Property Reimbursements: Changing BETR may not be "better"
(from Maine Townsman, February 1997)
by Michael L. Starn
Governor Angus King has proposed some changes to the Business Equipment Tax Reimbursement (BETR) program enacted two years ago by the Maine Legislature which have raised the ire of the business community and created concern and, in some cases, anxiety amongst municipal assessors.
Under the BETR program, the state reimburses businesses the taxes they have paid to municipalities for personal property put into service after April 1, 1995. The state funded the program in FY 97 at $4.7 million to cover eligible property placed in service between April 1, 1995 and March 31, 1996.
As enacted, this new tax relief program for businesses would provide a reimbursement on this new property for 12 years. The program was not intended to be a one-shot deal, however. In subsequent state budgets, funding for the program would increase to continue existing reimbursements and cover new property added to the program. A decade or so down the road, the BETR program was expected to reimburse 70 to 80 percent of the personal property taxes paid in the state.
The BETR program evolved from a campaign promise that King had made to eliminate the personal property tax on business machinery and equipment. According to Kay Rand, the Governors legislative policy director, BETR is a high priority for the Governor and he has made a long-term commitment to its funding.
In its first year, the program did "better" than expected. Ironically, the program did such a good job of attracting reimbursement claims that the reimbursement monies have started to get tight. State officials are now projecting higher costs in the coming biennial budget than they were predicting last year.
Since reimbursements began on July 1 of last year (the beginning of the states fiscal year), more than 500 companies have applied for more than $5 million in tax rebates. The Governor budgeted and the Legislature approved $4.7 million for the first year of the program.
Despite appearances, Larry Record, director of the Bureau of Taxations Property Tax Division, says the program is not in financial trouble. Although the requests for reimbursement exceeds the dollars budgeted for the first year, Record says the programs reimbursement procedures allow for this.
The state has 180 days after taxes are paid on "qualified property" to make the reimbursement. The states fiscal year for which the $4.7 was budgeted ends June 30, 1997. For communities that bill taxes semi-annually - usually spring and fall - reimbursements on the second payment of property taxes generally wont have to be sent by the state until the next fiscal year, which begins July 1, 1997.
The Governors budget proposes funding levels of $13.9 million for FY 98 and $22.5 million for FY 99. However, adjustments are made to the anticipated funding levels with deappropriations (the Part II budget) of $1.2 million for FY 98 and $3.8 million (FY 99). Thus, the changes that the Governor is proposing in the budget would save the state roughly $5 million over the biennium.
The biggest, most cost saving change is to eliminate public utilities from the reimbursement program. Electric utilities, phone companies, cable companies, and the entire telecommunications industry would be hardest hit by the Governors plan.
The State Bureau of Taxation doesnt have a precise handle on the percentage of the estimated $5.2 million of applications submitted for reimbursement this year (during state FY 98) coming from public utilities, but some numbers reported in a Maine Sunday Telegram article on February 2 give some indication of their magnitude. In that article, CMP spokesman David Allen said that the company has $325,000 worth of rebates on $25 million of (personal property) investments made in transmission lines, transformers, and computers during the past six months.
The financial impact of future utility investments may be an even greater impetus for cutting them out of the program. In the same Telegram article, CMPs Allen also said that CMP was planning investments over the next two years that would qualify for $1.5 million in reimbursements; that Maine Yankee was looking at $2.7 million in rebates; and that two natural gas pipeline projects, expected to be completed before the end of the decade, would be potentially seeking $6 million in reimbursement.
Office furniture, lamps and lighting fixtures were eligible in the first year of the program, but now the Governor wants to exclude these items from reimbursement. Eliminating office furniture and lighting fixtures from the program, according to the Bureaus Larry Record, was proposed because no particular type of business was being singled out. Office furnishings are a small part of the capital investment of most businesses.
The Governor's original budget proposal also excluded used property transferred from businesses located outside the state to businesses within Maine. He has recently amended his budget proposal to eliminate the exclusion on this type of property. Property transferred between businesses located in Maine is not eligible for reimbursement under the existing law.
THE CREDIBILITY ISSUE
"Tax policy commitments that are made (by the state) should be kept," says Chris Hall of the Maine Chamber & Business Alliance.
At a legislative hearing last month, Hall told members of the Legislatures Appropriations and Taxation committees that the Governors plan to reduce funding for the BETR program was a bad idea. He said that individual companies which are proposed for exclusion from the program will suffer, and BETR will no longer be an all inclusive economic incentive and tax relief program.
"Funding reductions in BETR will do significant damage to investment psychology in Maine," Hall testified. He told the TOWNSMAN after the hearing that this type of tax policy change "shakes peoples confidence in the whole program."
Kings chief legislative advisor, Kay Rand, says the Governors decision to curtail the program was driven by the states financial problems - going into the budget process they needed to fill a $300 million gap between expected revenues and spending requests.
