AUGUSTA, Maine — Lawmakers will vote next week on a two-year, $6.1 billion budget compromise that cuts income tax rates, shrinks the financial hole in Maine’s pension system and reduces social services benefits for some groups.
After months of work, members of the Appropriations and Financial Affairs Committee voted unanimously late Thursday night to support a new spending plan after negotiating compromises on major policy issues that had slowed work on the budget.
Gov. Paul LePage, a Republican, had identified tax cuts, welfare reform and pension reform as the top priorities of his administration’s first biennial budget. The version endorsed by the budget-writing committee addresses all those themes, although not in the same way or to the same extent.
In the area of tax cuts, the bipartisan budget proposal would:
• Restructure Maine’s top income tax structure to reduce rates for most people, including lowering the top rate from 8.5 percent to 7.95 percent. The changes also would eliminate income tax obligations for an estimated 70,000 lower-income residents.
• Double from $1 million to $2 million the estate tax exemption.
• Increase personal and standard deductions by conforming Maine’s tax code with the federal government’s.
• Exempt commercial fishermen in the Gulf of Maine from having to pay a fuel tax for their boats.
The tax cut package totals roughly $150 million, which is about $50 million less than LePage had proposed. Earlier in the session, LePage had threatened to veto any budget that did not hit his $200 million tax cut goal.
On Friday, the governor’s spokeswoman, Adrienne Bennett, said LePage planned to review the tax cuts and other major policy changes within the budget. But Bennett said LePage hopes to sign it, assuming that the budget obtains the two-thirds it needs in both chambers.
“From what he has heard so far from his senior policy staff, he is encouraged by it and expects to have a budget in the next few days,” Bennett said.
The committee also made some significant changes to LePage’s welfare reform and pension reform proposals.
The committee went along with LePage’s plan — championed during his gubernatorial campaign — to establish a five-year lifetime cap on welfare benefits. However, lawmakers added a lengthy list of exemptions to that five-year limit.
The committee also rejected LePage proposals to eliminate MaineCare benefits for parents who earn between 133 percent and 200 percent of the federal poverty level and for childless adults. But the budget compromise would eliminate social services benefits for new, legal immigrants to Maine not receiving those benefits, albeit with several broad exemptions added by lawmakers.
“We did not protect every person out there,” said Rep. John Martin, D-Eagle Lake, a member of the Appropriations Committee. “But based on where we were in January, we were able to arrive at a package that tries to move us forward.”
The committee also restored most — but not all — of the administration’s proposed reductions to the Fund for a Healthy Maine, which directs proceeds from the legal settlement with tobacco toward health initiatives. LePage’s budget would have redirected that money into the General Fund.
In the area of pension reform, the committee dropped LePage’s plan to require state employees to pay an additional 2 percent — on top of the 7.65 percent they already pay — toward the state pension system.
But the committee agreed to freeze cost-of-living adjustments for state employees and retirees and caps future COLAs at 3 percent. That 3 percent also would apply only to the first $20,000 in pension income, a concession strongly opposed by state employee unions.
LePage’s original pension reform proposal would have reduced the roughly $4.3 billion unfunded liability in the pension system by about $2 billion. The committee’s version would reduce it by an estimated $1.7 billion, according to lawmakers.
The committee’s budget proposal would also:
• Preserve current state reimbursement levels to municipalities for general assistance.
• Increase state funding for education.
• Reduce funding for the Maine Public Broadcasting Network by $200,000, down from the $4 million cut proposed by the LePage administration.
Despite some significant changes from the governor’s original budget, some observers and Democrats acknowledged that LePage still would get much of what he asked for.
“I think he realizes there were some compromises, but a lot of the initiatives that he put forward are staying within the budget,” Bennett said.
Republican and Democratic leaders released statements praising the unanimous, bipartisan vote from the budget-writing committee, although they had different takes on how the end product compares to the LePage administration’s original proposals.
President Kevin Raye, R-Perry, said the proposal contains “historic and meaningful tax cuts designed to create jobs and boost Maine’s budget” as well as welfare reform, pension reforms and a strong commitment to education.
“Governor LePage deserves credit for presenting a bold blueprint for changing the dynamic in Augusta, and the Appropriations Committee deserves credit for working thoughtfully and diligently to arrive at a final package that incorporates the best ideas from both sides of the aisle while honoring the governor’s vision for state government,” Raye said.
Democrats, meanwhile, took credit for helping defeat LePage proposals to deduct another 2 percent from the paychecks of state employees to pay down the pension system’s unfunded liability and to reduce social services benefits for the elderly and low-income families.
“Democrats came ready to work, providing substantive alternatives to many of the governor’s proposals,” said Rep. Emily Cain, D-Orono, the House Democratic leader. “We stood strong for our core values and worked across the aisle to find a compromise we could support.”
The complete budget document is expected to be available online on Monday, and debate on the budget and consideration of amendments could begin on Tuesday. House Speaker Robert Nutting, R-Oakland, said Friday he hopes complete all of the Legislature’s work — including on the budget — by Wednesday.
An earlier version of this story contained an inaccuracy. The two-year budget proposed by the Appropriations and Financial Affairs Committee would reduce the unfunded liability in the state pension system by $1.7 billion, not $1.7 million.