Down East MagazineWhat does New Hampshire know about taxes t

Talk of Maine
By Jeff Clark
How Do They Do It?It's downright embarrassing. Here we sit in Maine with the second-highest state and local tax burden in the United States, while right next door sits New Hampshire, with the lowest taxes in the country. The Granite State has no sales tax (Maine: 5 percent) and no personal income tax (Maine: 8.5 percent top rate). Even their booze is cheaper than ours.For decades Mainers have chafed at report after report that gives New Hampshire higher marks in everything from per capita income to lower average class sizes to business climate. While Mainers argue over tax-reform proposals that don't really reform anything and draconian property tax caps, the "Live Free or Die" state is eating our lunch in almost every area that's measurable, and doing it on less money with fewer publicly paid people.So how does New Hampshire do it? "We don't offer any services," thunders Doug Morris, professor of economics at the University of New Hampshire in Durham. "We stifle the bureaucracy's desire to grow," argues New Hampshire House Representative Norman Major. "We're more Yankee than you guys," declares New Hampshire economist Richard England.That last comment would probably pass for "fighting words" and virtually eliminates any hope New Hampshire ever had of Maine ceding ownership of the Portsmouth Naval Shipyard. But is it possible that the New Hampshire experience offers some lessons for the Pine Tree State as it grapples with the rising realization that high taxes and economic health have an inverse relationship to each other?Mainers want tax relief, if the 73 percent of the voters in the November election who chose one of two property-tax reform proposals are any indication. And the Maine Taxpayers Action Network found more than 60,000 Mainers willing to sign a petition to force a vote on a statewide property tax cap, perhaps as early as next November. This year may see more action on revising and reforming Maine's tax structure than the state has seen in the whole previous decade. Tax reform, by whatever description, is Topic A in Maine these days.But at the same time, it can be argued that, as much as Maine residents love to complain about their taxes, most Mainers have the taxes they've asked for, at least according to Philip Trostel, an economics professor at the University of Maine in Orono and a member of the Margaret Chase Smith Center for Public Policy. "Mainers might not voice that idea out loud," Trostel points out, "but we have the tax structure we need for the services we demand."Maine governments, state and local, offer more services than New Hampshire, from domestic abuse counseling to laptop computers for school kids. "Maine does offer more services, and Maine spends more for them, pretty much across the board in every category, especially education," Trostel explains." As much as we would love to have your laptop program [which provides computers to every seventh- and eighth-grader in Maine] in our schools," explains economist Ross Gittell of the University of New Hampshire, "that simply can't happen under the current structure, where almost all the money for local education comes from the local property tax."The difference in how the two states deal with education is instructive. Both Maine and New Hampshire have roughly the same number of elementary and high-school students "” about 211,000 in 2001, according to EdWeek magazine. But Maine spends more "” an average of $8,160 per pupil compared to New Hampshire's $7,926 "” and gets less. New Hampshire elementary schools have smaller average class sizes, 19.4 pupils, than Maine does with 23.2 students. (The national average is 21.2.)Less money apparently doesn't mean less education. According to the National Association of State Boards of Education, in 2000 New Hampshire high-school students who took the Scholastic Achievement Tests had an average combined verbal and math score of 1035. Maine students scored 1006.And contrary to the conventional wisdom, New Hampshire pays its teachers better than Maine does, with an average salary of $38,301 compared to Maine's $36,373, according to EdWeek. (Both are well below the national average of $43,250.) Maine has 17,000 teachers in 686 public schools, while New Hampshire employs 14,000 teachers in 524 public schools. The numbers can be overwhelming after a while. A sample, from Governing magazine's annual survey of state tax structures: In 2002 New Hampshire had gross state tax revenues of $1.8 billion (forty-fourth in the nation), state tax revenue per capita of $1,410 (forty- seventh), and a state and local tax burden equal to 8.8 percent of personal income (fiftieth).In the same survey, Maine had gross tax revenues of $2.7 billion (fortieth in the nation), per capita state tax revenues of $2,074 (seventeenth), and a combined state and local tax burden of 13.9 percent of personal income (second). Almost in passing, the magazine adds that Maine is "one of two states with the highest automobile excise taxes in U.S." Talk about adding insult to injury!Yet Maine and its neighbor have almost identical populations: 1,274,923 for Maine and 1,235,786 for New Hampshire. Sure, Maine is bigger "” 35,387 square miles compared to New Hampshire's 9,351 "” and Maine's defenders often cite geographic size in the discussion over why Maine government costs so much more than our neighbor's. Maine government has to spend more because it has to cover more ground, the argument goes. But if that's true, why don't states with fewer people and even more land, such as North Dakota or Montana, have higher tax burdens? Why is Maine number two?In 2002, the U.S. Census reported that Maine had 73,301 state and local public workers, including teachers, equal to 57.8 employees per 1,000 population. New Hampshire, by contrast, had just 53.3 public employees per 1,000.professor Trostel also argues that Maine has more duplication of services, which drives up overall costs. "Maine has a lot of little towns, and every town has its own fire station and police force and school system," he