Has LD 1 had it's chance?

AUGUSTA -- How you vote on the Taxpayer Bill of Rights may well depend on whether you believe past attempts to lower property taxes have worked.

Passed by the Legislature in early 2005, lawmakers hailed it as the key to lowering local property taxes because the state would pay a higher percentage of school costs. At the same time, the state changed the school funding formula to make schools more accountable for the money they spend on education.

LD 1 put spending caps at the state, county, and municipal level, and required separate votes by elected officials, and in some cases townspeople, if they wanted to exceed the caps.

It also put more money in two tax-break programs, though it left it to local government to help pay for one of them.

Gov. John Baldacci signed the statute into law in January 2005, but it did not fully take effect until September of that year. Because of different fiscal cycles in cities and towns across the state, it did not kick-in in some places until early 2006.

"It needs more time," said Michael A. Moore, executive director of the Maine Public Spending Research Group. "It needs full K-12 funding and it needs state-level politicians to talk a lot and often about how it's supposed to work."

Moore's group, based in Portland, is a new nonpartisan organization dedicated to providing information about state spending and taxes. It has not, and will not, take a position on the Taxpayer Bill of Rights.

On Nov. 7, voters across the state will be asked whether they support the Taxpayer Bill of Rights, also known as TABOR. The measure limits increases in state and local government spending to the rate of inflation plus population growth, and requires voter approval for all tax and fee increases.

Those who support the measure argue that the Legislature failed with LD 1, and that's why the Taxpayer Bill of Rights is necessary.

"I haven't been able to find anyone who got any tax relief from it," said Mary Adams, the Garland woman who organized the petition drive to get TABOR on the ballot. "The schools took what was to come to the towns.

"There were so many ways to subvert the money it got hijacked on the way to the property owner."

To address that concern, Baldacci, if re-elected, wants to require cities and towns to pass along 90 percent of the new school funding to reduce property taxes, said Martha Freeman, director of the State Planning Office.

An analysis released by her office in January reported that property taxes had been rising at a rate of 5 percent a year prior to LD 1, but in 2005, they rose an average of 1.7 percent, she said.

"Not only did we limit growth, we had no growth," he said. "That's pretty effective."

Town Manager Phil Tarr said the town tax rate has dropped from $17.10 per $1,000 valuation in 2003 to $16.45 in 2006. However, town residents had to approve a $400,000 budget override in March because the LD 1 formula didn't include enough money to cover needed sewer work, building repairs and equipment replacement, Tarr said.

Residential property tax bills did not go up because town revenues covered the cost of the extra $400,000 on the $7 million budget, he said.

Freeman said LD 1 provided $65 million worth of property tax relief to residents and $10 million to Maine businesses. Another analysis that's scheduled to be released in January will provide a more complete picture because the law would have been in effect in all cities and towns, she said.

Baldacci also wants lawmakers and citizens to approve a constitutional amendment that would put a cap on the increase in assessed valuation for Maine residents. Formerly known as LD 2, it was a companion piece to LD 1 that has not gained enough traction to gain approval in the Statehouse.

While numbers from the state provide a positive picture, the state's leading business organization believes that LD 1 needs to be strengthened, said Dana Connors, president of the Maine State Chamber of Commerce.

"The tax-relief elements were oversold," he said. "You need to put in place spending limits and stick to them over 10 to 15 years."

Connors said it's too easy for schools and towns to override the spending limits, and that most of the tax relief came through special programs for eligible taxpayers, rather than for everyone.

"The year after it was passed, everyone was saying, 'Where's the beef?' " he said.

Sen. S. Peter Mills, R-Cornville, agreed, saying that the state should have increased funding to schools in two years rather than four.

"The first installment didn't hit people between the eyes," he said. "It was a quarter boost."

Mills, a legislator for 12 years who opposes the Taxpayer Bill of Rights, also believes it should be harder for state and local government to override the spending limits.

LD 1 put more money in a tax-relief program designed to help those whose property taxes take up a high proportion of their income. The Maine Residents Property Tax and Rent Refund Program, also called the "circuit breaker," gives a maximum benefit of $2,000.

Those who are single and have a household income of $77,000 or less, and those with a spouse or dependents with a household income of $102,000 or less, may be eligible if their property taxes absorb more than 4 percent of their income.

The income limits are the same for renters as long as the rent paid in 2005 was more than 20 percent of household income.

It's up to taxpayers to apply for the rebate, and the state estimates that about 50 percent of those who are eligible take advantage of the program.

LD 1 also increased the Homestead Exemption, which goes to all Maine homeowners who have owned a home in Maine for 12 months. The program exempts the first $13,000 of the value of a home from taxation.

However, the Legislature agreed to pay only half of the amount of lost revenue to cities and towns, leaving it up to local government to pay for the rest of the cost of the program.

The legislation also changed the school-funding formula, with the state promising to fund 55 percent of the cost of education by 2009.

Schools that receive more money than the state deems necessary to cover "essential programs and services" are supposed to pass the savings along to taxpayers. But they are not required to.

One key difference between LD 1 and the Taxpayer Bill of Rights is how the spending caps are calculated. The LD 1 limit on municipal and state government is based on the 10-year average of personal income growth and the 10-year average population growth.

The Taxpayer Bill of Rights limit is the rate of inflation plus population growth and for schools, it uses student enrollment. Freeman, of the state planning office, said the LD 1 method allows for limited growth, while the TABOR limit could result in cuts.

"The great thing about the LD 1 limit is that it's tailored to the Maine economy," he said. "It's keyed to the real growth of Maine wages and employment, which is a fair gauge of the ability to pay."

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