AUGUSTA — More than 50 municipal officials descended Wednesday on the State House to protest Gov. Paul LePage’s plan to eliminate state revenue sharing with cities and towns as part of his $6.3 billion, two-year budget.
While small-town selectmen disputed LePage’s claim that they aren’t willing to make tough budget choices, officials from larger, service-center communities denounced the administration for proposing to kill the 43-year-old revenue sharing program and keep all the tax revenue generated by municipal investments in economic development.
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“Since when do you, as Republicans, talk about taking away from the producers and redistributing the income?” asked Bangor City Councilor David S. Nealley, who identified himself as a Republican.
Other municipal officials told stories of deferred road maintenance, underfunded police and fire services, and functioning swimming pools paved over to trim local budgets.
The testimony before the Legislature’s budget writing and taxation committees was the most coordinated opposition yet to the governor’s proposed budget and related tax overhaul. At stake for municipalities is $155 million in shared tax revenue in the fiscal year beginning July 1, 2016, and the potential effects on local services and property taxes.
Many who testified already had calculated increases in property tax rates should the Legislature adopt LePage’s budget. Some predicted school budget cuts and growing lists of property liens for unpaid taxes.
Others, such as Nealley and South Portland Finance Director Greg L’Heureux, focused on the tax revenue generated by their communities. L’Heureux told lawmakers that South Portland businesses delivered $430 million in taxable revenue to the state, while the city received $1.2 million in revenue sharing this year. Losing the state funding, he said, would be equivalent to a 36-cent increase in the property tax rate.
L’Heureux said that figure by itself isn’t huge, but it would have a “crippling” effect when coupled with changes that LePage wants to make in some property-tax exemption programs.
PURSUING PROPERTY TAX RELIEF
The administration has argued that the revenue sharing program is ineffective and has not delivered property tax relief. The governor, who opposed revenue sharing cuts while he was mayor of Waterville, has said that Maine’s version of local control is too expensive.
Richard Rosen, the governor’s finance chief, told lawmakers that LePage’s tax plan would deliver relief directly to property taxpayers.
Eliminating revenue sharing is just one piece of the governor’s complex tax plan. He also wants to eventually eliminate the state’s income tax, and his plan would take a step in that direction by reducing the top income tax rate from 7.95 to 5.75 percent. The budget proposes a variety of other tax increases and changes to pay for the cut in the income tax.
ATTRACTING RETIREES, OR THE YOUNG
Critics of the plan say that ending revenue sharing would increase property taxes. Rosen said the governor’s plan would soften the property tax blow by beefing up the homestead exemption for filers older than 65 while increasing the property tax fairness credit for qualifying homeowners.
However, the budget plan would eliminate the homestead exemption for homeowners younger than 65, leading some Democratic lawmakers to question where the benefits are for young and middle-age Mainers.
Rep. Diane Russell, D-Portland, said LePage’s budget is designed to attract retirees, but since Maine is the oldest state in the country – it has the nation’s highest median age – it appears to have attracted them already. She asked Rosen how the governor’s budget addresses Maine’s need to attract younger residents.
Rosen replied that the proposed income tax cut would benefit all age groups.
LePage has acknowledged that property taxes likely would rise under his plan, and it’s unknown whether the income tax cut would produce benefits that offset that increase. Nonetheless, municipal officials said the impact on local budgets would be negative.
DEEP CONCERNS IN SMALL TOWNS
Vincent Frallicciardi, chairman of the Madawaska Board of Selectmen, said the state previously reduced revenue sharing with that town by $600,000, and the closing of a mill lowered tax revenue by $1.2 million. All told, he said, the town has been forced to cut 20 percent of its budget to hold the line on property taxes. Eliminating revenue sharing, he said, would result in the loss of $750,000 and be “detrimental to our survival.”
James Bennett, the city manager for Presque Isle, said the community had to fill in an indoor swimming pool because it could no longer afford to maintain it. “It’s not a decision the people in our community are proud of,” Bennett said.
Others were offended that LePage has recently portrayed local officials as free-spending bureaucrats. Robert Sezak, chairman of the Fairfield Town Council, said the governor’s rhetoric felt personal.
“Does anyone in here really think these officials aren’t responsive to the concerns of local residents?” said Joseph Slocum, Belfast’s city manager.
UP NEXT: TAXING SOME NONPROFITS
Tanya Emery, the economic development director in Bangor, said the city has made $80 million in public investments while generating $1.62 billion in retail sales over the Past three years. Taxes from those revenues, she said, went directly to the state, not Bangor.
Emery also noted that firefighters in Bangor battled a fire Wednesday at John Bapst High School, and one of them was hurt. Emery, whose husband is a firefighter, appealed to lawmakers.
“Every cut you make, it gets real people,” she said.
The lengthy hearing set up another round of testimony on Thursday. That hearing will focus on other parts of LePage’s plan, including a provision to eliminate property tax exemptions for certain nonprofit entities.
The administration has said that communities could replace lost revenue sharing by taxing nonprofits. But an early analysis by the Maine Municipal Association, which represents cities and towns, said the provision would disproportionately benefit larger communities and do little for small ones.
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