Town officials around Maine are concerned about how the state will fund Gov. Angus King’s proposed business tax credit on machinery and equipment, which provides cities and towns with about $80 million a year in revenue.
In 1997, King wants to eliminate the personal property taxes businesses pay to towns for machinery and equipment because he believes it is a penalty against businesses making new investments in Maine.
But, he recognizes it would pose a hardship for towns to lose $80 million in local tax revenues. “I don’t want the towns to have a heart attack,” King said during his budget address a few weeks ago.
To encourage new business investment without taking away the $80 million in local tax revenue, King is proposing that businesses get a tax credit from the state. That credit would be for the personal property taxes businesses pay to towns on their machinery and equipment.
King’s budget proposal includes $5 million for the state to fund the proposed business tax credit.
Town and city officials want businesses to invest and expand in their communities. But, they are leery that some of the state revenues they now receive will be further reduced to fund King’s proposed tax credit for business, which will mean less state revenue for towns and more costs for local property taxpayers.
For paper mill towns like Lincoln, Millinocket, Old Town and others, personal property taxes represent the major source of revenue.
About one-half of Millinocket’s $8.1 million in tax revenue comes from personal property. Great Northern Paper Co., the town’s largest taxpayer, paid taxes of $5.1 million this year, $3.8 million of which was from personal property.
Nearly 30 percent of Lincoln’s tax revenue comes from personal property. The bulk of it is from Lincoln Pulp & Paper Co., its largest taxpayer. Of the mill’s $1.1 million tax bill, about $900,000 is for personal property.
About 30 percent of Old Town’s tax revenue comes from personal property taxes, much of it from the James River Corp. Of the company’s $2.5 million tax bill, about $1.7 million came from personal property.
Dennis Bailey, the governor’s communication director, said the proposal only would apply to new investments, or new machinery and equipment installed after April 1995. He said companies installing new machinery and equipment would continue to pay personal property taxes to the towns, but would be eligible for some sort of reduction from the state, such as a tax credit.
With the bill still to be written, Bailey said it was yet to be decided whether companies would be given a tax credit of dollar-for-dollar investment, or something less.
During his campaign, King proposed the tax be eliminated. In his book, he said an alternative might be to have business pay the local tax and then use it as a credit against the state taxes they owed. He said the towns would not have to worry about the state reneging on the reimbursement, a past problem.
“He (the governor) is convinced we have to have a healthy manufacturing base in this state. We can’t expect to replace good paying manufacturing jobs with service industry or telemarketing type jobs. For this economy to flourish we are going to have a good solid healthy manufacturing sector. We can’t say goodbye to it,” Bailey said.
Bailey said the proposal was a way for the state to encourage economic development and said the governor did not want to push the burden off onto cities and towns, which has happened in the past. He said King believed the tax was a penalty toward investment and that it was a tax that many other states did not have.
However, a Maine Municipal Association official said many other states did tax personal property.
Geoff Herman, a paralegal in MMA’s legal division, said his research indicated that of the 50 states and the District of Columbia, or out of the 51 taxing jurisdictions, only eight did not assess personal property. Those states are: Delaware, Hawaii, New Hampshire, New York, Pennsylvania, North Dakota and South Dakota.
Jim Elmore, Old Town’s assessor’s agent, questioned how the credit would be funded and where it might lead. He said the first year of King’s program was quite an innocent project and the principles seemed fairly agreeable. “My concern is what is that little baby going to grow into,” Elmore said.
“I don’t see how we can do it without it coming back in some way, shape or form to the property tax base. When everything all falls out, it’s the property tax that is left there holding the bag,” said Millinocket Town Manager James KotredesCQ.
Officials point to issues where the state reneged on funding to the towns, such as school subsidy, landfill closures, tree growth tax, business inventory tax, and salt-sand sheds.
Kotredes and other officials point to education funding. They said the state had not lived up to the school funding formula for the past few years, which in some cases meant more money had to be raised in local taxes.
“My concern is there is no guarantee the state is going to live up to what it says. They are saying `trust us.’ What do we have for history to base our trust on? Not a lot,” said Lincoln Town Manager Cheryl Russell.
Lincoln is waiting for the green light for 75 percent state funding to close its landfill, which is estimated to cost $1.6 million. Does the town go forward and bond the project, or wait for the money? “I don’t want to be spending money with no guarantee,” Russell said.
Kotredes, who is optimistic about King, said real property tax relief was needed, but every time the MMA has gone to the Legislature in the past seven years, it was told they could not afford it.
“The trick to it, of course, is funding the tax credit. How do you generate that other $75 million to fund this tax credit? That is the question. That is the key. Where do these revenues come from,” asked Herman.
Herman said some questions could be answered and some concerns could be mollified slightly depending on the working of the budget bill.
Herman said the MMA opposed eliminating the personal property tax, which would further erode the tax base that towns relied on. But, he said the MMA was not opposed to King’s proposed tax credit providing there were some guarantees for towns.
“The guarantees have to be that the municipalities financially are held harmless. That they will be held harmless in the future. There will not be a capacity of further legislators to erode the reimbursement system and that the funding for the credit is not taken out of a different municipal pocket,” Herman said.