Tax Wars: The Sequel

Two years ago Mainers beat themselves black and blue over a referendum question that promised lower taxes and threatened government services. Now we're about to do it all over again. Blame Mary Adams.

Adams is the soft-spoken firebrand behind the referendum campaign that put the Taxpayer Bill of Rights, or TABOR, on the ballot in November. It would require all levels of government to limit their spending dramatically and force them to earn voter approval for any increase in taxes or fees.

Proponents such as Adams claim that TABOR is the only tool left for reining in out-of-control government spending in a state known nationwide as having the heaviest tax burden and one of the worst economies in the country. They say the measure will reinvigorate the Maine economy, increase wages, and attract new businesses.

Opponents, which include almost the entire political establishment and public service sector, say that TABOR will cripple government services at every level and do immeasurable harm to Maine's school children, elderly, and poor. Governor John Baldacci has denounced it as a meat-ax approach to curbing government expenditures that doesn't recognize the reality of Maine citizens' expectations for their government. (His GOP opponent for the Blaine House in November, Chandler Woodcock, supports TABOR wholeheartedly.)

If it all carries a faint whiff of déjà vu, that's because it does. Maine has been here before. Two years ago voters faced another referendum question that made the same promises with the same objections. The so-called Palesky tax cap, named after tax activist Carol Palesky [Down East, August 2004], would have limited property taxes to 1 percent of assessed value, backdated those values to 1996-97, and restricted subsequent valuation increases to 2 percent a year. The measure was soundly defeated after Baldacci and legislative leaders promised that substantive tax reform would be priority number one in the next legislature.

Even Mary Adams herself is a voice from the past. Thirty years ago she led a successful referendum campaign to overthrow a statewide universal property tax. In fact, she gets a large share of the credit for making citizen initiatives an active part of the modern Maine political scene.

Briefly put, TABOR would limit all government spending to the annual rate of inflation plus population increases. (Municipalities and counties would have the option of using the increase in property values, whichever is lower.) Taxes or fees could be raised only after a two-thirds vote of the legislature at the state level or of the selectmen, school board, town/city council, or town meeting at the local level, followed by majority approval by voters.

The proposal is based on a similar, though not identical, law that was passed in Colorado in 1992. That bill's success or failure depends on who is telling the story, but last year Colorado voters decided to suspend some provisions of the law for the next five years to allow the state's governments to make up ground lost during the recession in 2001, especially in education spending. Nonetheless, antitax groups around the nation are embracing the Taxpayer Bill of Rights as the model for their own efforts. It faces its first test of voter approval in Maine.

Aside from serving a term on the Maine Board of Education, Adams has been largely absent from the public eye since her victory in 1977. She claims that "no one was more surprised than I" when she stepped forward to lead the TABOR petition drive two years ago. She casts her decision to return to the public arena in stark us-versus-them terms, a last hurrah to restore power to the people before slipping into retirement.

"The basic issues weren't really addressed after the universal property tax was overturned," she explains. "The bureaucrats didn't learn anything; the politicians didn't learn anything. The professional political class from the left that we defeated thirty years ago didn't go away. They stayed and built empires and made government bigger and bigger."

TABOR is all about limiting government for her. "You can't trust government," Adams offers. "The bigger it gets, the more intrusive it gets and the less responsive it gets."

And the more money it requires. Adams hammers at Maine's reputation as the most heavily taxed state in the country and its abysmal showing in a recent report by the Federal Reserve Bank of Boston, which named Maine as the only state besides Louisiana to show a decline in economic activity last year. And Louisiana had Hurricane Katrina.

With few exceptions, the anti-TABOR forces are organizations that depend on tax funds for their survival — schools, municipalities, teachers, public-health agencies, government employees — and almost all of them are reprising their roles and their arguments from the Palesky tax-cap campaign. Christopher Lockwood, Maine Municipal Association executive director, says he recognizes that TABOR "is obviously a reflection of continued concern regarding an array of issues in Maine. On the other hand, this proposal is very far-reaching and it undermines local citizens' ability to do what is appropriate in their communities."

Lockwood notes that, if TABOR had been in effect for the past ten years, the state highway fund would have had $28 million less to spend. "What would that have meant for tourism, commuters, the business climate?" he asks. "TABOR would have a chilling effect on our ability to sell bonds for capital improvements."

Lockwood says he can't generalize the impact TABOR would have across all Maine communities, but it will mean less money for police and fire protection, community recreation programs, and other municipal services. According to the U.S. Census Bureau, for example, Maine municipalities collected $1.5 billion in property taxes in the 1998-99 fiscal year and $2.1 billion in 2003-04, an increase of about 37 percent. In the same period, the Consumer Price Index, the generally accepted measure of inflation, went up far less than half that. Considering Maine's minuscule population increase in the same period, towns and cities would have been lucky to collect half of the additional revenues.

