SOUTH PORTLAND — As he tweeted City Manager Jim Gailey Wednesday morning, Greg L’Heureux, the city’s finance director, knew he was in for a long day at the Statehouse.
If members of the Legislature’s Appropriations and Financial Affairs Committee don’t hear the message L’Heureux and Scarborough Town Councilor Jean-Marie Caterina delivered about revenue sharing, it could be a long budget season locally.
L’Heureux and Caterina were to testify in favor of a bill introduced by state Sen. Dawn Hill, D-York, and Rep. Peggy Rotondo, D-Lewiston, requiring the state to fund $40 million in assistance left out of the biennial budget enacted July 1, 2013.
Scarborough Town Council Chairman Richard Sullivan Jr. had hoped to testify, but was unable to make the hearing.
Within that money is the municipal revenue sharing the state has been required to provide municipalities for more than 40 years, although the current funding does not even meet half of the mandated 5 percent of sales and income taxes received by the state.
Gailey, Scarborough Town Manager Tom Hall and Cape Elizabeth Town Manager Mike McGovern count on the funding to pay for municipal operations, and have been feeling a squeeze by the state for almost a decade.
“In seven years time, we have lost $2 million with state revenue sharing,” Gailey said.
The reductions are particularly galling to Sullivan, Hall, Gailey and L’Heureux, given the contributions to state coffers from the commercial base in Scarborough and South Portland.
As L’Heureux noted Wednesday, $46 million in sale tax revenues were generated in South Portland in 2012. By terms of state law, the city could be entitled to as much as $2.3 million. The current budget is funded with $1.26 million in revenue sharing. If the Legislature fails to fund the $40 million, city revenue sharing aid could be reduced to $400,000.
In Scarborough, the town’s Economic Development Corporation Executive Director Karen Martin conservatively estimated town businesses contributed $23 million of sales taxes in 2012. She calculated the estimate using a 5 percent sales tax rate while sales tax rates for restaurants and lodging are higher.
In Scarborough, Hall said Wednesday the worst-case scenario would see revenue sharing reduce by more than $540,000 to $240,000. McGovern said Tuesday about $341,000 is in jeopardy in Cape Elizabeth.
The potential reductions come a year after municipalities faced a more direct threat to revenue sharing, as Gov. Paul LePage introduced a biennial budget seeking to suspend the revenue sharing program for two years while also claiming a share of excise taxes on commercial vehicles currently paid to towns and cities.
A final budget, enacted despite LePage’s veto, restored $98 million in current revenue sharing, and allocated $65 million for fiscal year 2015. But that allocation still required legislators to find $40 million, something a committee failed to do after meeting last fall.
Hill and Rotondo’s bill text is not yet available, but Ericka Dodge, spokeswoman for the Office of the Senate President and Maine Senate Democrats, said they look to find the $40 million by “scaling back corporate tax breaks to large scale retail stores like Wal-Mart; eliminating accounting tricks that allow large out-of-state firms – mostly oil and gas companies – to pay less in taxes; by using state dollars reserved for critical purposes; and by drawing down dollars from a GOP account reserved for tax breaks for the wealthy.”
The outcome of legislative inaction will hit property taxpayers hard in years when Scarborough and South Portland councilors are already drawing purse strings tighter.
South Portland councilors have a goal of capping any property tax rate increase at 3 to 3.5 percent. Scarborough councilors have set a flat funded budget as their goal. Both councils control how much is spent for education, but not how it is spent.
Gailey said he envisions drafting two budgets to account for the possible reduction, knowing it would add 23 cents per $1,000 of assessed value to the current tax rate of $16.70 to fully restore lost state funding.
“There’s no guarantee the council will put that 23 cents on the tax rate. It’s a long budget season, I don’t know where it is going,” Gailey said.
Scarborough Assessor Bill Healey estimated the loss of $540,000 in state revenue sharing would add 15 cents per $1,000 of assessed value to the current $14.77 property tax rate.
“It is not welfare for Scarborough,” Sullivan said last Friday, adding that the town has also been hurt by reductions in aid to education and the cost of repairing and maintaining roads that should be the responsibility of the Maine Department of Transportation.
Hall said contractual fixed municipal costs already make a flat funded budget difficult.
“Then you pile on top the loss of external revenue sources – it is the story we have been singing for five years now,” he said.