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HomeMy WebLinkAbout2008-10-06 Finance Committee Minutes FINANCE COMMITTEE October 6, 2008 Councilor Attendance: Farrington, Blanchette, D’Errico, Gratwick, Hawes, Palmer, Wheeler Staff Attendance: Cyr, Ring, Barrett, Hupp, Heitmann, Warren, Cammack, Dawes Others: Senator Joe Perry 1. Executive Session – Consultation with the City Solicitor Regarding Settlement Litigation – City of Bangor v. Citizens Communications Company v. UGI Utilities, Inc. et al – 1 MRSA Section 406 (E) A motion was made and seconded to move into executive sessions for Items 1 and 2 a. and b. 2. Executive Session – Hardship Abatements (a) & (b) – 36 MRSA Section 841 (2) 3. Open Session – Council Decisions on Items 1., 2.(a) and (b) Farrington noted that the Committee has moved out of executive session. Item 1: Heitmann said there will be an item on the upcoming Wednesday’s Council agenda to approve executing a settlement between Citizens and several third parties involved in the coal tar litigation. The City settled its case with Citizens last year for $7.625M and part of the settlement was that if Citizens could settle with any third parties they brought into this litigation the City would receive one-third of the settlement or any successful verdict of any litigation less any legal costs incurred by Citizens attorneys. There is a settlement with four of the third parties for $3.15M and the City will receive a percentage. There are other third parties still in negotiation. A motion was made and seconded to recommend approval to full Council to execute a settlement agreement between Citizens and the City of Bangor. Item 2 a. and b: Cyr said both applications were discussed in executive session and staff’s recommendation is to grant both hardship abatement requests. A motion was made and seconded to approve staff’s recommendation. 4. Consent Agenda A motion was made and seconded to recommend approval of the consent agenda items. a. Quitclaim Deed – Perry – 121 Grove Street b. Quitclaim Deed – Hand – 255 Buck Street c. Emergency Repairs – BAT Engine - $30,000 d. Update on Purchase of Used Equipment – Equipment Trailer - $21,900 5. Bids/Purchasing a. Request for Proposals – Engineering Services – Birch Stream Stormwater – SMRT - $46,953 Cyr noted that the City issued a RFP for these services. The City needs to work on its watershed management plan. The City has received a DEP Grant in the amount $30,000 for the project, which has previously been discussed at the Finance Committee level. The grant requires a $20,000 local match to be provided by the Airport, the Air National Guard and compensation fee utilization fund, which has been designated for the Birch Stream improvements. 8 proposals were received ranging from $34,000 to over $47,000. A Committee of interested parties made up of staff, DEP and Maine Air National Guard representatives reviewed and ranked all proposals and, based on that ranking, interviews were conducted with the top three responders. The criteria used was how well the goals were understood, relevant experience, developing creative solutions for stormwater management, past project success in similar situations. The interview committee’s recommendation was SMRT at $45,953. Gratwick asked about the Compensation Fee Utilization Fund, asked if the community involved in the process, and asked about the experience of SMRT. When the City submitted its watershed management plan, Cyr explained that part of that plan is that every new developer has to pay a fee into those specific watershed utilization funds: Birch Stream, Penjajawoc, Artic Brook, Meadowbrook and eventually Shaw Brook. Currently, the Birch Stream is at $15,000-16,000. Ring noted that the Compensation Fee and payment of that was established in the State Stormwater Regulations for impaired watersheds. There is a formula to provide additional treatment and future improvement in these watersheds. Cyr said the public was not involved in the selection of the group to work with this project but part of this group’s charge is to perform the stakeholder review process. Warren spoke about the qualifications and expertise of SMRT. She confirmed that Andrew Johnson is the project manager. Blanchette said that Birch Stream has been problematic for quite some time. She wants the residents in the area to know that the City is taking their concerns seriously. A motion was made and seconded to approve staff’s recommendation. 6. CO 08-310, Authorizing Issuance of $1,569,000 in General Obligation Bonds Cyr noted that passage of Order 08-310 would authorize issuing $1,569,000 in general obligation bonds for a variety of projects. These include vehicle replacement in the amount of $394,000; the City’s local share of BACTS street improvements in the amount of $275,000; and $900,000 for the construction of the replacement for Fire Station #6. Blanchette asked if the BACTS projects included a bus stop structure. Cyr said no and further indicated that BACTS monies are not used for bus stops. Cyr talked about the difference between state and municipal bond issues. Responding to Gratwick, Cyr said that the fleet replacement is ahead of the funding. She anticipates that for the upcoming several years the requested amount will be $300,000 for fleet vehicle replacement. Responding to Wheeler, Cyr said that police patrol vehicles are rotated every three years. Palmer and Blanchette expressed appreciation for the City’s fleet replacement policy. A motion was made and seconded to recommend approval to full Council. A public hearing will be required at the Council meeting. 