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.