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Towns grapple with revenue sharing loss

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Posted: Thursday, June 27, 2013 5:34 pm

Towns in the Lakes Region will now have to deal with the fallout from the budget approved Wednesday by the Maine Legislature.

The budget, which became law after legislators voted to override Gov. Paul LePage’s veto, restored two-thirds of the municipal revenue sharing eliminated in the governor’s original spending proposal. But that still leaves local governments one-third short of what many leaders were expecting.

Some towns, such as Windham, won’t see an immediate impact since leaders plan to cover the state loss by dipping into surplus, but if the economy doesn’t rebound or local leaders in other towns don’t cut programs or services, most property taxpayers will likely feel a pinch either this year or next since losses in state aid are significant.

The state bases revenue sharing as a percentage of sales and income tax. In fiscal year 2013, which comes to a close June 30, Windham received $975,000 in state revenue sharing. In January, LePage caused waves throughout town halls across Maine by proposing to suspend revenue sharing for two years, which would have cut the state budget by $200 million. However, Democrats and Republicans in the Legislature, wary of transferring the burden to local property taxpayers, countered LePage and on Wednesday passed the Legislature’s $6.3 million budget, despite a veto earlier in the week by the governor. The approved state budget restored two-thirds of revenue sharing, or about $125 million. LePage’s other property tax-related proposal that would have eliminated the Homestead Exemption for Mainers who own their home and live in state all year, was also rejected.

While the contentious proposal had been openly debated for months, local towns varied in their handling of the potential loss.

Windham

For months, Windham government leaders have been publicly contemplating how the town would absorb

LePage’s proposal to suspend state revenue sharing. Early in the budget process, Town Manager Tony Plante asked department heads to identify budget reduction “options,” as he described them, the council could consider in case LePage’s proposal was approved. The council made a stipulation in the budget passed at annual town meeting June 15 that if the cuts went through, it would cover them by using surplus.

Windham has more than $5 million in surplus, also known as undesignated fund balance. Dipping into surplus in the short-term will allow for more reflective consideration, said Plante. So while next year’s loss of $355,000 will be covered by surplus, the council, which discussed the matter again Tuesday night, said the projected loss of $436,000 for FY 2015, which is the final year of the state’s two-year budget, is a serious concern and likely not one that can be solved using surplus.

Councilors decided they would revisit the issue early in the budget cycle in order to craft potential strategies. That could mean raising taxes or finding areas to trim.

State Sen. Gary Plummer, one of nine senators to vote against the Legislature’s budget and sustain LePage’s veto, said his vote wasn’t based on the revenue sharing aspect of the budget, which he said has become important for towns through the years. He praised Windham for building up enough surplus to handle the significant loss and says Windham also offers a model of how consolidation with surrounding towns can help reduce local tax bills.

“I think that Windham has some really great examples of consolidation; the South Windham-Little Falls fire station is a prime example. So I think if we’re going to not raise property taxes, we’re going to have to look at those things,” Plummer said. “And it’s tough for me to say, well, should we raise state taxes so we don’t have to raise local taxes? I think, at all levels, we need to look at what we’re doing and evaluate do we really need to keep doing it.”

Plummer also said he was a member of Windham government when revenue sharing began and, “I remember at that time we were advised to spend it on one-time things, don’t become dependent on it. Well, we got dependent on it over the years,” he said.

Rep. Tom Tyler, R-Windham, voted for the Legislature’s budget and the restoration of two-thirds of revenue sharing, saying it was a major concern of constituents who called him in past weeks.

“They all feared the governor’s proposal was even worse because the governor’s proposal took out all revenue sharing. There was none in there,” he said after Wednesday’s vote. “So, all the towns are receiving a cut, there’s no question, but that’s better than what it could have been.”

Tyler, who says he pays his “fair share” of property taxes as an owner of two houses in Windham, said there is “a local option” in Windham and that the loss of state funding doesn’t automatically mean a take hike is in the offing.

He also said Windham and similar towns with a healthy commercial tax base can withstand a loss of state aid better than towns that rely solely on residential taxpayers to foot the bills. But, nonetheless, big decisions loom locally, he said.

“Towns have relied on revenue sharing. They’ve all put it as part of their basic budget, year in and year out. And they’re either going to have to cut or raise taxes. They’ve got a choice, no question,” Tyler said.

