“Thank you Governor Baldacci.”
— Linda Gifford, chief lobbyist for the Maine Association of Realtors, after winning her fight to change the tax reform bill
Dozens of organizations and businesses pleaded for exemptions from tax increases in the tax reform bill that was approved last June.
Thanks to Gov. John Baldacci, only two got what they asked for: Realtors and the ski industry.
Realtors persuaded the governor to reverse a tax increase on the sale of luxury homes.
And the ski industry was slated to collect a sales tax on lift tickets — until the governor intervened.
A two-month investigation of the governor’s decision, including a review of campaign finance reports, shows that the Realtors and the ski areas have supported Baldacci politically and financially and have easy access to him to make their case.
Other groups, such as auto repair shops, had no strong connections in the State House and were not rescued from a new sales tax on their services.
The governor’s decision to go to bat for these special interests offers a example of the role money, influence and personal connections play in the creation of state policies that effect Maine citizens.
“That’s the way the game works,” said Republican House Minority Leader Josh Tardy, R-Newport, “Groups that are represented by lobbyists do a lot better than Joe six-pack.”
The spokesman for the Center for Responsive Politics, a non-partisan Washington-based group, said the story of the way the tax bill became law shows the “influence of people who have longstanding and tight relationships with politicians.”
“Obviously, the ski and real estate industries are big in Maine,” said David Levinthal. He doubted they would have succeeded in changing the bill “had they not had longstanding relationships with the governor” and if they also had not had the ability to hire lobbyists “to throw their weight around.”
THE VETO THREAT
Gov. Baldacci threatened to veto the tax reform measure unless the Legislature accepted his version of the bill, which excluded the ski and real estate taxes. The Democratic leadership in the House and Senate yielded to the governor’s changes and pushed his bill through both chambers in a matter of hours in the final days of the legislative session.
Gov. Baldacci said any suggestion that his financial and political support from lobbyists and friends representing the realtors and the ski industry played a part in his decision is “not accurate and the facts don’t bear it out.”
One of the groups that repeatedly asked to be exempted from the expansion of the sales tax was the state’s hundreds of independent auto repair shops. Under the the bill, they will have to start charging customers $5 in sales tax for every $100 in service.
Bob Muecki, owner of Bangor Auto and Truck Center in Hermon, said, “What I see is a lot of tax breaks on what I consider leisure activities and a lot of areas being taxed that are the bread and butter for workers and year ’round people, people who pay (Maine) income taxes.”
“My honest opinion,” said Muecki, “is that it’s just outrageous.”
SKIING, BELIVEAU AND COOK
The break for ski operators allowed them to escape charging a five percent sales tax on lift tickets, which would have cost the typical skier about $3 or less per day of skiing.
The ski areas are represented by lobbyist Severin Beliveau, a longtime political and financial supporter of the Democratic governor. Their case was also helped by a plea from another longtime Baldacci friend and supporter, Saddleback Maine’s general manager, Warren Cook.
Beliveau said the governor’s decision “was not a function of our relationship,” adding that Baldacci has been opposed to taxing outdoor recreation since he was in the state legislature 25 years ago.
Cook said he spoke to the governor about exempting ski lift tickets and that when the Berry family bought Saddleback in 2003, “Bill Berry went to the governor and the governor pledged to him at the time that he wasn’t going to support a tax on ski tickets.”
When the proposal to tax lift tickets came up again last year, Cook said, “I just went in and said to the governor, we need your help in this area.”
Baldacci’s deputy chief of staff, David Farmer, said the governor said, “I don’t know if I’d characterize it as a promise. I told Warren I didn’t support it.”
Beliveau gave $1000 to the last two Baldacci gubernatorial campaigns and a total of $4500 to Baldacci congressional campaigns.
In the 2006 governor’s race, lawyers in Beliveau’s firm, Preti Flaherty, gave $25,000 to Baldacci’s campaign. Twenty attorneys in the firm, where he is listed as a founding partner who “directs the firm’s Legislative and regulatory practices in Augusta and Washington, D.C. , gave the maximum of $1000 each.
