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HomeMy WebLinkAbout2003-10-15 03-325 RESOLVEcounaLAMON Item No.03325 Date: 10-15-03 Item/Subject: Resolve, Supporting Question 113 on the November Ballot Responsible Department City Council Commentary: Last fall, the City Council adopted a resolve supporting MMA's efforts to obtain sufficient signatures to place a tax reform proposal on the ballot this November. That effort was successful, and the ballot question (la) would require the State to provide 55% forcing for local education including special education. Since then, a competing question (1b) has been placed on the ballot by the Legislature. That question would also increase state support to local education to 55%, but would do so over a six year pedod. Given that a competing quesdon will be on the ballot, voters will also be given a third option (lc) — in effect, none of the above. Please see the attached memo outlining these proposals and their Implications for the City of Bangor. At a recent Strategic Issues Committee meeting, Councilors discussed whether the City should revisit this issue or maintain the City's current position in support of the MMA question. At that meeting, those present voted 42 not to recommend this Resolve to the Council. At least one of those in the majority on this vote indicated his preference that the City take no position on this referendum. Please note that a number of Councilors were absent, at least some of whom have previously indicated that they now support 1b. Councilor Tremble subsequently requested that a Resolve in support of ib be draffed and presented to the full Council for discussion. The attached Resolve would indicate the al supportfor lb on the November ballot In addition, it would urge the State, to the extent practical, to speed the implementation time frame to reach the 55% funding level, particularly to increase the proposed level of education funding for next fiscal year. It would also support the intention of Governor Baldacci to work toward comprehensive modernization of the state's tax structure to address its volatility and disincentives to economic development. Should the Counal approve the attached Resolve, it would supercede the Council§ prior endorsement of the MMA proposal. If the Resolve is not adopted, the Council's prior action would stand. Department Head Manager's Comments: i City Manager Associated Information: proposal Summary; diaoZA KA410A bp._y Finance Director Legal Approval: Ci/ ty Solicitor Introduced for % Passage _ First Reading Page_ of Referral 03-325 Assigned to emmci or 1!remble October 15. 2003 CITY OF BANGOR (fRLE.) Resolve, Supporting Question IB on the November Ballot WHEREAS, Maine relies too heavily on the property tax to pay for Kindergarten through Grade 12 education; and WHEREAS, the propety tax, particularly in Maine's Service Center Communities, is too high, adding significantly to Maine's overall tax burden and malting it difficult for many residents to meet their tax commitments; and WHEREAS, the alignment of tax burden among the property, sales, and income tax is seriously out of balance, with the property tax representing over 40% of total revenues from these three sources; and WHEREAS, Maine's overall tax burden is a matter of great concem to residents and businesses; and WHEREAS, in November, Maine residents will have the opportunity to vote on a referendum question that addresses the burden placed on the property tax to fund local education; and WHEREAS, option 16 presents an alternative that will increase the state's share of education funding over time while affording the best opportunity to avoid increases in other state taxes; expands the circuit breaker program to assist those most burdened by their property tax bills; and restores the reductions recently made in the homestead exemption; and WHEREAS, we believe that this option presents the most reasonable approach to systematically addressing the issue of education funding; and WHEREAS, we recognize, however, that this proposal will not provide significant relief for the property tax payer in its first several years; and WHEREAS, it has also been long recognized that Maine's tax structure should be modernized to reduce the State's reliance on the local property tax to fund education, reduce the volatility of Maine's tax code, more equitably align the tax burden among the state's three major tax revenue sources, and allow the Legislature to develop a plan to reduce Maine's overall tax burden. IN clay COMICIL October 15. 2003 Platform Made and Secaaded for Passage Platform Doubted State Representative Manchette, Norton. Paircloth d Perry urge Passage of Ouestfon 1B. Nick Nuree. BaugorT esident. opposed question IA Vote on Doubted Nation ] yes. 2 no, Councilors votimg yes: Crw1ey. Grease. Meaney. palmar. Boon 6 Tremble Councilors vatimg no: ParYDas a Farrington Passed 7 © a (TITLE,) NweMer Ballot Assigned to Councilor i x. Asaigoea to Comedo: It Ie CITY OF BANGOR (03-325) October 15, 2102 (rifLE) RESOLVE, Supporting an Act to Reduce Property Taxes Statewide I By Me Oly Gou cNofthe City of&mgor.' A PE50tm) i WHEREAS, Maine relies too heavily on the property tax to pay for Kindergarten through Grade 12 education; and WHEREAS, the State's tax structure is boo "volatile", resulting in an unpredictability of state lox revenues that significantly disrupts both state and local efforts to budget governmental resources; and WHEREAS, the alignment of tax burden among the property tax, sales tax and income taxes is seriously out of balance; and WHEREAS, Maine's overall W burden is a matter of great concern to residents and businesses, and