Governor John E. Baldacci in his State House office. Photo by Ramona du Houx

March/April 2008

Interview  by Ramona du Houx

According to a Maine Revenue Service report on the progress of LD 1, the state tax burden fell from 7.13 percent in 2004 to 6.85 percent in 2007, while state education spending increased. During the same time the total tax burden on Maine residents fell from 11.71 percent to 11.14.

“The tax burden on Maine people is being reduced,” said Governor Baldacci.

It is an accomplishment for the Democratic governor who started office with a $1.2 billion shortfall, and no reserves. By his second term that shortfall had been eliminated and the state’s Stabilization Reserve Fund had grown to $160 million.

“It seems that all I’ve been doing is cutting. The sun is shining and the birds are chirping when I can put a few dollars to anything. When I look back, I was thinking to myself, You’re facing a 1.2 billion shortfall, you’ve made a commitment to people not to raise taxes because they have been taxed to death. At the same time you have people who are dependent upon education and healthcare services. How do you do it? We did it with a lot of one-time things, with a lot of cuts, restructuring, and attrition. We didn’t want to hurt anybody; we didn’t want to lay off anybody, putting people out of work. When we faced that budget we kept our tax rate down, started community colleges and began to grow ourselves out of it.

“Then the citizen’s referendum declaring state education funding had to increase to 55 percent happened.

“The frustrating part about it was we had to start to raise education spending to 55 percent on top of the billion-dollar shortfall, which meant another billion new dollars had to be put to local education,” said the governor.

The governor had planned to increase state education spending to 50 percent, over time. When the citizen’s education referendum went through, LD 1 was passed to accommodate the referendum as well as continue an ongoing effort to lower Maine’s tax burden toward the national average.

“I think it [the education referendum] has put a real strain on Mainers. I really do, for they care about it and want to support it,” said Baldacci.

“I look back over the years, and I don’t think a previous administration ever put eleven million [dollars] to GPA, and they always allowed property taxes at the local level to grow. The state was backing away from its responsibility. They strained state government, flat funded agencies, and laid off people. We are trying to meet our responsibilities. That’s the goal; we want to make sure people have opportunities, so they can grow their incomes, become more independent and self-sufficient.”

When the governor formulates economic polices, he always keeps the future in mind. “The two salient themes have been: children and our natural resources. I’ve focused on them, on their future, and everything flows from that,” he said.

How to increase incomes of Mainers has been an objective. Former Federal Reserve Chairman Greenspan stated that, “in order to compete in the knowledge-based economy, community colleges need to be established.” Baldacci established Maine’s Community College System, where graduates can expect to earn salaries that range from $27,000 to $48,000 statewide. Education has always been key to Baldacci’s economic agenda, and a college education is a reliable way to increase an individual’s income.

“People in Maine have a higher tax burden because they have lower incomes. We also have this local administration for every 1,500 people. We are just laden with administrations at the local level, the school level, the county, the state level, and the federal level. We’ve got to get to a point of balancing it off in terms of burden of taxes and incomes. That’s why I’ve instituted spending caps at all levels.

“At the same time, on the other side of the ledger, we have expanded community colleges and opened the doors wider than they have ever been for higher education. We started more scholarships and early college programs, and made community colleges accessible for high school students. There are more opportunities for high school seniors to take college-level courses, so they are more prepared to go to college.

“We also provided research and development increases, so when they come out of school there will be jobs available. Private sector companies can adapt to these new technologies and compete in the global economy. They will be able to hire these graduates to work in these offices, shops and factories across the state, rather than leaving Maine. So you get higher incomes — with higher education — and expertise for business and industries from R&D, so they can be on the cutting edge, and you are controlling the caps on spending at all levels. That’s how you better balance the tax burden. It’s not just cutting. It’s cutting to invest,” said the governor.

Governor Baldacci also has improved the business climate for Maine’s businesses to grow and to make Maine attractive for investors to locate in the state, bringing higher paying jobs of the 21st-century global economy with them. Since the introduction of his Pine Tree Development Zone (PTZ) program in 2004, over 160 businesses have been certified, creating over 4,100 new jobs. A tax that was inhibiting growth, BETR, was amended. And in 2007 a new law that reduces unemployment taxes for Maine businesses for the next two years was established.