Baldacci’s total campaign contributions in 2006 were $1.3 million.
Baldacci’s Republican opponent in 2006 was Chandler Woodcock, whose campaign was publicly financed and who received only small contributions as seed money. None of those came from Beliveau or his law firm, according to state records.
In 2002, the records show Baldacci’s GOP opponent, Peter Cianchette, received a total of $1,100 from three Preti Flaherty attorneys. In contrast, the same records list more than 20 lawyers from the firm giving Baldacci’s campaign $14,000.
In 2009, Beliveau is listed as the registered lobbyist for 23 business and organizations, from Anheuser-Busch to Catholic Charities of Maine to FairPoint, the troubled communications company that the state approved to take over Verizon’s phone business.
Beliveau’s status as the unofficial top Democrat in the state was perhaps best demonstrated in 2002 when a reception for President Bill Clinton’s prior to the speech in Augusta was held at Beliveau’s stately home in Hallowell.
Only one Republican in either chamber voted for the governor’s version of the bill, Sen Peter Mills,R-Cornville, a candidate for governor who has a reputation as a moderate and policy expert.
Like others, he was not surprised to see the governor side with a client represented by Beliveau.
“He’s extremely bright and very effective at making arguments,” Mills said. “There’s always some client willing to pay good money to have Severin appear … and he’s got good access to the governor.”
SKI GROUPS HELP BALDACCI CAUSE
The Ski Maine Association gave $1,500 to Baldacci in his two runs for governorship, and another $5,000 to a Political Action Committee (PAC) that helped win voter approval earlier this year of school consolidation, a signature program of the Baldacci administration. (Ski Maine also contributed to Cianchette.)
Farmer, from the governor’s staff, added that many organizations contributed to that PAC who the governor has not agreed with, such as gambling interests.
Cook, the former vice president of government relations at Jackson Labs in Bar Harbor, appears to have a strong relationship with the governor. He gave $1,000, the maximum, to Baldacci’s first run for governor and helped lead his transition team in 2002. (He also gave the maximum to Cianchette.)
The governor has taken part in two publicity “photo ops” with Cook to promote Saddleback.
About a month after the governor signed the tax bill that ensured ski lift tickets would not be taxed, the Finance Authority of Maine (FAME) guaranteed 90 percent of a $3 million loan to Saddleback from Skowhegan Savings Bank to expand the Rangeley ski area. FAME board members are appointed by the governor and confirmed by the legislature, but the board is otherwise an independent agency of the state.
FAME CEO Elizabeth Bordowitz explained that banks come to FAME for the loan guarantee when the loan, for a variety of reasons, “is outside the bank’s risk parameters.”
In the event FAME has to cover up to 90 percent of the loan, those funds come out of its reserve account, which is partially funded by Maine taxpayers and partially by fees paid by the banks who hold the loans. In the past 25 years, the state has appropriated more than $20 million to FAME.
Cook said he never had a conversation with the governor about the loan, adding that he and the bank made the presentation to FAME.
THE REALTORS’ LOBBY
The chief lobbyist for the Realtors, Linda Gifford, is also said to have the ear of the governor and persuaded him to buck leaders of his own party and reverse the transfer fee increase on homes selling for more than $500,000.
The Maine residential real estate industry is represented by the Maine Realtors Association, which opposed an increase in the real estate transfer tax that would have only affected homes selling for more than $500,000. The governor’s carve-out of that provision saves the buyer and seller of a $1 million house, for example, $1,400 each.
The Realtors’ Political Action Committee has given the Baldacci campaign $1,500 in the past two gubernatorial elections and has contributed a total of $222,050 since 2002 to a variety of Maine candidates, sitting legislators and other PACs and causes, according to records at the state Commission on Governmental Ethics.
State Rep. John Piotti (D-Unity), an author of the original tax reform bill and majority leader in the House, objected to the governor’s changes, but in the end agreed to them rather than have the bill vetoed.