7. Update on Change to State Corporate Income Tax Structure State Senator Joe Perry was invited to attend the meeting to discuss the recent change in State corporate taxation that affected Exxon/Mobil’s decision to discontinue direct fuel services to Bangor International Airport. By way of introduction, Barrett noted that ExxonMobil provided notice to the City earlier this year that they wished to terminate their agreements with BIA and to assign the agreements to a different company to provide fuel services at BIA. The reason for making the change was because the State’s income tax law on corporations had changed. In the past, it had taken into consideration such things as in-state sales, employment, and property. The law was changed to take only sales into account. Council had questions as to reasons for the law change and its impact. Farrington noted that the law was a surprise to the Council with consequences that were not good for the City of Bangor. Blanchette said she wasn’t as up to date on this tax law due to illness last year. She has been asked questions that she could not answer, and she requested staff to ask Senator Perry to speak to the Committee. Because BIA has had a good working relationship with Exxon/Mobil and sells millions of gallons of fuel to a number of aircraft entities, BIA is now being hit with a tax that perhaps doesn’t apply to other Maine airports. She questioned the fairness and justness of the law. Palmer is concerned that the law may impact other large Bangor entities. Senator Perry has been one of the Co-chairs of the State’s Taxation Committee. Perry provided a brief history on the tax. He stated that it was not a stand alone bill. It was part of the overall budget and did receive a thorough hearing in Taxation and jointly in Appropriations before it moved forward. There are different thresholds to be met by multi-state corporations before they qualify to pay state income taxes. There are 15-16 states that use the same formula to tax multi-state corporations. Approximately twelve years ago, corporate income taxes were based on Maine sales, Maine property, and employees in Maine. Those three totals were added and then divided by three which represented the percentage of the company’s profits in Maine, and that’s what the State of Maine income tax was based on. Over the years, changes were made and the system used a four weighted system as opposed to three. With the four weighted system, the sales, property and employees were counted twice and divided by four. Under the new formula, the income tax burden on companies with a significant presence in Maine in terms of property and employees are benefited. It is intended to attract manufacturing to the state and preserve industries. It shifts the tax burden from Maine industries on to other entities such as big box retail. Exxon/Mobil imports all of its products and has large sales volume in Maine with limited property and employment. Perry said that the law cannot be changed, but he would be willing to present legislation if something could be drafted to assist Exxon/Mobil BIA in this instance, which would take 6-12 months to pass through the process. The State is also entering into a very tight budget situation. Responding to Gratwick, Perry said that going from three to four weighted applied the income tax more on sales, but the new system uses sales as the only factor. Wheeler said the basis of the City’s concern is why Exxon/Mobil finds this tax such a drain that would require them to terminate their agreement with BIA. Hupp said it is a tax issue for Exxon/Mobil. They don’t have a significant amount of property or employees in Maine but when looking at their sales it becomes more of an issue for them. Because of the nature of their business and the other parts of their business that are related to aviation fuel sales, the State also taxes other businesses that are associated with that. She added that Exxon/Mobil has given the same notice to Presque Isle. Portland has more than one fixed based operator. Wheeler said that when the bill was under consideration, unless one was part of the Taxation Committee, one would not have been made aware of it. He questioned why Exxon/Mobil was not represented at the Taxation Committee. Perry said that all of the state’s public meetings are advertised in advance. He did not know why Exxon/ Mobil was not in attendance. All of the business trade groups including the State Chamber of Commerce were present and no one testified against it or took a position. Perry said he could find out if Exxon/Mobil had this problem in other states with the same formula. As part of their merger agreement, Hupp said that Exxon/Mobil is being forced by 2010 to be out of the retail gas station business. Palmer noted that the City has had a business relationship with Exxon/Mobil for forty years, and it is difficult to change partners. Perry said the Legislature returns to session in January 2009. If changes need to be made, and if he is re-elected, he is willing to start the process. He feels that the City would be wrong to blame this current problem on the Legislature. He doesn’t underestimate the impact of the fuel business at BIA. Responding to D’Errico, Perry said he doesn’t know how much money the state takes in for corporate income tax from multi-state corporations. In years past, this is a change that people wanted to see in Maine and it could never be done because it cost revenue and the State budget would not have been balanced. Last budget cycle, the state was able to make the change and to raise projections of revenue by $6-8M. Perry said it shifts the burden of Maine heavy manufacturing and more onto retail, primarily the big box operations that are not invested in the State like manufacturing. Blanchette expressed disappointment that this item, which impacts the City of Bangor and others, was included and almost buried in the Governor’s Budget. It is causing corporations such as Exxon/Mobil to go to a second provider and probably Presque Isle will do the same. She asked if there is a limit on sales that a company must reach before they fall under this tax. There are many ‘mom and pop’ gift stores that import 95% of their product from out of state. Perry said there is not a threshold, but it would never