WHEREAS, Mane's tax structure should be changed to reduce the State's reliance on a the local property tax to fund K-12 education and special education costs, reduce Me volatility of Maine's tax code, more equitably realign the tax burden among the slant's three major tax revenue sources, and allow the Legislature to develop a plan to reduce Maine's overall tax burden; and r WHEREAS, municipalities have tried for many years to get the Legislature W engage in tax refine to address Maine's flawed tax code and the legislature has rejected Mese efforts and failed to enact meaningful tax refim1; and WHEREAS, we believe it is fume to directly provide the citizens of Maine the opportunity p to vote on proposed changesto Maims tax structure that will reduce 1 property taxes statewide. NOW, THEREFORE, BE IT RESOLVED THAT: THE CITY COUNCIL OF THE CITY OF BANGOR hereby supports the proposed tax reform initiative of the Maine Municipal Association entitled ^An Act to Reduce Local Property Taxes Statewide.' - NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BANGOR, THAT we hereby indicate our support for measure IS on the November ballot as the most responsible approach to address the issue of education funding in Maine. We urge our citizens to take the time to became familiar with the issues involved In education funding and to support this alternative. BE IT FURTHER RESOLVED THAT, should 1B be adopted, we urge the Governor and the Legislature, to the extent practical, to speed the implementation time frame for the State M reach the goal of 55% funding for education and, in particular, to use their best efforts to increase the proposed level of education funding In Fiscal Year 2009-2005. BE IT FURTHER RESOLVED THAT we also support the intention of Governor Baldacci to wort toward a comprehensive modernization of the state's tax structure that will address the long - recognized issue of volatility as well as other shortcomings of Me current system that contribute to recurring state Oscal crises and Inhibit economic development and growth in Maine. 03-325 October 7, 2003 To: Honorable Mayor and Members of the City Council Fr: Edward A. Barrett Su: November Referendum on Education Funding Councilor Tremble has requested that a resolve appear on the Council agenda that would support lb on the November referendum ballot This is the competing measure placed on the ballot by the Legislature and Governor in response to item la, MMA's proposal. The ballot will also include lq which will allow the voters to indicate that they support neither proposal. In October of last year, the City Council adopted a resolve In support of Maine Municipal's tax reform initiative. A copy of that resolve is attached. Since then, the situation has changed with the presence of a competing measure and the Council has had several discussions on whether to maintain or change its current position. In what follows, 1 would like to summarize the main features of the competing measures and outline their impact on Bangor. la — Maine Municipal Proposal This measure would Increase state funding for local education to 55%, including 100% funding for special education. It would take effect with the next state fiscal year, and direct the appropriate Legislative Committees to report to the legislature by March 2004 on how the proposal should be implemented. it would also establish two "efficiency" funds designed to provide incentives for regional cost sharing and cost reductions in both education and local government. Two percent of the state's appropriation for education would go to such a fund for education; a similar amount would come from state revenue sharing for municipal efficiency. The proposal also directs the legislature to develop an overall tax burden management plan for the state. This proposal would require the state to increase its support to local education by an estimated $240 to $260 million in fiscal year 2005. Statewide it is estimated that this proposal would reduce property tax rates by approximately 15%. The major arguments presented in support of this proposal is that it would force the state to meet its long-standing pledge to pay for 55% of the cost of local education, a promise that has consistently been broken. It would provide significant property tax relief. R would also force the legislature and governor to undertake a complete reform of the state's revenue system, a step that the state 03-325 has not been able to take in the face of consistent opposition from a variety of special interests. It would provide an incentive for implementing efficiencies and regional approaches to both education and local government Finally, it would require the state to adopt a comprehensive plan covering all levels of government to reduce overall spending. The major concerns that have been expressed to date regarding this proposal are its lack of a guarantee that additional state support to education will actually result in a revenue neutral reduction in local property taxes. In particular, the concern is that local school districts or municipalities may use part of these funds to increase spending as opposed W red" property taxes. There is also concern on how the state would find the necessary resources to increase education funding so substantially in a single year. While MMA's stated intent is that this measure would force a re-examination of the state's overall revenue system in an effort to require that it be significantly reformed, the proposal provides no details and leaves implementation to the legislature. How the state might accomplish this Increase In funding is not clear. Finally, concern has been expressed that a state guarantee to fund 100% of special education might result in continuing or further increasing the expansion of special education costs. This element of the proposal may provide an incentive for over -identification of students for special education eligibllity. While the exact impact of this proposal on Bangor is not know, the estimate of a 15% reduction In property taxes is probably in the range of what we might expect. 