TheThe TaxpayerTaxpayer BillBill ofof RightsRights

July 26, 2006 1 MaineMaine FacesFaces BigBig ChallengesChallenges

„ HighHigh TaxesTaxes && BigBig SpendingSpending – Highest state and local tax burden in US for 12 years „ Mainers pay $135 (13.5%) in taxes for every $1,000 in income – Highest property taxes in the country „ % of personal income, 6th highest per capita – 7th highest rates in the country (8.5% on anything over $17,500) – Downgraded bond rating - all 3 rating agencies, first ever 2 July 26, 2006 MaineMaine FacesFaces BigBig ChallengesChallenges

„ LowLow IncomesIncomes andand PoorPoor JobJob ClimateClimate – 39th in median household income – 5th worst business tax climate – 3rd highest health insurance rates in the nation „ VeryVery lowlow jobjob growthgrowth –– sincesince JanJan 20032003 ¾ 0.7% growth in private sector jobs ¾ 1.7% growth in sector jobs „ VeryVery slowslow populationpopulation growthgrowth ¾ less than 1% annually

3 July 26, 2006 HealthHealth CareCare ReformReform NeededNeeded –– won’t happen without spending reform

„ MaineMaine hashas thethe highesthighest percentagepercentage ofof itsits populationpopulation onon MedicaidMedicaid ofof anyany statestate inin thethe nation.nation. TheseThese areare peoplepeople underunder 6565 -- totalingtotaling app.app. 260,000260,000 (21%)(21%) „ Why?Why? MaineMaine hashas thethe 33rd HighestHighest HealthHealth InsuranceInsurance ratesrates inin thethe nationnation

4 July 26, 2006 Absolute Deviation from Average and Total State and Local Tax Collections as Percent of Personal Income State Fiscal Years 1958 and 2002

3.5% Vermont ‘58 3.0% New York ‘02 ‘02 2.5% Delaware ‘58 Tennessee ‘02 2.0% New Hampshire ‘02 ‘58 1.5%

a Percent of Personal Income Colorado ‘02 1.0% Maine ‘58 0.5% New Hampshire ‘58

Absolute Deviation from Average State and Local Tax Collections as Tax Collections and State Local Average Absolute from Deviation 0.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% State and Local Tax Collections as a Percent of Personal Income FY 2002 FY 1958 Source: Census Bureau, Bureau of Economic Analysis, MHPC Calculations.

5 July 26, 2006 MaineMaine’’ss SpendingSpending FrenzyFrenzy

$4,100

$3,900 Maine’s per capita tax burden has grown by more than 25% in the $3,861 $3,700 past 6 years. That is 50% faster than the rate of inflation! $3,500 $3,300

$3,100 $3,315 $2,900 $3,077

$2,700

$2,500 FY99 FY00 FY01 FY02 FY03 FY04 FY05

Source: Maine State Legislature. Office of Fiscal and Program Review.

6 July 26, 2006 RecentRecent ReportsReports

„ 1st Quarter 2006 State Personal Income growth rate for Maine was .9% - 44th lowest (June 22, 2006, Bureau of Economic Analysis) „ Percent Change in Real Gross State Product from 2004-2005 was 1.4%, lowest in New England and in the lowest quintile in the country (June 6, 2006, Bureau of Economic Analysis) „ March, 2006 State Competitive Environment Report from respected economist Dr. Arthur Laffer, ranked Maine 50th in the nation.

7 July 26, 2006 FromFrom LafferLaffer ReportReport……

„ ““MaineMaine continuescontinues toto placeplace lastlast inin ourour rankings.rankings. MaineMaine achievesachieves itsits unfortunateunfortunate distinctiondistinction primarilyprimarily throughthrough aa combinationcombination ofof highhigh andand risingrising taxes.taxes. TheThe statestate hashas thethe fifthfifth worstworst incomeincome incentiveincentive rate,rate, aa steeplysteeply progressiveprogressive incomeincome taxtax structure,structure, andand thethe highesthighest propertyproperty taxtax burdenburden inin thethe nationnation”” (March 2006 Report)

8 July 26, 2006 FederalFederal ReserveReserve BankBank ofof BostonBoston

„ ““EconomicEconomic ActivityActivity waswas generallygenerally positivepositive forfor thethe NewNew EnglandEngland statesstates inin 2005.2005. ByBy thethe endend ofof thethe year,year, 55 ofof 66 statesstates postedposted gainsgains inin thethe economiceconomic activityactivity indexindex fromfrom DecemberDecember 2004.2004. MaineMaine waswas thethe onlyonly NewNew EnglandEngland StateState –– andand thethe onlyonly statestate inin thethe nationnation exceptexcept forfor HurricaneHurricane KatrinaKatrina victimvictim LouisianaLouisiana –– toto seesee economiceconomic activityactivity decline.decline. TwoTwo states,states, ConnecticutConnecticut andand NewNew Hampshire,Hampshire, recordedrecorded boostsboosts thatthat exceededexceeded thethe nationalnational increase.increase.”” (May/June, 2006)

