AUGUSTA — City and town officials from throughout Maine accused the state on Wednesday of breaking its contract with municipalities by siphoning off tax revenues intended to reduce pressure on local property taxes.

The comments came during legislative hearings on several bills that would once again require the state to return 5 percent of state tax revenues to municipalities – up from the current 2 percent – as part of the 44-year-old “revenue sharing” program. Although a perennial topic at the State House, this year’s debate coincides with LePage administration efforts to permanently freeze municipal revenue sharing at 2 percent while lowering income tax rates and eliminating a controversial 3 percent tax surcharge on wealthy Mainers.

Several speakers contrasted the economic situation faced by Mainers struggling to pay rising property taxes with those affected by the 3 percent tax surcharge on earnings above $200,000 to fund education. Earlier this week, opponents of the voter-approved tax surcharge said that it is already driving some professionals out of Maine and will discourage economic development.

“I listened all day Monday to the wealthy complain about taxes they can afford,” said Jim Betts, a retiree from Winthrop. “Now I want this committee to hear that working families, low-income citizens and seniors cannot afford the burden of higher property taxes. Our security and our very homes could be at risk without your help.”

Revenue sharing was established in 1972 as a way for the state to help localities pay the costs of mandatory services – such as schools, roads, fire and police departments – since state law prohibits municipalities from levying a local sales tax. The state is supposed to provide 5 percent of sales, income and corporate taxes to municipalities, but lawmakers haven’t hit that level in more than a decade.

As part of the current two-year budget, lawmakers reduced revenue sharing to 2 percent in order to funnel an additional $90 million into the state’s General Fund, but rejected Gov. Paul LePage’s proposal to eliminate revenue sharing. At 2 percent, municipalities will receive roughly $65 million in fiscal year 2017 compared to $152 million that would have been shared at the 5 percent level.

Municipal officials argued such reductions merely force them to cut services or raise property taxes year after year. They testified in support of two bills – L.D. 133 by Democratic Sen. Shenna Bellows of Manchester and L.D. 492 sponsored by Democratic Rep. Denise Tepler of Topsham – that would restore revenue sharing at 5 percent.

“We need to mean what we say in this state,” said Joe Slocum, city manager of Belfast, which has lost $558,000 in anticipated revenue sharing since 2008. “If we say we are going to be at 5 percent, we have got to show good faith that we are going to be there.”

In Brewer, the loss of more than $900,000 representing the difference between 5 percent and 2 percent is equivalent to a 1.35 increase in the city’s mill rate, Mayor Beverly Uhlenhake said.

South Portland City Manager Scott Morelli estimated that the city will lose $1.7 million in next year’s budget “due to the continued draining of the revenue sharing fund.” Morelli accused LePage and other “anti-municipal crusaders” of attempting to eliminate the program altogether. While the loss of so much money inevitably led to worse roads, higher taxes and service losses, tax hikes would have been even higher without that 2 percent.

“I am asking you to please begin the process of incrementally restoring revenue sharing to the full 5 percent so that Maine towns and cities can continue to maintain reasonable property tax rates while also investing in the things necessary to build better communities,” Morelli said.

Between fiscal years 2009 and 2018, the Legislature transferred (or is expected to transfer in the fiscal years 2017-18) $607 million in would-be revenue sharing dollars to the General Fund. By comparison, municipal tax assessments increased $625 million during those years, according to state financial data supplied to the Taxation Committee by Rep. John Madigan Jr., a Democrat who serves as the town manager of both Rumford and Madison.

Madigan said those losses of would-be tax revenues represent 97 percent of the increase in municipal tax assessments that had to be covered by property taxes.

As part of his proposed $6.8 billion, two-year budget, LePage has proposed freezing revenue sharing levels at 2 percent while simultaneously changing the education funding formula. He has said towns and school systems – particularly the latter – have failed to control spending, leading to higher property taxes. And he became personally involved in the case of an elderly Albion couple whose home was foreclosed on by the town.

But municipal officials blame recent property tax hikes on the loss of revenue-sharing dollars combined with rising education costs – particularly special education costs – and unfunded mandates. Several speakers described the relationship between municipalities and the state as increasingly “broken” on Wednesday.

“That relationship has been severely torn and harmed over the last few years,” said Kate Dufour with the Maine Municipal Association, which represents localities on policy issues at the State House. “Municipal levels of government provide services on behalf of the state and at the demand of the state because you know, and we know, that there are certain levels of services that we provide better, more efficiently and more effectively.”

But Rep. Jeffrey Timberlake, a Turner Republican who sits on the budget-writing Appropriations and Financial Affairs Committee, had cautionary words for his legislative colleagues as they contemplate how they will vote on the bills to return to 5 percent.

“The question is: how are you going to fund them?” asked Timberlake, a fiscal conservative. “You’re talking about raising an additional $100 million … where do you propose that this money comes from?”

Kevin Miller can be contacted at 791-6312 or at:

kmiller@mainetoday.com

Twitter: KevinMillerPPH