“So we are investing in community colleges, higher education, and R&D. We have Pine Tree economic zones; we’re bending over backward to try and make sure businesses know that Maine is open for business. They don’t pay sales taxes on these PTZs, no corporate income taxes, and they get 80 percent of income taxes withheld for net new jobs created for a ten-year period. We’re really aggressive about economic development. PTZs provide jobs,” said the governor.

Governor John E. Baldacci shows how state education spending, with LD 1 has been increased and will reach 55 percent in two years. This measure should have reduced property tax but 82 percent of school administrative units exceeded their spending.

“We had a chance with LD 1 to finally give money to education and the property tax relief citizens deserve. The municipalities didn’t hold their end of the deal. Now we have to get tough with them. You can’t have all that money and not give people the relief they need at the local level. We’ve got to demand that,” said the governor.

Keeping the ship of state headed on the right course takes determination and experience. In previous years some people have tried to get the governor to lower taxes, not understanding the reasoning that if you cut areas that are duplicating efforts and turn around and invest those savings in the people of Maine, incomes can increase, thus decreasing the overall tax burden.”It would be more dramatic to say, ‘here is $200 million, just lower taxes.’ But to do that would be like taking an axe to the budget. The only way to do it responsibly is to invest and the only way to have the real money to invest is if you cut things without raising taxes, so you can invest. It’s cutting to invest. We will have 700 less people in state government than when I started.” Six hundred jobs were cut previously, 100 more are in the recent budgets.

“I remember in the Legislature [the governor was a state senator] they went from cutting taxes one year to having to raise taxes twice as much the next because they didn’t have the money to pay for the tax cut, essential programs and everything else. I didn’t want that to happen. I want it to be sustainable so people don’t have to worry. So their burdens have been reduced, services enhanced, and their kids have opportunities in our state, so they don’t have to leave and go elsewhere.

“We are cutting to invest in people. People are the economy of the future. The better they are doing the better the state is doing, the better we are all doing, and the better families are doing,” said Governor Baldacci. “Constrain spending and raise incomes — that’s how the overall tax burden will be less — that’s the goal.”

Unfortunately there are circumstances that Maine can’t control that affect the state’s economy. With the cost of the war in Iraq escalating, energy prices skyrocketing, and a depressed housing market, the national economy is hurting. At the same time federal government rule changes have added additional burdens to state budgets. The governor has had to introduce another budget package, in addition to the supplemental budget released in January, to cover a total shortfall of $190 million due to this economic downturn.

“I don’t like to go through these things; I don’t like to have to have people put through some hardships. It bothers me deeply,” said an obviously concerned governor. “These are very difficult budgets and difficult cuts. My hope is that through the tough times we will be able to do things that will really benefit us over the long term.”

Some have suggested raising taxes to cover the shortfall, but that would jeopardize the progress made lowering Maine’s overall tax burden, and the governor believes people do not want to see increased taxes.

“They are paying enough already. I don’t have a printing press; I don’t have a money tree, unlike Washington which continues to print money. We have to be responsible; we have to pay for it. So, how do you do it without hurting people while continuing to make critical investments, balancing your budget and protecting your economy? It’s by reducing administration. So we are reducing four natural resource agencies to two, merging the county jails and the state correctional system into two instead of 17 individual systems. We are looking at reducing the central management at DHHS and regional office administrations, and consolidating those services,” said Governor Baldacci.

The governor explained why spending caps at all levels of government should work in the long run to help lower the property tax burden.

Increasing the state’s share of funding for local education provided an avenue to relieve property tax burdens. In the three years since LD 1 was enacted, the state has stayed within its appropriations limit and ramped up education spending to 55 percent. The first report of LD 1’s impact showed 69 percent of school units exceeded their spending limit; in two years that figure has grown to 82 percent. This year’s LD 1 report, put out by the State Planning Office, showed that the property tax relief available is not making it to the taxpayer, because School Administrative Units continue to exceed their spending caps.