1b — Competing Measure The competing measure would phase In the 55% funding for local education, using the Essential programs and Services model, over a six-year period. Under the proposal, there would be no increase in state aid for education in the coming fiscal year (2005) and a modest 3% increase in 2006. More significant increases are projected in the final four years of the phase in period. It would also phase in certain eligibility and support level increases in the existing circuit breaker program. Finally, it would restore the full $7,000 homestead exemption to those who experienced a reduction in this exemption this year due to the value of their property. Those supporting this measure indicate that the phase in periotl will allow the state to meet its commitment to local education over a reasonable period of time, thus avoiding either significant increases in taxes at the state level and/or dramatic reductions in other areas of state government. They also indicate that some modest property tax relief is provided through improvements in the circuit 03-325 breaker program, a program of targeted relief, and restoration of the homestead exemption. The major concems expressed regarding this approach are the long phase in period and, In particular the flat funding for education in 2005 which will result in many municpalities increasing property taxes immediately after voters have cast their ballots for a proposal that they believe will reduce Meir property taxes. Concern has also been expressed that the projections used In this proposal underestimate the ate of increase in state-wide education omits and that, IF Implemented, this proposal will not achieve the 55% funding level. Some have also questioned whether this simply constitutes another promise of future funding that will be broken. While not questioning the sincerity of those who have advanced this proposal, concern has been expressed over the large Percentage of anticipated state revenue growth that would have to be dedicated to education in the later years, given the assumption that Me overall state revenue system will not be reformed. The dmuit breaker and homestead programs have also been criticized In the past on the basis that they are band - aide substitutes for serious tax reform and that the circuit breaker program is structured and administered in such a way that many of those who are eligible for the program do not apply. Under this program, the City of Bangor is projected to receive a $33,500 increase in school aid in 2005. Given the recent trend in school expenditures, this could easily result in a 50 to 60 cent increase in property taxes assuming our current assessed value. The City of Bangor appears to benefit substantially under Me EPS funding model. However, a large number of questions remain on Me exact manner In which this model will be Implemented, particularly in regard to certain categorical programs which are currently not included in the model, most notably special education. lc — None of the Above This option simply gives the voter the ability to express their opinion as not in support of either la or lb. Should this proposal be selected, future efforts to reform the state's revenue system and reduce the property tax burden through legislative anion would become more difficult, at least in the short term. Proposed Resolve The proposed resolve would indicate the City's support for 11h, the competing resolve supported by the governor and legislature. The resolve would also, however, indicate the City's support for several additional actions that might improve this option. In particular, it urges the governor and legislature to speed the implementation of the 55% funding level, particularly by finding a way to 03-325 Increase state support for education next year. It also supports efforts by the Governor W proceed with a substantive overhaul of the state tax system. Other Considerations We should also keep in mind that signatures have been fled with the Secretary of State to place the so-called Puletsky referendum on the ballot in November 2004. While we do not yet know if there are sufficient signatures, indications are that this measure is now closer to being on the ballot than it has been in previous years. Most notably, this measure would limit the local property tax ate to $10 plus an additional amount necessary to meet debt service obligations on general obligation debt. Should it be on the ballot and be approved, this would mean that the City would have to reduce its expenses or find additional revenues equal to about 50% of our tax commitment This measure would create an severe crisis at the local level, particularly for service center communities that tend to have a higher tax rate than more rural areas. Please also keep in mind that the legislature is not required to implement any referendum that is approved by the voters. While It has generally done so in the past and has given great deference to voter opinion, the legislature is free to modify or repeal any action that is taken. Conclusion I hope that this background and analysis will be helpful as the Council considers how to proceed on Wednesday. Please contact me should you have any questions or need any additional information.