Many of the most important services are provided at the local level. Things like public safety, road maintenance, education, parks, and libraries support our economy and make our communities better places to live.
To help pay for those critical local services, the state distributes 5 percent of state sales and income taxes to the towns and cities. This distribution, known as “Municipal Revenue Sharing,” helps communities thrive and reduces pressure on property taxes.
Municipal Revenue Sharing began in 1972, and in nearly every state budget for three and a half decades, the state made good on its commitment to our communities. But in 2009, the Legislature slashed revenue sharing. Funding was cut again and again in subsequent years, leaving communities to raise property taxes, cut local services, or both.
The Homestead Exemption and the Property Tax Fairness Credit help individual homeowners afford their property taxes, and recent expansions of those two programs have provided targeted tax relief to those families who struggle the most. But without a plan to fully fund local services and education, these relief efforts will be outpaced by the continued pressure placed on local budgets as a result of underfunding from the state.
While the previous cuts to Municipal Revenue Sharing were scheduled to expire this year, Part H of Governor Janet Mills’ budget proposal would extend the cuts for another two years. Rather than provide 100 percent funding for the first time in a decade, Part H would shortchange Maine’s communities by $160 million over the two-year budget cycle. In fiscal year 2020, it would fund just 50 percent of the state’s obligation to municipalities. In 2021, it would pay only 60 percent of what our communities are owed. (Want to see how the governor’s proposed budget would affect local services in your community? Click here.)
Cuts to Municipal Revenue Sharing started at the bottom of a recession. Today we are in a peak of recovery. Our economic outlook today is much different than it was in 2009.
Yet still, Maine’s policymakers are contemplating another two years of underfunding. If our economy is no longer driving potential shortfalls, what is the through-line connecting our inability to fund local services for a decade? It’s income tax cuts.
In 2011, 2015, and 2017, income tax breaks cut into state revenues and Municipal Revenue Sharing, along with education funding, paid the price of those tax cuts. While this budget does not propose any new tax cuts, it continues all the tax breaks already written into our tax code, thus perpetuating their legacy of underfunded communities.
Maine’s current income tax code will raise $430 million less per year compared to 2010 income tax rules. Additionally, in 2017, legislators rejected $160 million per year in income tax revenues approved by Maine voters.[i] This budget embraces these cuts, and, as a result, is unable to fund our most basic commitments to schools and communities.
Without a plan to raise revenue, these priorities will continue to be shorted for the foreseeable future. MECEP urges lawmakers to reject the proposed cuts to Municipal Revenue Sharing and seek fair and sustainable revenue to restore state funding to communities.
[i] Both figures provided to MECEP by the Institute on Taxation and Economic Policy, December 2018