Piotti said, “He (Baldacci) knew people in that (real estate) industry and, in fact, listened to Linda Gifford, who has been one of his supporters. He was talking to her, I’m sure.”
Gifford said Baldacci “all the way back to when he was in the (state) Senate, he heard my argument … this tax has always resonated with him as our ‘go to the wall’ issue, and he has been very supportive over the years… We did not try to do anything different this year, except go in there and tell him it was in the bill.”
REALTORS: ‘VERY PLEASED’
In her “recap” of the tax battle to her board, Gifford, the Realtors’ chief lobbyist, wrote, “We met with the governor several times about our concerns. We lobbied against the bills extensively.” The Realtors association, she wrote, was “very pleased with the elimination of the proposed increase in the transfer fee (thank you Governor Baldacci) …”
The governor’s office has confirmed that he met or spoke with Beliveau, Gifford and Cook about the bill, but the governor said that did not influence his decision, adding that he met with many interests about the bill.
The tax reform bill originally passed by the legislature included the transfer fee and recreation taxes because they would help make up for lowering the income tax for all Mainers from 8.5 percent to 6.5 percent.
The final bill still lowers the income tax to 6.5 percent, but no longer for all Maine residents. Those with incomes of more than $250,000 will get a smaller tax break to help pay for the changes that Baldacci insisted on for the real estate and ski industries, plus some other recreational activities, such as golf. He also needed the additional revenue to pay for a provision of his bill that will send checks of up to $150 to low-income Mainers who don’t make enough to pay income taxes.
RECESSION WORRIED BALDACCI
Baldacci, in an interview in his State House office, said he opposed the increase in the transfer tax, even if just on expensive homes, because he didn’t want to damage the real estate industry during the recession.
And he believed the increase in the meals and lodging sale tax that was part of the bill should not be made worse at ski resorts by taxing lift tickets as well.
“It was the cumulative effect of it all,” he said.
State Rep. Thomas Watson of Bath, the Democratic co-chairman of the Taxation Committee, which wrote the original reform bill, said the governor’s decision to undo the increase in the real estate transfer fee “made no sense at all.”
‘FIX WAS IN’
He added, “It’s almost fully exportable — very few Mainers buy million-dollar homes. When Linda Gifford stopped coming to Taxation Committee hearings, I figured she’ll get what she wants — the fix was in. She has his (Baldacci’s) ear.”
The tax on the sale of residential real estate in Maine has been the same for 24 years — $4.40 for every $1000 that a home is sold for. The buyer and seller each pay half.
The bill passed by the legislature would have left that alone for the vast majority of homes sold in Maine. The increase to $10 per $1000 would have applied only to residences of one to four units that sold for more than $500,000, and only to that portion of the sale above that amount.
For example, the transfer tax on a home sold now for $1 million would be $4,400. If the new tax had been approved, the amount would be $7,200.
The Maine Revenue Service estimated that in 2010, of the 19,000 residences sold, 1,850 would have been affected by the new tax, or a little less than 10 percent.
The Realtors argue this would hurt an already ailing industry and the governor agreed.
Baldacci explained his reasoning: “I said, what’s one of the major causes of this great recession? Wasn’t it the housing market … and you want to get back into this. They said, ‘Well, it’s on the upper end,’ and I say, ‘What do you want to be, part of the reason for not getting out of this.’”
GOV: $3M ‘NOT CONSEQUENTIAL’
Baldacci also argued that the $3 million the state would have received from the increased transfer fee was “not consequential” to the bill.
Rep. Piotti said the Taxation Committee considered and rejected that argument.
“We thought it is good policy to tax sales on luxury homes — many of which are sold to non-residents — and use all of that benefit to lower taxes for Maine residents,” he said.
Gary Vogel, an attorney at DrummondWoodsum in Portland, has represented the Maine Real Estate and Development Association, which was divided on the bill and took no formal position. But he personally testified in favor of the legislature’s version, making a point to address the real estate fee:
“I do not believe that the increase in the transfer fee on the incremental portion of residential transfer for over $500,000 will discourage anyone from buying a home in that price range … I believe the objections of the realtors are misplaced.’
