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pnms-excisetax-012109 Battle simmering over auto tax initiative

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pnms-excisetax-012109 Battle simmering over auto tax initiative

Anyone who has registered a vehicle in Maine has felt the pain of excise tax, the municipal tariff enacted by the state Legislature in 1925 to fund local public works budgets and road improvements.
But throughout its 83-year existence, Maine's excise tax has left some residents, particularly new-car buyers, feeling fleeced.
Two organizations with a history of railing against Maine's tax burden agree. Now, after a successful 18-month petition effort, those groups – plus an estimated 70,000 registered voters – are behind an initiative to dramatically slash auto excise.
Town officials, who claim the proposal will cut into a valuable revenue stream, are taking the initiative seriously.
"We all know Maine has one of the highest tax burdens in the country," said Chris Cinquemani, public affairs director for Maine Leads, a grassroots organization based in Augusta and an ideological sibling of the Maine Heritage Policy Center, a Portland-based conservative think tank.
"State and local politicians have offered nothing but gimmicks and tax shifts," Cinquemani said. "(The excise tax initiative) is borne by the people to say we don't have to rely on the Legislature. They've failed to give us tax relief and now we're rising up and giving it to ourselves."
Maine Leads hopes Cinquemani's rhetoric and criticism of the state tax burden will strike a populist chord with Maine voters, who could be the ones deciding the initiative's fate.
If the secretary of state verifies the initiative's 70,000 signatures, the Legislature will be forced to either enact the proposal or send it to referendum. Supporters and opponents of the initiative agree a statewide vote is more likely, meaning Mainers could soon have the power to reduce auto excise by 50 percent for the first five years a vehicle is registered.
The bill also promotes the purchase of hybrid vehicles by eliminating the sales tax and first three years of excise on new purchases.
While the prospect of paying less in taxes may have broad appeal, town officials are cautioning against a measure they say is a bigger threat to municipal budgets, and by extension city services, than TABOR
2, the follow-up to the 2006 Taxpayer Bill of Rights that voters narrowly defeated.
Both TABOR 2 and the excise tax initiative could appear on the November ballot, and town officials believe that's a dangerous proposition.
"I don't think both will pass," South Portland City Manger Jim Gailey said. "But my fear is people unsure about TABOR will see the excise (initiative) and think, why not?"
Gailey and his colleagues have a reason to be concerned.
According to figures compiled by the Maine Revenue Service, auto excise tax accounts for an average of 10 percent of all municipal revenues in Maine. In 2005, municipalities collected more than $203 million in excise. At $47.7 million, Cumberland County brought in more than 23 percent of those collections, the most in the state.
Cinquemani called the revenues a "blatant money grab."
Some communities in greater Portland predict a 40 to 50 percent drop-off in excise revenues if the citizen initiative is enacted.
For Portland, that would mean a loss of $3.7 million from the $9.5 million it is projecting to collect in the 2010 budget. South Portland, which budgeted $3.9 million in 2007-2008, is predicting a loss of $2.2 million. Brunswick, which has budgeted around $2.5 million, could see a loss of $1.3 million.
Smaller communities like Freeport, Harpswell, Cumberland, Cape Elizabeth, Falmouth and Yarmouth, annually budget an average of between $1 million and $2 million in excise revenues. Scarborough
is among the highest earners, averaging more than $4 million between 2003 and 2005.
Officials in all those towns worry voters might not realize the correlation between excise tax collections and public works budgets.
"If this passes, Freeport would lose about $600,000," Town Manager Dale Olmstead said. "That's basically our entire road-paving program."
Other town executives have similar outlooks. All said the excise initiative could force communities to choose between drastically reducing services or raising property taxes.
"In this case you're basically looking at a tax shift," Gailey said.
Other town officials added that shifting the cost for services from auto excise to property taxes would be inequitable.
"They're essentially taking a user tax and forcing it into a property tax issue," Cumberland Town Manager Bill Shane said, noting his town could lose
$500,000 each year if the initiative passes.
"Where else is that money going to come from?" Shane added.
But according to Cinquemani, that reaction is typical of municipal governments historically resistant to reform, adding that such response has driven initiatives like TABOR.
"We've been hearing the same argument from town politicians going back to TABOR," Cinquemani said. "Any time somebody says they're going to cut any of their revenue, it's a doom-and-gloom scenario for voters: Roads will crumble and the sky will fall. ... It's unsettling to me because they're saying, 'We don't want to take a look at how we're doing business.'"
Inefficiencies and waste are not new allegations against municipal government. Frequently reported, but often disputed, rankings from the Washington, D.C.-based Tax Foundation have put Maine at or near the top of the nation's list of states with the highest tax burdens.
While the Tax Foundation recently moved Maine from the top of its list to the upper third, conventional wisdom is the state has a tax problem.
For that reason, both sides of the excise tax debate think the initiative has a good chance to be ratified by voters.
Of the three citizen initiatives introduced by Maine Leads and MHPC, Cinquemani said the excise tax generated the most excitement.
"When people register their cars in Maine and see how little residents in other states are paying, it's pretty frustrating," Cinquemani said.
Complaints about Maine's excise tax rate – 2.4 percent for new vehicles – have raged for years. MHPC says Maine's excise is the sixth highest in the country.
In 2002, a legislative panel headed by former Secretary of State Dan Gwadosky said the state was tied with Arizona as having the highest tax rate on new vehicles.
That claim was disputed in a 2008 report by the Joint Standing Committee on Taxation. It said some states don't charge excise. Others, like New Hampshire, base registration charges on vehicle weight. And still others have calculations that make comparing Maine's excise to other states difficult.
Mainers frequently complain that the state's excise is based on sticker value of the car, rather than the amount paid. But according to the 2008 report, that method was adopted to ensure equity.
The report also recommends reducing the mil rate on new vehicles while raising it in the third, fourth, fifth and sixth years of ownership – a measure it estimates would result in a statewide municipal excise revenue reduction of more than $3 million, or 1.6 percent.
The Legislature could adopt the proposal to appease Mainers tempted to vote for the citizen initiative.
Although the measure would still give town officials heartburn over lost revenues, it might be received as a more palatable alternative.

Steve Mistler can be reached at 781-3661 ext. 123 or smistler@theforecaster.net.

SIDEBAR
At a glance
Annual excise tax is currently calculated by multiplying vehicle sticker price by a tax rate:
• 1st year – 2.4 percent.
• 2nd year – 1.75 percent.
• 3rd year – 1.35 percent.
• 4th year – 1.0 percent.
• 5th year – 0.65 percent.
• 6th year – 0.4 percent.
Here are rates proposed by the citizen initiative, which would also eliminate sales tax and excise tax for the first three years of registration for hybrid vehicles:
• 1st year – 1.2 percent.
• 2nd year – 0.8 percent.
• 3rd, succeeding years – 0.4 percent.