct and positive state-local partnership to rebuild the state’s minor collector road system, which otherwise was destined to succumb to neglect.
The Legislature also modernized and amended the statute governing the excavation of roadways by utilities in 1999 through the vehicle of a bill introduced by Senator Phil Harriman (Cumberland Cty.) on behalf of MMA. Among a number of improvements to the old law, PL 1999, chapter 337 revised the maximum allowable fee that may be charged by a municipality for a road excavation permit to better capture the municipality’s actual cost. In addition, Senator Harriman’s bill established a reasonable standard to govern the restoration of utility excavation sites that will help protect the municipal road investments over time.
And a third plank in the municipal platform was also satisfactorily addressed in 1999 with the enactment of PL 1999, chapter 393. Through the vehicle of a legislative initiative submitted on MMA’s behalf by Senator Jim Libby (York Cty.), an enhanced coordination and more formalized information exchange was put into effect between the DEP, the wastewater treatment plant facility and the municipality where applications have been filed for the land spreading of wastewater treatment plant sludge. Improvements were also made to the sludge-spreading set back standards in that legislation.
Session Just Concluded
The legislators and staff who managed the just-concluded, "short" second legislative session were not only compelled to take on a challenging workload, but somehow carry it off amidst a major State House reconstruction project that scattered legislative committees throughout the Capital City. Beyond the logistical and workload considerations, the second legislative session might be remembered for the extraordinary amount of unanticipated or "surplus" revenue that came into the state treasury which pushed the supplemental state budget to center stage.
The two planks of the MMA legislative agenda held over for this year included an initiative that focused on the school budget adoption process and an issue of fundamental importance to municipal officials regarding the lamentable lack of any standards governing property tax exemptions for $3 billion worth of institutional property in Maine.
The School Budget Process. As a result of the extraordinary efforts of the Chair of the State Board of Education, Jim Rier of Machias, and a working group of school and municipal officials Rier assembled called the School Governance Committee, a remarkable piece of legislation on the subject of the school budget adoption process was enacted without fanfare this second session.
LD 1346, enacted as PL 1999, chapter 710, emanated at least in part from two legislative initiatives that were introduced to the Legislature in 1999 on behalf of MMA, one by Representative Joe Brooks (Winterport) and the second by Representative Richard Nass (Acton). As is often the case, the enacted law looks very different from the bills that were initially submitted, and the improvements to the initial bills are the direct result of the good work of the School Governance Committee. In simple terms, the new legislation: (1) strongly advocates for improved information exchange and dialogue between municipal and school officials with respect to the developing school budget; (2) creates a model "cost center" school budget format that provides quality information to the local taxpayers about the school budget they are voting on; and (3) creates a new, structured opportunity for the voters in SADs and CSDs to finally adopt their school budgets by means of a referendum validation process. This improved referendum process uses the open district meeting as a starting point, but allows the voters a final say in the voting booth if they believe that type of voting procedure is warranted.
Tax Exempt Property. The one plank in the Association’s platform that was not adopted by the 119th Legislature was a proposal to create some reasonable yet meaningful standards to govern the eligibility of certain institutions to their 100% tax-free status. By the most conservative estimates, there is over $3 billion worth of privately owned corporate or institutional property in Maine which is completely exempt from any property tax obligation. Municipalities have long been concerned about the inequity in the tax code that allows for these enormous tax exemptions. In addition, the municipalities are concerned about the demonstrable narrowing of the tax base and the resultant tax shifting that occurs in the communities where exempt property is concentrated, and the emerging growth of exemptions, particularly among the so-called "benevolent and charitable" organizations. This concern is particularly acute as an increasing number of for-profit, non-exempt service providers elect to convert their organizational status with the result of being no longer exposed to any local tax obligation.
A model for the type of tax accountability law the municipalities are seeking is found embedded in Pennsylvania’s constitution and fleshed out in that state’s tax code.
Against that background, LD 1940 was the bill developed by MMA’s Policy Committee and sponsored by Senator Beverley Daggett (Kennebec Cty.) to address the policy issues associated with property tax exemptions. LD 1940 was carried over from the first to the second legislative session, and in between the two legislative sessions the Taxation Committee coincidentally conducted a three-month study of the status of tax exempt law in Maine, as the Committee is supposed to do every four years according to a sometimes-overlooked statute.
LD 1940 was quickly voted "ought not to pass" by the Taxation Committee when the second legislative session got underway, although it seemed at the time that the bill was being killed only to make room for the Committee’s own approach to the subject. Although the Taxation Committee could not reach consensus on various elements of the tax exemption problem, the draft report of the Committee, which was supposed to be finalized and submitted to the Legislature at some point during the second session, outlined several underlying policy problems with the state’s tax exemption law. A minority of the Taxation Committee developed some constructive solutions as part of that effort and proposed their enactment into law.
