Maine state government’s decision to cut revenue sharing is a credit negative for the state’s localities, Moody’s Investors Service said.

At the end of June the Maine legislature approved a biennial budget that will cut revenue sharing with local governments by 34% for fiscal 2014 and 2015. Maine Gov. Paul LePage wanted to eliminate revenue sharing but the legislature would not go along with the plan.

Over the last 10 years, the state has provided an average of $110 million annually to Maine municipalities, according to Moody’s analysts Lauren Von Bargen and Nicholas Lehman. The contribution was $95 million in fiscal 2013, which ended June 30.

The state budget specifies that revenue sharing with municipalities will drop to $65 million in fiscal 2014 and $60 million in fiscal 2015.

The reduction in revenue sharing will make municipalities more dependent on property taxes, the analysts wrote.

Bangor, whose general obligation debt is rated Aa2, will see a cut in aid equal to 2.6% of its budget.

The city in east-central Maine spends about half of its income on schools. It has responded to the reductions of state aid by cutting its general fund operations, said Bangor city manager Catherine Conlow. On top of the state squeeze, health insurance costs have been escalating and the federal government has been providing less in the way of grants in recent years, she said.

The city of 33,000 residents has cut programs and eliminated firefighter, mechanic and secretary positions, Conlow said. The city government also instituted a 5.5% property tax increase for the current fiscal year, she added.

The city plans to respond to the fiscal 2015 cuts by continuing to reduce services, Conlow said.

The state’s cut in aid has also hit Maine’s biggest city, Portland. How the cut will affect the city’s schools remains unclear, said Portland director of communications Nicole Clegg. In its general budget the city has increased its property taxes and reduced some services, Clegg said.

Portland is in southern Maine and has about 66,000 residents. Moody’s rates its general obligation debt Aa1.

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