“We have had a hard time getting school administration units keeping to those caps, and that’s why we proposed the school administrative reorganization. For the area where they have been exceeding their cap targets has been the school administrative fund. We’ve had 20,000 fewer students, 400 more administrators, and we are spending almost a billion a year at the state level, and almost a billion a year at the local level. We are not getting the value out of those dollars. Our students deserve the best quality education we can provide, not burgeoning administrative units.

“We had a chance with LD 1 to finally give money to education and the property tax relief citizens deserve. It didn’t hold up. The municipalities didn’t hold their end of the deal. Now we have to get tough with them. You can’t have all that money and not give people the relief they need at the local level. We’ve got to demand that.

“We also froze the mill rate, so the local property tax rate to pay for local education is not going to be raised from when we put the original budget in,” said the governor.

At the county level, several new jail projects pushed the growth of county tax assessments higher than pre-LD 1 levels.

“Jails are 50 percent of the county tax bill, and the county tax bill is all paid by property tax. And property taxes are one of the taxes that irritate people the most. We’re sending people out of state when we have five jails with excess capacity. The mentally ill should not be in jail; they should be in wings in an institution where they can get better treatment, care and oversight, and it can be done more efficiently. Women and people with substance abuse problems are not being treated fairly. It’s wrong.

“We need a unified correctional facility. It was a major breakthrough to have the counties and municipalities and the state to all agree to move forward together on this,” said the governor.

Since the governor’s second term started, consolidation efforts have been increased. With the national economy faltering, there is an even greater need for efficient government at all levels.

“We’re trying to consolidate where we can to save those resources, so that we can continue to invest in people. Taxpayers will benefit with the reduced size of government administration at all levels and the increase in quality, dependable service.

“I believe in local control. I believe in the grass roots. But at the same time we don’t need to have an administrative city structure with a superintendent, deputy superintendent, and city manger for every 1,500 people, because their salaries are $80,000 to $100,000 thousand plus benefits. Then costs get driven up with secretaries and administrative support. It’s all so inefficient.

“We’re also doing the same thing with natural resource agencies. They had a big fight upstairs [where the Maine Legislature is] about what committee to take a bill to. For me that underlined the fact that we don’t need four separate committees on natural resources. We don’t need four commissioners, four deputy commissioners, and all that administrative support. These agencies are there to protect our resources not to protect the administrations,” said the governor.

Many states don’t have three tiers of government anymore, finding the system to be too bureaucratic and expensive.

“I have people stop me all the time and tell me, ‘I’m a schoolteacher. I came from Florida and we only have one administrative unit for the state. I agree with what you are doing. I try and get my colleagues to understand.’ I went to New Brunswick, and Premier Graham looked at me and said, ‘We got rid of county government in 1967’.

“My hope is that the schools will provide a model for the municipalities, counties, and state. There is still too much of a silo mentality. Some people want to keep things the way they are, they don’t want to change. We are creatures of habit and sometimes that gets in the way. But sometimes change is the best thing.

“My son likes to shop on the Internet and e-Bay, and I’m used to going to Marden’s. When I see him online, all I can think about is how they do so much now with the Internet. How can we still have 80 school administrative units when we have this broadband resource? We went from 152 to 80, but it’s still high. I guess we want to do this gradually, but when you look at the Internet and companies like Unum , they’re operating out of one porthole.

“We should be thinking differently about how we are doing business. We have to think about Maine’s position in the world’s economy. It’s not just Maine or New England anymore; we are competing with the world. And Mainers can compete very well given the opportunities,” said the governor.

Governor Baldacci’s unanticipated legacy:

“We are a state of just a million, three hundred thousand people. We have got to figure out, with fewer people working in government and more working together to serve people, how to do a better job. We have people depending on us for services. At the end of day you’re not working for local government, county government, school government, or state government, you’re all working for the people. It shouldn’t matter what level of government you are at, we all are wearing the same uniforms. We all serve the people of Maine.

“I never anticipated it as a legacy, but we are transforming government at all levels. Like Tom Friedman said in his book, The World is Flat. What we are creating is flat government. We’re flattening government so we are all on the same level. There’s going to be one level. No higher level, lower level, or one in-between, we’re flattening government so it’s serving across ‘silos’ to truly serve the people of Maine. That’s what I liken it to in my mind and what I see.”