Reduced State Aid for Municipalities

Every month the Town of Peru receives a check in the mail from the State Treasurer. The money comes from a revenue-sharing pool that takes in 5% of all the state's receipts of sales, service-provider, and income taxes. Then it gets divvied up according to a formula that accounts for differences among the various cities and town in population and valuation. When the state's economy prospers, those revenue-sharing distributions tend to increase over time. During a recession, they level off or even contract.

In the graph above, you can see that the recession that began in 2008 reduced Peru's annual municipal revenue-sharing distribution from $139,659 in the fiscal year ending June 30, 2008, to $89,289 in the 2010 fiscal year. That is a loss of over $50,000, or 36%. That is not to say that tax receipts at the state level declined by that much. But our representatives in Augusta decided to divert funds from the revenue-sharing pool to the General Fund ($25 million in FY 2009, another $35 million in FY 2010). This left a smaller pie for municipalities to share. Essentially this was a tax shift, where towns were asked to bear a disproportionate share of revenue shortfalls so that the state could balance its budget.

The Maine Legislature's Office of Fiscal and Program Review has just updated its annual report of Major State Funding Disbursed to Municipalities and Counties. The report warns that towns should expect little relief from the state in the near future:

"Looking ahead, the outlook for state funding is not optimistic. The State is facing very modest revenue growth, and it may take until 2015 for state revenue to recover to its peak FY 2008 levels. With the end to ARRA stimulus funding in FY 2011, which helped the State avoid even more significant reductions to state programs and state assistance to local governments, the next Governor and the 125th Legislature will be enacting a 2012-2013 Biennial Budget that must address a General Fund baseline budget shortfall of more than $500 million and a structural gap in excess of $1 billion...It is very unlikely that the share of the state budget for local governments can be sustained in light of the shortfall and the significant increase in state share of Medicaid from the elimination of the ARRA stimulus funds."

In other words, expect the revenue-sharing pool to be cannibalized even more in the future to help keep state programs going. Towns will be left increasingly on their own.