affect the mom and pop stores. This is a change on multi-state corporations only where they have to apportion their total income to different states in which they do business. It does not affect any Maine owned company. Blanchette said she doesn’t understand the purpose of the legislation. She doesn’t understand why it would be profitable for Exxon/Mobil to terminate its contract with BIA and would Western Petroleum be taxed the same. Barrett said yes, based upon their total sales in Maine. Western Petroleum is just looking at fuel sales. The difficulty with Exxon is not just paying a tax based on the aviation fuel sales but on their entire corporate structure. Exxon has indicated that the amount of tax they will pay exceeds the amount of their total profit in Maine. When this was being formulated in the Taxation Committee, Farrington asked if anyone knew this was an intended consequence. Perry said no, it is a new issue and it was not intended. Responding to Perry, Barrett said this legislative action was clearly something that no one foresaw and that Exxon may not have heard about it as the trade associations in the state did not take a position on it. It wasn’t widely known. From here, over the next few months the City needs to chart out a course to follow. It will not involve direct dealings with Exxon, and Barrett said he isn’t certain there is a legislative fix at the moment. Any significant tax law change would take 6-12 months. The City needs to identify its best option and pursue it. The City will bring a consultant on board to perform the analysis. The City will keep the tax situation in mind because it may restrict the City from doing business with other large companies. As the City moves forward, it may be able to identify a problem for the City and interested parties and would then be interested in pursuing it with the State. The tax law was designed to benefit companies with large investment bases in Maine. Apparently it has had minimum impact on other operations in the State, but there may be other situations that have not risen to the top. Barrett again stated that the City needs to track a course, assume that it will operate under the current tax law, and decide how best to proceed on its own. Farrington asked Barrett and Hupp how much this will financially impact BIA. Barrett said it is difficult to estimate and could only be answered after the fact and then only an approximation. Farrington thought it would be beneficial information to the City’s Legislative Delegation. D’Errico said that many years ago the City went to the Legislature because an international airline was paying an extra tax on fuel, and the Legislature removed the tax. Barrett said there have been several occasions when the Legislature has considered moving from an excise tax on aviation fuel to a sales tax. It could have significant detrimental effect. Perry said that up until April of 2009 he could work on an after-the-deadline bill to deal with any issues that may arise with Bangor and BIA. He sensed the sadness of ending a forty year BIA/Exxon/Mobil relationship. He said he still wanted to know the difference of dealing with Exxon/Mobil and Western Petroleum, other than the relationship with a new provider. He then said that perhaps it makes sense to exempt petroleum from the single sales factor, but he can’t do so until he knows Bangor’s experience with the new provider. Blanchette said that the Council needs to understand what the Taxation Committee has done and what the Maine Legislature has done and their reasoning for doing so. She is tired of trying to defend what the Legislature has done for Bangor when it has done a lot to benefit the City. She doesn’t feel her fellow Council members should be making disparaging remarks about the Legislature. Palmer spoke of the tax law as being one of unintended consequences. He asked how a foreign international business that has a strong sales presence in Maine is affected by the tax scheme. Perry assumed it would all be applied in the same manner but that he would need to check with the State Revenue Office. Regarding consolidating the three into one in the formula, D’Errico asked if a rate was in place when this Legislation was passed. Exxon must have recognized the impact. Perry said there are a lot of pieces to the tax puzzle. The rate is the same today as it was a year ago. This is simply a method of calculating what share of the profits is attributed to the State of Maine. For many businesses, their share of profit attributed to the State of Maine has decreased as have their tax bills. For other companies, such as Exxon/Mobil, the rate has stayed the same but their percentage of profits out of their worldwide operations attribute to the State of Maine has increased. Wheeler asked to what extent is there effective communication between the Legislature and the Taxation Committee and the State Department of Economic Development, which should have a vested interest in looking out for the wellbeing of companies already doing business in Maine. Wheeler suggested to Perry that there be a very strong effort to communicate more often, effectively and freely with the Department of Economic Development. Perry said that the Legislature does communicate with many groups including the Maine Municipal Association. If a fix is needed, the Legislature will be available, but Perry said the fix is not yet known. Perry said that if Exxon/ Mobil is able to set up a distributorship to the other company and bring it in through another state, it’s not going to cost the state money. If looking into exempting petroleum sales would be appropriate, Perry said he is willing to start looking into it. Blanchette noted Exxon/Mobil brought it to the City’s table two months ago. The City had no idea about the legislation that had passed through the Legislative Taxation Committee. She doesn’t see any legislation that would change the situation. A motion was made to adjourn.