9 July 26, 2006 JustJust HowHow HighHigh AreAre MaineMaine’’ss Taxes?Taxes? FamilyFamily ofof fourfour earningearning $50,000$50,000

$7,500

Maine Property Tax – 54% above average $5,000 $4,956 Total Taxes – 19% above average $4,713 $4,161 Other State & $3,518 $2,225 Local $2,589 $503 taxes Tax Burden $2,386 Property $2,500 taxes

$2,731 $3,015 $2,124 $1,775 Boston Portland ME Manchester National Average $0

2004, DC, CFO report

10 July 26, 2006 JustJust HowHow HighHigh AreAre MaineMaine’’ss Taxes?Taxes? FamilyFamily ofof FourFour earningearning $75,000$75,000

$12,500

Maine $10,000 Property Tax – 49% above average $8,674 Total Taxes – 26% above average $7,500 $7,689 $6,884 Other State & $4,577 $5,447 Local $5,000 $4,503 taxes $924 $4,131

Tax Burden Tax Burden Property taxes $2,500 $4,097 $4,523 $3,186 $2,753 Boston Portland ME Manchester National Average $0

2004, Washington DC, CFO report

11 July 26, 2006 ForFor 4040 years,years, wewe havehave heardheard thatthat MaineMaine couldcould taxtax andand spendspend itsits wayway toto prosperity.prosperity.

ItIt isis timetime forfor aa change.change.

July 26, 2006 12 TheThe TaxpayerTaxpayer BillBill ofof RightsRights –– Reasonable.Reasonable. Effective.Effective.

ReasonableReasonable Provide reasonable growth of government at all levels „ Growth rate- inflation plus population growth Allow additional spending increases with voter approval Effective Make it tougher to raise taxes „ Require voter approapprovalval of all tax and fee increincreasesases Provide a Rainy Day Fund for emergencies Return surplus taxes to taxpayer NeededNeeded Maine is #1 in tax burden (with highest property tax burden) #39 in income #45 in small business climate

13 July 26, 2006 ReasonableReasonable IncreasesIncreases inin GovernmentGovernment SpendingSpending

$12 With the Taxpayer Bill of Rights, At Maine state and local government current spending increases an average of rate $8 $207 million each year growing from $5.9 billion in 2007 to $8.7 billion in 2021 With $4 Taxpayer Dollars Billions in Bill of Rights

State & Local State & $0 1958 1965 1972 1979 1986 1993 2000 2007p 2014p State Fiscal Year

14 July 26, 2006 ReasonableReasonable IncreasesIncreases inin GovernmentGovernment SpendingSpending

WithWith aa TaxpayerTaxpayer BillBill ofof RightsRights…… „ LocalLocal spendingspending growsgrows anan averageaverage ofof $74$74 millionmillion eacheach yearyear – Increasing from $2.4 billion in 2007 to $3.4 billion in 2021 – 3.1% average growth each year „ StateState spendingspending growsgrows anan averageaverage ofof $133$133 millionmillion eacheach yearyear – Increasing from $3.4 billion in 2007 to $5.2 billion in 2021 – 3.7% average growth each year

15 July 26, 2006 GovernmentGovernment Growth:Growth: SocialSocial ServicesServices –– notnot EducationEducation

„ MaineMaine nownow hashas approximatelyapproximately 200,000200,000 studentsstudents inin thethe KK--1212 publicpublic schoolschool systemsystem –– thatthat numbernumber isis shrinkingshrinking toto aa projectedprojected 180,000180,000 byby 20172017 „ MaineMaine nownow hashas approximatelyapproximately 260,000260,000 individualsindividuals onon MaineMaine MedicaidMedicaid –– thatthat numbernumber isis projectedprojected toto continuecontinue risingrising „ RecipeRecipe forfor EconomicEconomic andand DemographicDemographic DisasterDisaster

16 July 26, 2006 ReasonableReasonable IncreasesIncreases inin LocalLocal EducationEducation SpendingSpending

300,000 $2.0

Spending $1.6 Billions n

t 200,000 $1.2 Pupil count $0.8

K-12 Pupil Coun 100,000 With the Taxpayer Bill of Rights,

Maine local education spending Local Education Spendi increases an average of $0.4 $39 million (2.8%) each year 0 $- 2005 2007 2009 2011 2013 2015 2017 2019 2021 Year

