$6.1 billion state budget given preliminary approval in Legislature

Posted June 15, 2011, at 5:57 p.m.
Last modified June 16, 2011, at 12:15 p.m.
Maine State House
Maine State House

AUGUSTA, Maine — Lawmakers gave preliminary approval Wednesday to a two-year, $6.1 billion budget bill that aims to reduce the tax burden on Maine families while trimming spending and reforming the state’s pension system.

The budget compromise received strong, bipartisan backing in both the House and Senate as lawmakers rejected attempts to change a spending blueprint that had emerged from the Legislature’s budget-writing committee with a unanimous endorsement.

“This budget bill was built upon a unanimous trust agreement and we cannot remove any of its building blocks,” said Rep. Patrick Flood, R-Winthrop, the co-chairman of the budget-writing Appropriations and Financial Affairs Committee.

The House voted 120-26 to endorse the budget bill Wednesday afternoon, and the Senate followed suit with a 29-6 vote just before 10 p.m. The bill faces additional votes in both chambers before being sent to Gov. Paul LePage’s desk, where it will face close scrutiny from a chief executive who has threatened to veto all or parts of the budget that does not achieve key goals.

The proposed budget contains all of the general priorities outlined by the LePage administration months ago, although lawmakers rewrote or tweaked many of those initiatives. Specifically, the planned budget cuts taxes, reforms welfare, makes changes to shore up the state’s pension system and invests in education.

“When we head home after we adjourn — hopefully soon — the message to your constituents will be clear,” said Sen. Richard Rosen, R-Bucksport, co-chair of the Appropriations Committee. “We lowered taxes for all Mainers and have created incentives for business to keep jobs we have as well as to create new jobs.”

In the area of tax cuts, the proposal would reduce tax revenues to the state by $150 million over the biennium, down from the $203 million originally sought by LePage.

The hallmark of the tax cut package is a plan to lower Maine’s top income tax rate from 8.5 percent to 7.95 percent. The plan also increases personal and standard deductions by conforming Maine’s tax code with the federal government’s. The result is an estimated 70,000 lower-income Mainers who will not owe any income taxes.

More controversially, the budget also doubles Maine’s exemption to the estate tax, meaning the heirs of property, farms or businesses will not pay the “death tax” on the first $2 million of the estate’s value. Critics have decried that as a give-away to the wealthy.

The budget also contains several significant policy changes aimed at reforming welfare and reducing the unfunded liability in Maine’s pension system for state employees and retirees.

Regarding welfare, the budget imposes a five-year, lifetime cap on welfare benefits — a campaign pledge of LePage’s — but lawmakers added a number of broad exemptions to that limitation.

The budget also eliminates welfare eligibility for some legal immigrants. But lawmakers rejected a LePage proposal that would have eliminated MaineCare benefits for parents who earn between 133 percent and 200 percent of the federal poverty level and for childless adults.

In the area of pension reform, the budget proposes to freeze and then cap at 3 percent the cost-of-living adjustment, or COLA, for state employees and retirees. And in a major departure from the LePage budget, lawmakers rejected an administration 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.

The changes would reduce the estimated $4.3 billion unfunded liability in the pension system by roughly $1.7 billion, which is less than the $2 billion under the governor’s original proposals.

But the 3 percent COLA would only apply to the first $20,000 of pension income, and lawmakers on both sides of the aisle fought unsuccessfully Wednesday to bump up that ceiling to $25,000.

Rep. Peter Stuckey, D-Portland, pointed out that the budget reduces future income levels for state retirees on a fixed budget while giving families who earn more than $350,000 income tax cuts that exceed $3,000.

“I ask you, where’s the shared sacrifice?” Stuckey said.

In the Senate, Democrats repeated statements made throughout the months-long budget debate that the tax cuts are being paid for on the backs of public employees and retirees.

They also pointed out that the tax changes will create a $300 million hole in the next biennial budget.

“It makes [pension] changes and then turns around and gives extraordinary tax cuts,” said Sen. Phil Bartlett, D-Cumberland. “In my view, this budget at best trades one problem for another.”

But Republicans and Democrats combined to defeat the amendments to change the tax cuts and pension system changes in both chambers. During preliminary remarks, Sen. Dawn Hill, a York Democrat who served on the Appropriations Committee, said all sides compromised on the budget bill.

“The Republicans are not fully pleased and the Democrats are not fully pleased,” Hill said. “But given that this is a budget resulting in much give and take, not being fully pleased is fully expected.”

The budget proposal would also:

  1. Preserve current state reimbursement levels to municipalities for general assistance.
  2. Increase state funding for education.
  3. Reduce funding for the Maine Public Broadcasting Network by $200,000, down from the $4 million cut proposed by the LePage administration.
  4. Restore most — but not all — of the LePage administration’s proposed reductions to the Fund for a Healthy Maine, which directs proceeds from the legal settlement with tobacco toward health initiatives.
CORRECTION:

An earlier version of this story incorrectly stated that 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 million. It will reduce the liability by $1.7 billion.

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