Fri, Jul 25, 2014 ●
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Policy Wonk: State revenue sharing: Going, going, gone

Opinion

Policy Wonk: State revenue sharing: Going, going, gone

Several realities justify revenue sharing:

• The greater capacity of the state, as opposed to individual municipalities, to implement broad taxes that raise revenues needed to fund governmental services, and to distribute a portion of these revenues to municipalities.

• The historic unwillingness of the state Legislature (almost alone in the nation) to fashion any form of local option taxation.

• And an awareness that high-value taxable properties are unevenly distributed in Maine, thus leaving some municipalities with more than adequate property tax revenues, and others with scant property tax revenues.

Revenue sharing began in 1971 as a countervailing factor to these realities. It annually provides all Maine municipalities with a small, but meaningful, additional revenue stream that can be used to fund local government services.

Until recent years it was faithfully honored during periods of economic prosperity or downturn by Democratic, Republican, and independent administrations.

The Baldacci administration began the process of nibbling away at funds earmarked for revenue sharing in order to balance annual state budgets. The LePage administration in its zeal to shrink state revenues and expenditures would end revenue sharing altogether. As a first step, Gov. Paul LePage’s current budget cut revenue sharing allocations significantly.

The Democratic majority in the Legislature accepted a portion of these cuts, but held out against a further $40 million cut in revenue sharing funds by putting in place a “Tax Expenditure Review Task Force” charged with finding $40 million in unfair, unwarranted, unnecessary tax benefits, subsidies, exemptions, and/or credits going to one or another special interest groups, individuals or corporations. In theory, these revenue losses to the state would be ended, thus enabling $40 million of revenue sharing funds to be restored.

The naivety here is astounding.

The task force had insufficient time and staff, and no real power. It is not a legislative body. It is a mix of Democratic and Republican legislators and public members – all decent people with some degree of tax background, but hopelessly divided politically and philosophically.

Not even the mandate of the task force was clear. some members wanted to examine the utility of, and the underlying justification for, individual tax expenditures. Some wanted to hear from outside experts. And others wanted to find a few big-ticket items that, if cut back even slightly, would allow $40 million in tax revenues to be recaptured.

In the end, Democratic hopes that revenue-sharing cuts could be avoided by a quick task force consensus on revenue increases that would be adopted by the Legislature and signed by the governor was little more than an exercise in futility. Even if a package of cuts got to the governor’s desk he, no doubt, would veto the enactment – a veto that almost certainly would be sustained. He wants to end revenue sharing, and cutting another $40 million is a next step in that direction.

What this means to Maine municipalities is simple: property taxes – already far too high – must be increased further, and/or services must be cut.

A handful of property-rich municipalities and wealthy individuals will not be inconvenienced. The majority of municipalities and many Maine families will be hurt by these tax increases and the inevitable cuts in services. A handful of municipalities with little or no property tax base (and thus no ability to raise revenue) will have to cut even essential services to the detriment of entire towns and those most in need.

Where does it end? The governor’s agenda is clear: he will push for further cuts in revenue sharing, and eventually end the program. Republicans (contrary to overwhelming evidence) will continue to see tax expenditures, even those going almost exclusively to wealthy individuals and corporations, as tax decreases that stimulate the economy. They will resist cutting off any tax benefit, subsidy, credit, or exemption on the argument that this will in effect raise taxes.

It’s a specious argument; cutting off a tax benefit that most do not enjoy is not raising taxes, it simply levels the playing field, providing equal treatment under the law.

Democrats for their part seem paralyzed. They’ve been rolled over so many times – on voter-approved bond issuance, hospital debt, tax cuts, participation for 60,000 low-income Maine residents in the Affordable Care Act, Statoil’s offshore wind proposal, and now the preservation of a meaningful level of revenue sharing – that they are gun shy. They await the 2014 elections in the hope that U.S. Rep. Mike Michaud will prevail, and that they will retain control of the Legislature.

That may happen, but it is by no means certain. If it does, the harms of the last three years can begin to be remediated.

But if any part of Democratic hopes for 2014 do not materialize, LePage will have outmaneuvered them again. Revenue sharing will be gone; property taxes will increase; state and local programs benefiting the poor and middle class will be cut further.

The Democrats needed to put something more than a toothless “Tax Expenditure Review Task Force” on the table, and they didn’t. A lot of Maine people will pay for their timidity.