17 July 26, 2006 TenTen YearYear PupilPupil CountCount TrendTrend byby CountyCounty -- Oct.Oct. ’’9696--’’0505

„ Androscoggin -736 -4.28% „ Aroostook -2,257 -16.41% „ Cumberland +127 +.33% „ Franklin -901 -16.63% „ Hancock -1,370 -15.60% „ Kennebec -1,665 -8.68% „ Knox -201 -4.24% „ Lincoln -970 -13.62% „ Oxford -619 -5.52% „ Penobscot -2,725 -10.31%

18 July 26, 2006 TenTen YearYear PupilPupil CountCount TrendTrend byby CountyCounty -- Oct.Oct. ’’9696--’’0505

„ Piscataquis -770 -20.02% „ Sagadahoc -854 -12.11% „ Somerset -1,025 -9.95% „ Waldo -591 -10.55% „ Washington -1,325 -21.14% „ York -794 -2.4%

„ STATE -16,676 -7.63%

19 July 26, 2006 StudentStudent && StaffStaff CountsCounts

„ 19951995--9696 –– 218,598218,598 studentsstudents –– 26,60026,600 FullFull timetime professionalprofessional staffstaff „ 20032003--0404 –– 201,912201,912 studentsstudents –– 31,75331,753 fullfull timetime professionalprofessional staffstaff „ DecreaseDecrease ofof 16,68616,686 studentstudent (8%)(8%) „ IncreaseIncrease ofof 5,1535,153 staffstaff (20%)(20%)

20 July 26, 2006 StudentStudent ChangeChange ProjectionsProjections 20022002 throughthrough 20172017

„ PortlandPortland --1,3721,372 --18.16%18.16% „ AugustaAugusta --860860 --34.35%34.35% „ WatervilleWaterville --804804 --42.49%42.49% „ BangorBangor --743743 --18.22%18.22% „ MillinocketMillinocket --526526 --62.54%62.54% „ MachiasMachias --217217 --80.07%80.07% „ LimestoneLimestone --335335 --97.38%97.38% „ SouthSouth PortlandPortland --486486 --14.97%14.97%

21 July 26, 2006 LocalLocal ShareShare ofof EducationEducation –– CapeCape ElizabethElizabeth

„ BetweenBetween 19961996 andand 20052005 – School enrollment appears to have risen from app. 1786 to app. 1826 – an increase of 40 students, or just over 2% – Local share of education expenses have increased from about $9.5 million to 14.3 million – State share of education expenses have dropped from about $2.4 million to $1.8 million „ AsAs communitiescommunities emptyempty out,out, thethe statestate hashas toto pickpick upup aa largerlarger shareshare –– meaningmeaning lessless forfor communitiescommunities likelike CapeCape ElizabethElizabeth

22 July 26, 2006 WhatWhat WouldWould aa TaxpayerTaxpayer BillBill ofof RightsRights Accomplish?Accomplish?

At Current Rate 14%

With 12% Taxpayer Bill of Rights National Average 10% Tax Burden State & Local Tax Collections (% of Income) of (% Collections Tax Local & State 8%

1958 1965 1972 1979 1986 1993 2000 2007p 2014p 2021p State Fiscal Year

23 July 26, 2006 ApprovalApproval forfor SpendingSpending IncreasesIncreases aboveabove LimitLimit

2/3rds Legislative Vote Only for Increase $2,500 over Growth Allowance + $100,000 Majority Voter Approval Spending $103,000 $100,000

$75,000 Year 1 Year 2

24 July 26, 2006 TheThe GoalGoal

„ ToTo strengthenstrengthen MaineMaine’’ss economyeconomy andand businessbusiness climate.climate. „ ToTo fosterfoster anan environmentenvironment inin whichwhich jobsjobs willwill bebe createdcreated andand incomesincomes willwill growgrow „ ToTo reversereverse thethe trendtrend ofof aa decliningdeclining oror stagnantstagnant populationpopulation „ ToTo matchmatch MaineMaine’’ss highhigh qualityquality ofof personalpersonal lifelife withwith aa highhigh qualityquality ofof economiceconomic lifelife

25 July 26, 2006 MythsMyths andand MistruthsMistruths aboutabout thethe TaxpayerTaxpayer BillBill ofof RightsRights

„ Myth:Myth: RequireRequire 2/3rds2/3rds votevote forfor locallocal budgetsbudgets –– FACT:FACT: 2/3rds2/3rds votevote onlyonly forfor lineline itemitem spendingspending overover thethe limitlimit „ Myth:Myth: RequireRequire budgetbudget cutscuts –– FACT:FACT: IfIf populationpopulation dropsdrops moremore thanthan inflationinflation (3%+(3%+ aa year)year) thenthen samesame budgetbudget asas lastlast yearyear required,required, nono cutcut everever forcedforced

