AUGUSTA – Cities and towns would have to compete for state funds against all other state needs under a change proposed by Gov. Paul LePage.

Administration officials say the plan is an attempt to create a predictable funding source for municipalities. The Maine Municipal Association says it would likely reduce funding and pit cities and towns against children, the elderly and the poor.

LePage’s $6.1 billion budget proposes to send municipalities $94 million in each of the next two fiscal years. That’s more than the $90 million for 2010-11.

Budget planners chose $94 million because it’s roughly a 5 percent increase over what was awarded this fiscal year, said Sawin Millett, commissioner of the Department of Administrative and Financial Services.

He said they had hoped to give municipalities more in the budget’s second year, but could not because of increased school funding and more money for the Homestead Exemption property tax-relief program.

Cities and towns now get 5 percent of sales and income tax revenue. LePage wants to change that by setting an amount each year, weighing it against other state budget needs.

“It has (municipal) revenue-sharing compete with every other priority in state government,” said Tarren Bragdon, who worked on the budget as a member of the governor’s transition team. “It doesn’t say to local government ‘You step in front of the line before school kids, the disabled, teachers, transportation and everyone else.’ Everyone competes on the same level playing field.”

That’s what worries municipal officials, said Geoff Herman, director of state and federal affairs for the Maine Municipal Association.

Municipalities use revenue-sharing money to hold down property taxes, Herman said. The money is distributed through a formula that considers population, tax rates and property valuation, Millett said.

Under the current system, cities and towns would get 31 percent more funding than what LePage is proposing for the fiscal year that starts July 1, and 35 percent more for the next year, according to the Maine Municipal Association.

So LePage’s plan means nearly $3 million less for Portland in the first year alone, the association’s statistics show.

Portland’s spokeswoman, Nicole Clegg, said the proposed change is worrisome.

“It’s hard for us to reconcile his message around job creation and economic development when part of the purpose of revenue-sharing is to establish a partnership between municipalities and the state, so municipalities will invest in job creation,” she said.

Because cities and towns get 5 percent of the sales and income taxes, she said, they have an incentive to encourage development and generate more money for revenue-sharing.

A change in revenue-sharing would continue what has been a tough six years for municipalities. Previous state budgets significantly reduced what cities and towns thought they were guaranteed by the formula, because money was taken out of the system.

LePage, who was mayor of Waterville before he became governor, wants money for municipalities to go out as regular payments over 12 months. Bragdon, who is now executive director of the Maine Heritage Policy Center, said that would be a better system.

“Right now, the way the program works is they get 5 percent of revenue that comes in this month, next month,” he said. “This says no, that’s a ridiculous system. Take $94 million and pay out one-twelfth of those dollars every month.”

The change would create stability for municipalities, Millett said.

“It came down to a question between riding the wave of prosperity and recession when you go up and down with the economy,” he said. “This was an attempt to give certainty and predictability to municipalities.”

Waterville City Manager Mike Roy, who worked with LePage when he was mayor, called the proposed change “a huge threat to the biggest single outside revenue source the city of Waterville has.

“I thought the governor, our former mayor, understood the importance of revenue-sharing to the cities,” he said.

Cities and towns now add up their expenses and subtract their revenue-sharing allocations before they set their tax rates, Herman said. If there’s less money from the state, the choices are clear.

“You’re either going to have to make cuts in services or increase taxes,” he said.

The current system requires cities and towns to get the first 5 cents of every dollar that comes in from the income and sales taxes, Bragdon said. When times are good, municipalities get more funding, but in recent years they have gotten less because revenues have been down.

They have taken an additional hit in recent years because the state has “raided” the fund, Herman said. In the last fiscal year, lawmakers took $25.4 million out of the fund, and this year they took $39 million.

Municipal officials still prefer the current system over what LePage is proposing.

The revenue-sharing program dates to the 1970s. It was adopted to help municipalities get funding after the repeal of an inventory tax that once paid for local services, Herman said.

Only nine times in the past 40 years has the state raided the fund and given municipalities less than it would have under the revenue-sharing agreement, documents from the Maine Municipal Association show.

MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at: scover@mainetoday.com

 

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