Tyler said many towns probably won’t cut taxes and rather just raise revenue from local taxpayers, “but the worse thing you can do right now is raise property taxes,” he said.

Standish

Standish, which is facing a loss of $265,000 and did not discuss alternatives during its budget deliberations this spring, will hold a second vote in late summer to decide how to handle the loss of revenue sharing.

Town Manager Gordon Billington said the Town Council would convene a special town meeting in August or early September – prior to sending tax bills out to residents – to “re-adjust our tax rate,” he said.

“We passed a budget expecting a full allocation of revenue sharing,” Billington said this week prior to the Legislature’s decision on Wednesday. “Certainly, either by what the Legislature has proposed right now, or the governor’s budget, whichever gets done or a compromise of the two, there will be a significant reduction in our revenue sharing either way.”

Billington said the town received $590,000 in state revenue for the fiscal year ending June 30. Unlike Windham, which will cover the loss using surplus, Billington wants to keep surplus intact and raise property taxes instead. He blames the potential local tax hike on the Legislature.

“And that’s a direct result of what the Legislature is doing,” Billington said.

Asked how Standish taxpayers may react to further tax increases as a result of the revenue sharing cut, Billington said, “I haven’t heard much on the streets from it except absolute disgust with what the Legislature’s doing. I’m fairly disgusted with the process right now. How the heck can the state not follow their own legislative guidance? It baffles me that they’re trying to fund their own shortfalls by digging into the municipal funds. Using revenue sharing as a slush fund to take care of their own shortfalls, that’s very short-sighted.”

Rep. Mike Shaw, D-Standish, voted for the Legislature’s $6.3 million budget and against LePage’s plan. He said constituents unanimously urged him to vote against the governor’s budget specifically because it nixed state revenue sharing. Shaw said he would have liked to see revenue sharing fully restored, but he’s happy the compromise came about.

“They don’t want revenue sharing to disappear because they know that it would certainly increase property taxes,” Shaw said. “People realize that without revenue sharing, it would have been the largest property tax increase that my constituents have ever seen probably, so the only thing I could do was override the governor’s veto. Definitely.”

Raymond

As a result of Wednesday’s vote, Raymond leaders will need to cover a $62,000 loss of revenue sharing. The amount could have been higher if the Board of Selectmen hadn’t factored in some cushion at the annual town meeting in May. The board will discuss the matter at its next meeting in late July.

Town Manager Don Willard said the town will lose about $145,000 through the next two years. He’s hopeful that initial excise tax receipts will produce enough money to cover the loss from the state and that taxes won’t have to rise accordingly.

“Factoring in our own internal adjusting downward, we will be about $62,000 short of our budgeted estimate (FY13-14) this year. Certainly not good news at all, but we are hopeful that other revenues, particularly what appears to be strong excise tax collections related to the apparently recovering economy will help or totally offset this loss,” he said.

Willard said the Board of Selectmen could also “consider holding back on capital spending if they thought that was a good idea. Or they could seek a vote at a town meeting to use fund balance or other revenue source.”

Rep. Mike McClellan, R-Raymond, voted against the Legislature’s budget proposal. While he wasn’t a fan of the governor’s proposal to eliminate revenue sharing, he said the loss of revenue sharing didn’t automatically have to result in local leaders hiking property taxes.

“I’m really blessed I live in Raymond. Raymond, for the last seven years, had a zero increase in our town budget. We have had a history going as far back as I can remember of very responsible select people and town managers who hold the line,” McClellan said. “The Raymond select board and town manager budgeted accordingly. I told them to be concerned but I also told them I thought something would be given back. So Raymond is OK, they budgeted for this. There were towns in Maine, mostly cities I think, that disregarded the whole thing and did what they wanted. And they are in line for a big hurt. Even the 66 percent doesn’t help them a whole lot, but at least it’s something.”

McClellan said he wasn’t in support of “yanking” revenue sharing “cold turkey. I don’t think that was a fair thing to do either,” especially since towns were trying to formulate budgets before the Legislature had finalized its own budget.

“To me that was too quick a pull…so perhaps the 66 percent helps people think about it some more,” he said.

McClellan went on to say the reduction of state aid could spur local property taxpayers to get more involved with the budget-making process at the local level.

“Wouldn’t that be wonderful,” he said. “People have to get involved.”

Welcome to the discussion.