AUGUSTA, Maine — Gov. Paul LePage said he made several difficult budget decisions in order to improve the state’s business climate, which he says is the only way to improve the state’s economy and is the key to Maine’s future.
“I guess it could get worse,” he said in an interview. “I guess we could be 52nd [in business climate] if you count Guam and Puerto Rico. If you want prosperity, you have got to make sacrifices.”
LePage said his proposals to lower overall tax rates and to conform to federal tax provisions that will bolster investment by companies are crucial to improving the business climate and growing the economy.
“At the rate we are going now, it is going south and it’s not going to turn around until we stop the bleeding,” he said. “We need businesses to grow.”
Overall, taxes will go down $203 million over the two years under his proposal, which LePage said is crucial to stimulating economic growth.
“If we don’t do it in the biennium, we don’t have a prayer of turning this state around,” he said.
LePage said teacher and state workers are “right” when they say he is balancing part of the budget on their backs. He said the state’s “horrible” debt situation is because teachers and workers were made promises of benefits that cannot be funded.
“The debt that is owed is because of what we promised teachers, what we promised retirees,” he said. “We did not cut benefits. We are cutting the growth.”
The budget proposes to increase the retirement age for most state employees from 62 to 65, freeze the cost-of-living adjustments for current retirees and cap future increases at 2 percent. He also proposed state employees contribute another 2 percent from their paychecks to the pension system to help pay down the estimated $4.4 billion unfunded liability. State workers currently chip in 7.65 percent of their salary to the pension system.
“We are slowing the growth down so that we can survive,” LePage said. “We did not say you are going to make 10 percent less or 20 percent less in your paycheck.”
He added that other states with funding problems have reduced state worker compensation and significantly reduced the number of workers.
LePage said some options he would have liked to use, such as changing the benefits under the state Medicaid program, could not be considered because federal law requires that past levels of benefits be maintained or the state would face serious penalties. The budget for the state share of Medicaid is up nearly $80 million.
“On anything to do with health care, our hands are tied,” LePage said.
As a result, he proposed capping municipal revenue sharing and reducing the state reimbursement under the general assistance program, he said.
“I did that because I have been a mayor,” he said. “Either I freeze revenue sharing to the communities or I take money away from the schools. Take your choice. As a former mayor, the kids came ahead of the communities.”
LePage said he believes in a strict interpretation of the state constitution that all debt — including the possible debt the state may have if one of the various borrowing agencies defaults — needs voter approval. He said his budget speech comments have been misunderstood.
“I did not say I would oppose all borrowing,” he said. “I said I would oppose all borrowing that is not approved by the voters.”
Finance Commissioner Sawin Millett said there is no funding in the two-year state budget for any additional state bonds. But he said there have been preliminary discussions with the governor concerning targeted borrowing for infrastructure investments, particularly where it would leverage additional federal funds.
“The area of road and bridge improvements and water and sewer projects where there is a very good match is the sort of borrowing that has been mentioned,” he said.
Millett said the governor may propose a bond package or he may choose to identify bond proposals introduced by lawmakers that he would support. He said those decisions will likely occur after revenues are reprojected this spring.
“That could provide additional resources that could be used for debt service or some could be used as a cash match for some of the projects,” he said. “We know there will be some changes as we go along in the budget process.”
After the first seven months of the budget year, state revenues are $5.1 million above estimates.