How high are your property taxes?
Mine are pretty high. Ever wonder why?
Answering that is pretty complicated, of course. Maine’s municipal structure, individual town choices, town councils’ priorities and makeup, the desires of residents in each town, the housing stock, the population level, property values, and a collection of reasons a mile long can collectively explain the problem away.
This has been a common complaint among Mainers for generations. Indeed, in 1972, lawmakers decided to try to do something about it, and they instituted what is today known as revenue sharing, which essentially re-distributes state revenue to cities and towns.
The impetus was a wave of political pressure from municipal governments. In the mid-20th century, we began to see many localities in Maine dramatically increase their budgets as they started to offer services such as police and fire. Local government employees began to earn more pay (or collect pay for the first time), and of course, the cost of education was increasing.
Cities and towns advocated for the state revenue kickback to help them deal with their municipal budgets, and — they said — to help lower property taxes and keep them lower. The specific rationale was to “stabilize the municipal property tax burden and to aid in financing all municipal services.”
So has the program accomplished that goal?
In a word, no. In two words, absolutely not. In three… well, you get the idea.
In a report to be issued next week by The Maine Heritage Policy Center — the organization I lead — we show that the growth of property tax collections (in constant 2015 dollars) after the institution of revenue sharing not only goes up, but goes up dramatically.
Those who defend the program frequently suggest that municipal budgets have been cut “to the bone,” and there is no additional room for savings. Admittedly, municipalities in many areas of the state, particularly rural central and northern Maine, are not exactly spending extravagantly. But the question isn’t whether an irresponsible town is building a multi-million dollar town hall for no reason. The question is whether they are delivering municipal services smartly, efficiently and regionally to make the best use of limited resources.
The reality is, after evaluating total property tax collections statewide, the MHPC report shows that tax collections have steadily increased over time. In fact, they have more than doubled — again, corrected for inflation — since the inception of revenue sharing.
But did revenue sharing somehow make inflated costs less damaging than they could have been? Here too, the answer is no. In fact, revenue sharing showed a very weak relationship with property tax rates over more than four decades of the program’s existence. The report includes a correlation analysis that examines the relationship between property tax collections and variables such as total state valuation, the performance of the Maine economy (measured by GDP), government expenditures, and state and local property taxes.
The correlation between revenue sharing dollars and property tax values was extremely weak.
Examining other areas of the country suggests that Maine’s reliance on hyperlocal government is extraordinarily expensive. Anecdotally, when I moved from Maine to Maryland in the early 2000s, I was shocked to learn that other states did not have incorporated towns sprawling across their territory. Indeed, in Maryland there are only a handful of true municipal governments (including Annapolis, the capital, and Baltimore, the largest city), and virtually everything else is a census-designated place with no local government at all. Quite literally, everything is done at the county level.
You see this phenomenon in state after state, particularly in the West. As these states grew, they had sparse, remote populations and decided that regional governance was the best way to efficiently deliver services. Each “town” did not end up with its own multi-million dollar budget. Towns of 150 people did not have a police force. County government was strong, and administered — and still does — most of what we think of towns doing today.
The answer for Maine, which cherishes its local governance, is not to turn into Florida or Virginia or a frontier state. Local control and governance can be preserved. But revenue sharing does nothing but drive spending up, which necessitates higher property taxes and allows towns to ignore any impulse they might otherwise have to work with neighbors to deliver government services more efficiently.
It is time we declare the program a failure and start to reimagine how we govern ourselves.