Days after Governor Paul LePage unveiled his latest $6.2 billion state budget last week, local municipal officials were still digesting his proposals, which would shift about $420 million in costs to Maine's 492 town and city governments over the next two years. That includes $283 million in cuts to revenue sharing, which is the money distributed to municipalities from sales, corporate, service provider, and income tax receipts. In recent years, previous administrations have cut back on that funding stream, but the new budget would suspend all revenue sharing for the next two years. For town and city officials, that means either drastic cuts in services or massive increases in property taxes, which is the only revenue-generating tool for most municipalities. At the same time, the adminstration aims to preserve the over $400 million in income tax cuts passed by the previous Legislature.

In defending his proposed budget, Governor LePage said that the state constitution requires a balanced budget and blamed the state's financial woes on the recession as well as spending on health care benefits and aid to low-income people.

"This has meant state government has had to tighten its belt significantly," said LePage. "Local municipalities must do the same."

Joe Slocum, Belfast's city manager, estimates that the cuts would amount to about 10 percent of the city's budget. He says that after several years of the state shifting responsibilities for roads, general assistance and education back to the municipalities, the new budget crosses the line.

"I'm very disappointed," said Slocum. "We don't look at it as 'revenue sharing.' This has been our money for 50 years. Now all of a sudden, the state says, 'We're not sharing anymore'?"

"The administration's budget proposes to completely break or seriously violate significant financial agreements between the state and municipalities, some of which date to the 1920s," said the Maine Municipal Association, in a statement released this week. "The proposed budget would hurt more than 200,000 property owners statewide, public school students, renters, General Assistance applicants and other recipients of municipal services, MMA's analysis shows."

In addition to the revenue-sharing cuts, the proposed budget will also divert a share of the municipal vehicle excise tax revenues to the state. Although the budget would flat-fund education at about 45 percent (the state is obligated under a 2004 law to fund it 55 percent), the proposals transfer 50 percent of the financial responsibility for teacher pensions to municipalities. Up until now, teachers' retirement was solely the duty of the state, which crafted the pension system in the first place. The administration points out that the governor increased education funding by $63 million in his previous budget.

The administration also proposes a cap on funding for general assistance, the locally administered emergency aid program for low-income residents.

And the new two-year budget proposal eliminates the homestead and circuit breaker property tax relief programs for everyone except for military veterans and individuals over 65.

"The governor's proposal delivers a double whammy to all property taxpayers in this state by first jacking up the property tax rate in a variety of ways and then eviscerating the programs that are designed to help people who are having trouble paying their property taxes," says Geoff Herman of the MMA.

As part of the budget proposal, the LePage administration also recommends eliminating the entire Maine Clean Elections fund of $4 million over the next two years. Passed by voters through a citizen referendum in 1996, the Clean Elections program is used by approximately 62 percent of legislative candidates in order to avoid the influence of private money. Additionally, the budget eliminates 200 positions in the state workforce as well as cutting the entire Low Cost Drugs for the Elderly program. In spite of the $60 million in cuts to programs for the poor and elderly, the budget would increase mental health spending by $2 million and provide spending increases for child foster care and children with autism and developmental disabilities. The governor also recommends authorization of a $100 million bond to replace the Maine Correctional Center in Windham.
The Tax Controversy

Meanwhile, the budget preserves over $400 million in tax cuts passed by the previous Republican-controlled legislature. Those cuts benefit the state's wealthiest taxpayers the most and repealing them could eliminate the need for many of the cuts called for in the new two-year budget. Although Democratic leadership in the Legislature has been cautious about specifically calling for a repeal of those tax cuts, which have not yet taken effect, Governor LePage has been aggressively defending his tax plan, in an Internet video and prepared statements.

"Maine already has one of the highest tax burdens, so it is imperative, as we go through the budget process, that we resist the option of raising taxes on hardworking Mainers," the governor said in a recorded statement on January 11.

Rep. Jeff Evangelos (I-Friendship), a former Warren town manger, says that the tax cuts should be repealed in order to save his four Knox County towns from the cost shift.

"Gov LePage is playing the old shell game with our towns and cities," said Evangelos. "Unfortunately for our communities, he's the one moving the shells and the pea and he's playing our communities for the sucker. Maine's economy has stalled, sales tax and income tax revenues, which account for 70% of tax collections, are plunging. Clearly, we need to move in a different direction, and a good place to start will be starting a conversation about the state's commitment to fund education at the mandated 55% and to raise taxes on the wealthy."

However, fellow Independent Rep. Joe Brooks (I-Winterport), who has been newly appointed to the Legislature's Taxation Committee, says he's hesitant to do that.

"I think it would be disastrous if we did that," he said. "We've got to sit down and do some hard studying before we do anything, whether it's cutting taxes or increasing them. The latter is something I can't support."

But as the burden to balance the budget gets shifted to property taxes, the old tax reform debate has been stirred up. Rep. James Gillway, who is also the town manager of Searsport, says the proposed budget is unacceptable and has long believed that too much of the cost of government services has been put on property taxpayers. Although he says he's not interested in reversing the $400 million tax cut package, he is open to tax reform ideas, such as increasing the food and lodging tax.

"I think if we're going to collect a tax, we need to collect a tax from everyone; not only the property taxpayers, but also the folks who come to visit us," said Rep Gillway. "I don't want to drive tourism away, but if we're going to share a burden, we should be sharing it with everyone who uses our state."

Supporters of such a measure have noted that Maine's food and lodging tax is the lowest in New England, but past proposals, which have included shifting some of the tax burden to visitors to the state, have faced stiff resistance from the tourism industry and have been defeated or repealed.

Municipal officials are summoning up their lobbying power in opposition to the current budget.

And, as Rep. Gillway notes, the real negotiations over the governor's proposed budget will happen in the Legislature's Appropriations Committee. After those negotiations, which promise to be intense, a budget will emerge and go to the full Legislature for approval.