Ultimately, no bill of any kind dealing with the lack of standards in tax exempt law came out of the Taxation Committee. Even the report that was supposed to be transmitted to the Legislature within the first 30 legislative days of the session was never submitted, and it languishes even now as a "draft" report, gathering cyber-dust on the state’s web page devoted to legislative studies.
Revenue Sharing II. What did come out of the Taxation Committee’s work on the issue of tax exempt property (as well as another legislative committee’s work on the issue of patterns of development and land use "sprawl"), was a proposal that became known as "Revenue Sharing II". Promoted most forcefully by the House Chair of the Taxation Committee, Representative Ken Gagnon (Waterville), Revenue Sharing II was ultimately enacted in the supplemental state budget as an amendment to the system of state revenue sharing distribution. As amended, the Local Government Fund (which collects sales and income tax revenues and from which Revenue Sharing is distributed) now contains a subsidiary fund within itself called the "Disproportionate Tax Burden Fund". The design of the Revenue Sharing II proposal addresses the fact that some municipalities have a much higher than average property tax burden, and some of that higher-than-average property tax burden can be traced to the concentration of tax exempt property in those communities.
Under current law, 5.1% of all state sales and income tax revenue is diverted into the Local Government Fund and distributed to all the municipalities in Maine according to a formula that takes into account each municipality’s population and its full value tax rate. The purpose of Revenue Sharing is to reduce each community’s property tax commitment.
Revenue Sharing II preserves the essential revenue sharing system while allowing for an expansion to the program that would target higher-than-average mill rate communities. Under Revenue Sharing II, a dollar threshold would be created in the Local Government Fund. For the first year of implementation (FY 01), that dollar threshold will be the amount of Revenue Sharing distributed in the current fiscal year (FY 00), which is currently estimated to be $106.7 million. All revenue accruing to the Local Government Fund up to the threshold figure will be distributed according to the existing revenue sharing formula. Any revenue accruing to the fund over and above the threshold amount will be distributed to the municipalities according to a slightly modified distribution formula that takes into account each municipality’s population and its full value mill rate minus 10 mills. This tweaking of the formula for the Disproportionate Tax Burden Fund has the effect of targeting the extra revenues that may accrue to the Local Government Fund toward municipalities with higher than average property tax burdens. To ensure that no municipalities are disadvantaged by Revenue Sharing II, the dollar threshold established in the Local Government Fund will be increased annually by the Consumer Price Index (CPI). By this annual adjustment, even the 42 municipalities in Maine with full value property tax rates less than 10 mills will still be able to expect CPI-level increases to their annual revenue sharing allotments.
As it was working through the legislative process, the Revenue Sharing II proposal would have increased the amount of state sales and income tax revenues dedicated to property tax relief. In its first iteration, the increase would have been from 5.1% to a full 6%, which would have provided an extra $20 million annually for property tax relief. As the session progressed and the financial realities became clearer, the proposal was trimmed down to increase the revenue sharing percentage only .2% (from 5.1% to 5.3% of sales and income tax revenue), which represented an annual boost to revenue sharing of approximately $4 million per year.
As finally enacted, the Legislature appropriated $3.6 million as a one-time appropriation for extra revenue sharing in FY 01, and adopted the Revenue Sharing II amendments to the distribution system. In other words, a fledgling Revenue Sharing II system has been incubated. The structural implementation of Revenue Sharing II will have to wait for the next legislative session.
A review of the work of the 119th Legislature suggests that the legislative agenda developed by the MMA’s Legislative Policy Committee in the fall of 1998 was largely adopted in the course of the 1999-2000 biennium. The exception to that general claim is found in the thorny tax exempt property issue, where no advancements were made except to the extent Revenue Sharing II begins to recognize, in some small part, the burden that is placed on communities that have a great deal of exempt property. The straightforward successes came in the areas of transportation infrastructure, municipal-school relations and the school budgeting process, and the two important but perhaps less universal issues of utility cuts in the right of way and the process governing the land spreading of biosolids.
MMA’s legislative agenda takes up only a small part of the overall scope of legislative activity. At the same time, municipalities by their very nature are often directly affected by the legislative initiatives of others. Statistics taken from previous legislative sessions suggest that 30% of all legislative proposals affect municipalities enough to deserve watching, and 20% of all bills propose a significant impact to local government. This second legislative session was no exception. Of the 746 bills taken up for consideration this session, MMA was tracking 204 "LDs" because of their direct connection to municipal government, and 133 of those bills were being watched especially closely because of their potentially significant impact.
Starting on page 15 is a description of all the legislation enacted this session pertinent to municipalities. The descriptions of each enactment have been grouped according to the legislative committee of jurisdiction to which the legislation was initially referred. With respect to some of the committees that work with a good deal of municipal legislation, an overview of the committee’s effort this session is provided as an introduction to the detailed explanation of each legislative enactment.