Caribou saw its municipal budget rise an average of 2.6 percent annually from 2001 to 2006, according to city manager Steven Buck. At first glance, it would appear that TABOR wouldn't have much effect on the Aroostook County city. But Buck points out that skyrocketing petroleum prices and health insurance costs pushed his budget for this fiscal year up 5.7 percent, "our biggest increase ever."

"This is about as fiscally conservative a community as you'll find anywhere," Buck says. "But with TABOR we would have had a problem this year."

Buck completely understands the reasoning behind the tax measure, but he objects to the way it lumps all communities together. "It's a one size fits all attempt," he explains. "But what works in southern Maine isn't necessarily what works in northern Maine. Caribou is an active and participatory community, and there are a lot of strong efforts to keep costs down. What bothers me is that TABOR assumes everyone is spendthrifty and running amok with public funds."

Bill Becker, executive director of the Maine Heritage Policy Center, the Portland-based conservative think tank that wrote the original TABOR language, counters that the sort of emergency situation Buck describes is tailor-made for TABOR. "Voters aren't stupid or callous," he says. "If you go to them and say, 'Look, we've done the best we can and we're still stuck because of these unexpected expenses,' they're going to do the reasonable thing and approve the extra money. Government just has to make its case to the people." Colorado voters have done exactly that "thousands of times," he adds.

Or, he says, voters may expect government to do what they themselves do in the face of unexpected expenses — cut back in other areas. "Is any government operating at 100 percent efficiency?" he asks.

Several years ago William J. Michaud, superintendent of the Scarborough school system, was a member of a special panel of outside auditors who studied every aspect of the Portland municipal budget looking for inefficiencies. "We looked at every single expenditure and at the end of six months we couldn't find anything to cut that would have had a significant impact," he recalls.

Scarborough is one of the fastest-growing communities in the state, and its 3,300-student school system sees fifty to sixty new youngsters every year. "We would probably be in a better position than school districts that are losing enrollment," he notes. Still, he believes TABOR can't help but hurt education in Maine. "Based on the numbers I've seen, there's no way school districts won't be hurt."

At the same time, he admits that "people are justifiably concerned about their taxes. "This is the next stage in the tax revolt. I think [the tax burden] is disturbing, too, but when you look at what people are paying versus the benefits they're getting, I think it's a reasonable cost."

The Taxpayer Bill of Rights grew out of a conference the Maine Heritage Policy Center hosted in March 2004 focusing on the state's high tax burden. "There were two economists from Colorado there," Becker recalls, "and they said we might want to think about the Taxpayer Bill of Rights. They said their economy had grown and personal income was up in the years since they had adopted it."

Becker and his staff drafted a modified version of the Colorado law and threw it out for comment. "We said anyone who wants it can take it, and Mary Adams moved it forward," Becker explains. He emphasizes that the policy center has not taken an advocacy role in the issue, but he can offer information and analysis.

He also doesn't hesitate to correct what he calls misinformation, such as the claim that a school district with a declining student population will be forced to cut its budget if the population decline is greater than the inflation rate. At the worst, he says, a school district would face only a flat budget from one year to the next, since TABOR addresses only budget increases. Lockwood at the Maine Municipal Association insists that interpretation is still an open question.

At first blush, it would seem counterintuitive that Maine's office of the American Association of Retired Persons, AARP, counts itself among the opponents to TABOR. AARP state director Jud Dolphin acknowledges that an outside observer might conclude that the elderly, most of whom live on fixed incomes, would welcome a law that would limit the increase in their tax liabilities and that AARP would reflect that sentiment.

Dolphin says Maine AARP's opposition comes down from the national level rather than up from the Maine membership. He likens TABOR to a Trojan horse. "It's big on promises and looks good from the outside, but when you look more closely your opinion changes," he says.

Dolphin argues that TABOR would hit the elderly particularly hard. "It's a threat to all the programs and services our members value," he explains. While Maine's overall population increase has been tiny, its elderly population has grown rapidly to 14.5 percent, one of the largest in the country. "So we would have more demand for health care, meals on wheels, public transportation," Dolphin points out, "while the overall level of funding remains relatively flat."

AARP, he adds, would prefer a comprehensive review of the entire tax structure. "There's too much emphasis on the property tax," he offers. "We need to rebalance the tax structure."

Dolphin says the national office has already offered some help in the form of membership research, and he anticipates the organization will sponsor some educational advertisements in state newspapers as the campaign moves into high gear in September. "This will take a lot of voter education," Dolphin explains. "I expect it will be a high-profile issue in the campaign."

Given the stakes, especially with a governor's race in the mix, TABOR promises to be hotly contested, with early estimates of $1 million to $2 million being spent by the anti-TABOR side alone. Although she is hoping for help from Maine's business community (a Maine State Chamber of Commerce spokesman doesn't expect the group to take a position until after Labor Day), Mary Adams says she is counting heavily on grassroots organizing to counter her better-financed foes. "Thirty years ago I had the same opponents — the teachers, the superintendents, the Maine Municipal Association," she recalls. Whether she has the same results this time will be up to the voters.