notes. There he has a point. Maine has some 500 towns and cities, while New Hampshire has less than 250. So right away that's twice as many local public works departments, twice as many police chiefs and town managers.The Baldacci administration is pushing the consolidation of municipal services and educational facilities as a tactic to slow the growth in property tax rates. The going so far has been tough, however, since it flies in the face of centuries of local control. Mainers have always wanted to know their local police chief or constable. Once again, it seems to be a case where Mainers are paying extra for a more personal level of government service.But even the plethora of municipalities in Maine doesn't explain the New Hampshire advantage. Granite State Representative Norman Major, a Republican who serves as chair of the House Ways and Means Committee, credits a deeply ingrained suspicion of governmental bureaucracy as one means of keeping costs "” and taxes "” low.It's a trait Maine seems to have lost, probably around the time the state adopted the personal income tax in 1969 during the administration of Governor Ken Curtis. It was also Curtis who modernized the state bureaucracy with reorganized departments and full-time commissioners.That one move may be at the root of Maine's current problem, in Major's view. "Once you create a bureaucracy to provide a service, that bureaucracy never remains constant," he explains. "It wants to grow. But the lesson here is, you have to always keep asking what the benefits are of increasing the size of any organization. Will it improve efficiency and save the taxpayer money or is it just to benefit the organization?"In New Hampshire, department budgets are scrutinized line by line, first by the governor and then by legislators in each house of the General Court, as the legislature there is called. "We're always asking why do you need more people here or more services there," Major offers.also, as University of New Hampshire economist Ross Gittell points out, state legislators have an entirely different philosophy toward funding public programs than Maine does. "In other states, you come up with a policy initiative in, say, health care or education, and then you figure out where the money will come from to pay for it," Gittell explains. "In New Hampshire, balancing the budget and keeping taxes low is the priority, and any new policy idea has to fit inside that framework. In other words, the money comes first, then the policy."As an example, he says, Maine's new universal health-insurance plan, which the legislature passed last May, would have faced a rigorous fiscal review in New Hampshire, complete with a proposed budget and personnel needs, before being even considered for passage. That was not the case in Maine, and much about the program still remains unknown, including its ultimate cost.Lou D'Allesandro is a New Hampshire Democrat and state senator who chairs the Senate Ways and Means Committee. The fact that a Democrat occupies one of the most powerful positions in the Republican-controlled Senate says something about D'Allesandro. Like every successful candidate in recent New Hampshire history, D'Allesandro has taken The Pledge." I'm against taxes," the Manchester resident says with a shrug. He admits this gets him some strange looks from Democrats outside New Hampshire, but at home the political candidates who advocate adopting a broad-based tax "” code for a sales or income tax "” are better known as losers, no matter what party they represent." There's a real antipathy to too much government here," D'Allesandro observes. "And voters see more taxes as meaning more government."As a result, New Hampshire has gotten creative with its tax structure. "We have a ton of revenue-producing devices," D'Allesandro explains. There are more than twenty income streams in all, from liquor profits to a meals and room tax to the tolls on New Hampshire's section of Interstate 95. The state gets the biggest share of its operating revenues, about 20 percent, from a business profits tax.There's some irony in the fact that the one tax most under attack in Maine "” the property levy "” is the one area where New Hampshire comes in second to Maine. According to the Maine Department of Revenue, the state's homeowners pay an average property tax of $16 per thousand of valuation. New Hampshirites pay $24.50 per thousand. Then again, they pay no sales or personal income tax, either.But Professor Morris doesn't anticipate any changes in the tax structure of our neighbor to the west. "Anytime someone runs for state government and talks about making taxes "˜more fair,' he's dead in the water," Morris notes. "The problem is, New Hampshire residents have seen too many other states where government officials say that if the people just pass this sales tax or income tax, then they'll be able to cut the property tax. So the people pass the tax, and the government officials forget about the second part of the sentence. Besides, the thought of sending any more money to Concord just rankles a lot of people."UMaine's Philip Trostel doesn't see the same attitude in Maine. Indeed, he doesn't believe Mainers want significant tax reform, despite the overwhelming support for property tax relief registered in the referendum last November. "I don't see that much popular support for major tax reform," he muses. "There's a lot of talk, but I honestly don't expect a lot of action. The question has to be, are we willing to give up what those taxes buy, such as a local police department or a local fire department?" With votes approaching on measures that would shift a significant part of Maine's local educational expenses to the state, and that would cap property taxes at 1 percent of assessed value, the answer to that question, for better or worse, may well be known by the end of the year. No self-respecting Mainer would suggest we could take a lesson from the "Live Free or Die" folks, but it is hard to look at their numbers and not wonder why they seem so much better than ours. "”Jeff Clark[ 02-01-2004: Message edited by: Paul Mattson ]