The Chambers Hall believes the Governors rationale for changing the program is weak. He says that its a matter of priorities; that the Governor has a lot of new spending initiatives; and that legislators are proposing new spending programs as well. With that kind of money floating around, Hall says, "Past commitments should be honored first."
The credibility issue also falls back on municipal officials. Municipal assessors were asked to promote the program to their local businesses and many of them did just that.
Auburn Assessor Joe Downey believes that the states credibility and communities credibility are both on the line. Downey helped to organize group meetings of Auburn businesses to promote BETR and has worked individually with a number of businesses trying to get them to take advantage of the program.
Downey says one of the citys largest employers, Tambrands Inc., made the decision to stay in Auburn and expand its facility due largely to this program. Downey says the Tambrands expansion was "a $45 million project with 250 good paying jobs" (about $39 million of the $45 million was personal property; personal property taxes totaled about $200,000).
Some of Tambrands expansion involved the relocation of machinery and equipment from its facilities in other states that were being closed. Before the Governor amended his proposed BETR changes, this type of investment would have been ineligible for reimbursement.
Freeports Richard Main is also upset over the proposed changes to the program. "If the state is going to have a reimbursement program for personal property, then they should do it for all personal property, not just selected types."
"You dont renege on a commitment just because youre in a financial bind," says Main. "You keep your promises."
CONCERNS OF MUNICIPAL ASSESSORS
Not all municipal assessors are opposed to the changes. Elizabeth Cumback, South Portland assessor, says she was a little surprised that utility investments were eligible under the program to start.
Cumback is concerned that a number of South Portland businesses with "qualified property" are not applying for reimbursement. Another concern with the program is that local assessors get no feedback from the state as to which businesses in their community have received reimbursement. Assessors dont know whether or not they need to promote the program, or, if they need to market it, to whom?
In an attempt to keep tabs on the program, the South Portland assessors office has identified property filed on its 706 request ("true & perfect" list of taxable property) that is believed to be eligible for the reimbursement. In a rough calculation, the assessors office came up with a figure of $1.2 to $1.4 million of "qualified property," eligible for reimbursement under the BETR program.
Given the statewide BETR reimbursement totals that have been reported thus far by the Bureau of Taxation, Cumback expects a lot of South Portland businesses dont know about the program, or perhaps have chosen not to participate.To promote BETR, the assessors office sent a letter explaining the application process to the businesses that they had identified on the 706 returns as having potentially qualifying property.
Auburns Joe Downey feels the program is being inadequately funded. "They (state budget officials) missed the boat in not being able to look out four to five years into the future."
Downey says that local assessors, had they been consulted, could have helped to provide better forecasting on the cost of the program. To illustrate his point, Downey calculates that the City of Auburn has $58 million of taxable value and about $1.5 million of reimbursable personal property taxes in this years tax commitment. "Most of that value was predictable," he says.
Freeports Richard Main is concerned about the effect of the proposed changes on the job of assessors. "Constant change (in tax policy) creates and maintains confusion," he says, pointing to past changes made to the Tree Growth law (see article in this issue).
"The process was open and clear this past year," Main says. He is concerned that changes will add confusion to the program and create more tension between property owners and the local assessor.
OTHER BETR BILLS
At least four bills that attempt to amend the BETR statute will be debated this legislative session.
One of those bills is LD 149, sponsored by Representative Lemaire of Lewiston. Representative Lemaires bill would make personal property that is first placed in service outside the state ineligible for reimbursement unless the owner of that property hires qualified employees (as defined under the ETIF program). ETIF stands for Employment Tax Increment Financing. Qualified employees under ETIF are ones that have health insurance provided and are paid above market wages.
Tying tax breaks to jobs appears politically popular among legislators. In the aforementioned Maine Sunday Telegram article, Senate and House leaders on both sides of the aisle voiced support for linking rebates to the creation of jobs.
Kay Rand, the Governors lobbyist, and business representative Chris Hall, however, both questioned the idea of tying the BETR programs tax breaks to job creation. "Its bad tax policy," said Rand. Hall agreed saying, "Some investments create jobs, some retain jobs and some eliminate jobs. But if you dont invest in capital, your economy is going in the wrong direction."
LD 780, introduced by Representative Samson of Jay, would stop double dipping by companies that are in tax increment financing districts. If this bill becomes law, businesses which receive tax breaks from the state or a municipality for property placed in a tax increment financing district would have any reimbursement they receive under the BETR program reduced by that amount of that tax break.
LD 761, sponsored by Representative Goodwin of Pembroke, would repeal the entire BETR program.
Senator Peter Mills of Somerset County has presented a bill, LD 876, that would reduce the period of time that property under BETR would be eligible for reimbursement from 12 years to 3 years.