26 July 26, 2006 MythsMyths andand MistruthsMistruths aboutabout thethe TaxpayerTaxpayer BillBill ofof RightsRights

„ Myth:Myth: RequireRequire annualannual revaluationsrevaluations –– FACT:FACT: LocalLocal spendingspending limitlimit isis simplysimply inflationinflation plusplus populationpopulation growth,growth, unlessunless aa comprehensivecomprehensive revaluationrevaluation –– thenthen lesserlesser ofof thatthat oror thethe changechange inin assessmentassessment

27 July 26, 2006 HighHigh TaxesTaxes –– NotNot PartisanPartisan

„ DemocratDemocrat GovernorsGovernors inin otherother statesstates havehave cutcut taxestaxes overover lastlast 33 years.years. Examples:Examples: – NM - Bill Richardson cut top marginal income tax rate from 8.2 in 2003 to 4.8 today, cut state capital gains tax in half – AZ – Janet Napolitano agreed to a 10% across the board cut in income tax rates – OK – Brad Henry signed a bill that will cut tax rates 20% (from 6.25 to 5.25%), and repealed the state estate tax

28 July 26, 2006 WhyWhy dodo taxestaxes matter?matter?

„ Gov.Gov. Richardson:Richardson: ““ThisThis waswas ourour wayway ofof declaringdeclaring toto thethe worldworld thatthat NewNew MexicoMexico isis openopen forfor business.business. AfterAfter all,all, businessesbusinesses movemove toto statesstates wherewhere taxestaxes areare falling,falling, notnot rising."rising." „ NewNew MexicoMexico nownow hashas aa halfhalf--billionbillion-- dollardollar surplussurplus andand hashas seenseen taxtax revenuesrevenues soarsoar byby 27%27% thisthis yearyear

29 July 26, 2006 RhodeRhode IslandIsland

„ JustJust lastlast month,month, thethe DemocratDemocrat-- controlledcontrolled LegislatureLegislature enactedenacted aa newnew taxtax planplan thatthat allowsallows residentsresidents thethe choicechoice ofof aa flatflat taxtax thatthat cutscuts thethe toptop taxtax raterate onon highhigh incomeincome earnersearners toto 5.5%5.5% fromfrom 9.9%9.9% ifif theythey voluntarilyvoluntarily givegive upup deductions.deductions.

30 July 26, 2006 RhodeRhode IslandIsland -- againagain

„ ForFor goodgood measure,measure, thethe statestate alsoalso cutcut propertyproperty taxes,taxes, passedpassed aa taxtax creditcredit ofof upup toto $1$1 millionmillion forfor businessesbusinesses toto helphelp fundfund privateprivate schoolschool tuition,tuition, andand reformedreformed thethe healthhealth insuranceinsurance marketmarket byby allowingallowing smallsmall businessesbusinesses toto buybuy "stripped"stripped down"down" healthhealth insuranceinsurance freefree ofof manymany costlycostly mandates.mandates. (WSJ 7/5/06)

31 July 26, 2006 Justification?Justification?

„ "Our"Our highhigh taxtax ratesrates makemake usus uncompetitive,"uncompetitive," sayssays DemocraticDemocratic HouseHouse SpeakerSpeaker WilliamWilliam Murphy.Murphy. "Business"Business leadersleaders withwith incomesincomes ofof moremore thanthan $250,000$250,000 looklook atat MassachusettsMassachusetts andand seesee aa 5.3%5.3% incomeincome tax,tax, ConnecticutConnecticut withwith aa 5%5% tax,tax, andand RhodeRhode IslandIsland withwith aa 9.9%9.9% tax.tax. TheyThey makemake aa choicechoice onon wherewhere toto movemove andand createcreate jobs,jobs, andand thatthat differencedifference inin taxtax ratesrates isis aa bigbig factorfactor inin wherewhere theythey go."go."

32 July 26, 2006 AnAn ActAct toto CreateCreate aa TaxpayerTaxpayer BillBill ofof RightsRights

„ DoDo youyou wantwant toto limitlimit increasesincreases inin statestate andand locallocal governmentgovernment spendingspending toto thethe raterate ofof inflationinflation plusplus populationpopulation growthgrowth andand toto requirerequire votervoter approvalapproval ofof allall taxtax andand feefee increases?increases?

33 July 26, 2006 ForFor furtherfurther information:information: TheThe MaineMaine HeritageHeritage PolicyPolicy CenterCenter P.P. O.O. BoxBox 78297829 Portland,Portland, MaineMaine 0411204112 207207--321321--25502550 www.mainepolicy.orgwww.mainepolicy.org

July 26, 2006 34 WhatWhat WouldWould aa TaxpayerTaxpayer BillBill ofof RightsRights Accomplish?Accomplish?

At Current Rate 14%

With LD 1?

12% With Taxpayer Bill of Rights National Average 10% Tax Burden State & Local Tax Collections (% of Income) of (% Collections Tax Local & State 8%

1958 1965 1972 1979 1986 1993 2000 2007p 2014p 2021p State Fiscal Year

35 July 26, 2006