Maine’s municipal revenue sharing program is in bad shape. Former Gov. Paul LePage tried to get rid of it, and succeeded in reducing it to just 40% of its original size as part of his unrelenting drive to cut state spending.
While little known to the public, revenue sharing has an interesting history. It’s considered vital to town and city budgets, because it’s about the only form of state aid selectmen and councilors can spend any way they want, or, to put it in fiscal terms, it’s flexible – no mean virtue in a time of upheaval like ours.
Revenue sharing is a product of Gov. Ken Curtis’s reforming zeal way back in 1969, when the Great Society still echoed and Republicans legislators helped push through the first state income tax. An attraction of the new tax, added to the 1951 sales tax, was that the state directly shared all the revenues, originally 5% from both taxes.
The percentage was lowered to 2% by LePage, and has been partially restored in Gov. Janet Mills’s latest budget, to 3.75%.
Revenue sharing was, in part, compensation for the loss of an ancient property tax on business inventories – a nuisance for businesses, and expensive to administer. It was abolished readily because the new taxes produced far more school aid, and sharply lowered property taxes statewide.
But the new system, essentially unchanged except for rates since then, had one major deficiency. It concentrated taxing power at the state level, where it had never been before, and left county, municipal and school budgets heavily dependent on whatever the state doled out.
To this day, the only major direct sources of revenue for local budgets are the all-too-well-known property tax, and the motor vehicle excise tax, a “personal” property tax that goes entirely to municipal budgets, though the state sets the rate.
The downside of this arrangement is vividly on display in the current economic crisis brought about by the pandemic – with similar results after the Great Recession of 2008-09, and an equally punishing recession in 1990-91 that disproportionately affected New England.
Without robust revenues, the state begins paring everywhere and – since transfer payments to municipalities and schools consume more than half the budget – it’s inevitable that aid is cut back.
Without a significant state tax increase to make up for all the numerous tax cuts made under Govs. John McKernan, John Baldacci and LePage – nowhere on the horizon – it’s hard to see the state restoring revenue sharing, or ever reaching the 55% state aid goal for schools.
It may finally be time for a reevaluation of Maine’s tax system through a major legislative study; after all, we might want to take a good look every 50 years or so. In the meantime, there’s a promising alternative, one that would help not only Maine, but all states.
Just when we need government to respond to crises, states cut programs and lay off employees, since they must balance their budgets annually, and raising taxes during a recession is counter-productive. During the pandemic, state and municipal governments have axed 1.3 million jobs.
That’s why the Biden administration held firm and included $350 billion for states and cities, including $1.6 billion for Maine, part of the appropriately named American Rescue Plan.
It’s the first major use of federal-to-state revenue sharing since Ronald Reagan killed the original program in 1986; it was started by another Republican president, Richard Nixon, in 1971.
A new federal revenue sharing program has a lot to recommend it. It could be tailored, as Biden’s plan is, to states with high unemployment, where revenues decline most.
Such a program would distribute only small amounts of revenue in good times, but could be cranked up whenever the next major economic downturn occurs, as we know it will.
The “magic” is that only the federal government can legally run deficits, so it can support state budgets and avoid having to take over state responsibilities – as it tends to do whenever hard times arrive. In fact, as well as name, we employ federalism to govern the nation – more important than ever in a diverse nation with 331 million citizens, and counting.
Biden’s program is temporary, but like other aspects of the American Rescue Plan, such as direct payments to families with children, it will surely be considered for long-term use.
Revenue sharing is a simple, efficient means of sharing the burdens of government that, once we return to more rational politics, should have bipartisan appeal.
Maine needs to retool its tax system, but with federal revenue sharing in place, we’d have some breathing room to consider it. Perhaps a federal tax incentive might work.
Douglas Rooks, a Maine editor, reporter, opinion writer and author for 36 years, has published books about George Mitchell, and the Maine Democratic Party. The views expressed are those of the writer. He welcomes comment at [email protected]