Gifford argues that a higher tax on expensive homes discourages people such as business executives from coming to Maine, where they will spend more money on improving their home and get involved in civic and charitable organizations.
The Maine Revenue Service estimates 95 percent of Mainers will see their state income tax reduced under the bill submitted by the governor and passed by the legislature. The “revenue neutral” bill makes up dollars lost to the state treasury from the lower income tax by increasing other taxes, such as the meals and lodging tax, and no longer exempting some products and service from the 5 percent sales tax, such as auto repairs, movie tickets and dry cleaning.
While the new mix of taxes is projected to bring in the same amount annually to the state general fund, Maine Revenue Services estimates that a greater portion of the taxes will be paid by out of staters, resulting in Mainers paying $53 million less in taxes.
Although signed into law, the bill did not take effect because an anti-tax coalition called Still Fed Up With Taxes gathered enough signatures to have the law go to referendum next June, a move that puts implementation of the bill on hold.
One of the Republican leaders of the Still Fed Up with Taxes coalition, Sen. David Trahan of Waldoboro, said if the governor wanted to help working people “then why did he leave in auto repairs, which is an essential, something Maine people pay,” but exempt taxes on skiing, golfing and the sale of luxury homes.
“The governor’s bill addressed those that screamed the loudest and left out those who didn’t have an organized lobby, like the auto repair people,” said Trahan.
Gifford said, “I feel a little badly that in the last waning hours we certainly got help and the tourism industry and others did not.”
Trahan and other Republicans also objected to the speed at which Baldacci’s bill — 34 pages long — was printed, debated and voted on.
“We had less than an hour and half between when the bill was printed and when we voted on it. There was no public hearing,” Trahan said.
Rep. Watson, the Taxation Committee co-chair, said that the previous version of the bill was well debated earlier in the year.
“Republicans were under instructions to say ‘no’ anyway,” Watson said. “We rushed it through because we had the vote, so there was no point in having a debate.”
The Federal Reserve Bank of Boston recently published a study by former independent state Rep. Richard Woodbury, an economist, titled, “The Struggle for Tax Reform in Maine, 2003-2009.” Woodbury recognized that, unlike the failed attempt at tax reform in 2007, in 2009, the “process engaged the public at large, the press, interest groups, lobbyists, and the constituencies of likely political opposition.”
For the Democratic leaders in the legislature, that culminated at the last minute into seeing their hard-fought compromise bill be compromised one more time — this time by the state’s chief executive.
Watson, the Democratic co-chair of the Taxation Committee, said, “The way it was done was a little disheartening, after all the work the committee put in on tax reform — hundreds of hours — to have it changed in such an arbitrary way in the very last days …”
But in a subsequent email, Watson softened his comments: “The Governor has constitutional power to vet and thus a lot of leverage on any measure presented. And in the end we passed a tax reform package that benefits Maine resident taxpayers.”
The Republican view is less charitable.
Rep.Tardy, the House minority leader, said Baldacci “had to make some change to show he just didn’t succumb … He had to save face, so he made a lame attempt to inject what he wanted.”
Beliveau, who has been a key player on Maine politics going back to the 1970s, said there was “nothing unusual in this — there’s not a piece of legislation the governor doesn’t play a role in … you don’t have a story here.”
The governor’s take on it all: “That’s the way I felt, and there’s only one governor at a time … I had an opportunity to make my mark on things. I’m using my own judgment as to what makes sense and what doesn’t.”
DISCLOSURE: The registered lobbyist for the Maine Press Association, of which this newsroom is a member, and the Maine Daily Newspaper Publishers Association, is Daniel Walker, a member of the Preti Flaherty law firm. In the past, the MPA and the publishers’ association lobbyist has represented newspapers in their opposition to a sales tax on newspaper sales. That tax was not an element of either of the bills that were debated in 2009 and that are the focus of this story. When John Christie, the author of this article, was publisher of the Kennebec Journal and Morning Sentinel, the papers were represented by Preti Flaherty attorneys.