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LePage’s proposed budget eliminates tax revenue shared with towns and cities

Posted Jan. 11, 2013, at 4 p.m.
Last modified Jan. 12, 2013, at 6:49 a.m.

AUGUSTA, Maine — Gov. Paul LePage’s administration proposed a complete suspension of municipal revenue sharing for the next two years as part of its plan to balance the current state budget and pay for state services without new taxes.

Stopping revenue-sharing payments to cities and towns would save $98.9 million each in fiscal years 2014 and 2015, according to the governor’s office.

The $6.3 billion proposal also eliminates the homestead property tax exemption and circuit breaker program for everyone except people older than 65 and veterans.

Senate President Justin Alfond, D-Portland, who with other legislative leaders and Appropriations Committee members, was briefed about the budget Friday by Finance Commissioner Sawin Millett and other LePage administration commissioners, called the proposal a $400 million tax shift to property taxpayers.

Millett said he and staff worked late into Thursday night to complete the budget proposal, so he had not spoken to municipal officials or representatives of the Maine Municipal Association about the proposals.

“It would be devastating,” Eric Conrad, communications director for the MMA, said. “If it comes to pass, that would mean significant cuts to police, fire, road maintenance and schools.”

Conrad said municipal officials are hopeful legislators will recognize the financial toll that state cuts have had on cities and towns in recent years, and that legislators will oppose suspension of revenue sharing and other proposals that will put more pressure on local property taxpayers to cover the cost of state government services.

In a statement that accompanied the budget, LePage said, “Towns and cities will feel the effects of this budget through the temporary loss of revenue sharing. I commit to you here that we will restore revenue sharing to local governments as the economy improves.”

Even a Republican leader expressed dissatisfaction with the call to wipe out revenue sharing for two years.

“There are those — I would include myself — who are unhappy about the revenue sharing program,” said Assistant Senate Minority Leader Sen. Roger Katz, R-Augusta, former mayor of the city. “It’s incumbent upon us to suggest alternatives. The problem doesn’t go away by saying, I don’t like that program.”

The budget-writing Appropriations Committee must review the governor’s proposal and can make changes before passing it on to the full Legislature for approval. LePage, who was not at Friday’s presentation, must sign the budget.

Meanwhile, some Maine communities that set their budgets at town meetings beginning in February and March will wait to learn more about the implications.

The $6.3 billion two-year spending plan also includes reductions in the state workforce, and benefit cuts for welfare and MaineCare and other public assistance programs, including a cap on payments to the General Assistance program.

The proposed budget for 2014-15 represents a $166 million increase over the current budget, a 2.7 percent hike.

Among the key elements of the plan are:

• Imposing a $10.1 million cap on General Assistance, a public assistance program administered by municipalities that shares state and local costs. The move, which LePage included in the supplemental budget to close this year’s revenue gap, will save $3.3 million in each year of the next biennium.

• Flat-funding General Purpose Aid to K-12 public education at $895 million annually, which reflects the current year’s total allowance after the curtailment LePage announced late last month.

• Shifting the responsibility for funding teacher pensions from a 100 percent state commitment to a shared responsibility between the state and local districts, a move that will force local taxpayers to pick up some of the costs.

• Eliminating more than 200 positions within state government, including 56.5 from the Department of Transportation. All but 12 of those positions are vacant, according to Chris Quint, executive director of the Maine State Employees Association, the union that represents state workers.

• Eliminating the tax exemption for newspapers and other publications issued at least four times a year.

• Changing the way that Maine adjusts income tax rates for inflation in 2014 and 2015. Using a more conservative cost-of-living calculation that the federal government is considering for Social Security would save Maine $1.8 million in 2014 and $6.8 million in 2015, according to the governor’s proposal.

Not all of the proposals involved cuts. Among proposed spending increases are:

• Increased funding for the Department of Inland Fisheries and Wildlife, the Department of Environmental Protection and the Department of Marine Resources.

• Fully funding Indigent Legal Services based on demand.

• An infusion of $15 million to support education reform programs introduced during the last Legislature to improve accountability and start new programs.

• Corrections Commissioner Joseph Ponte suggested a $100 million bond to build a new prison to replace the Maine Correctional Center in Windham. He said building a new facility would yield future staffing savings.

Millett called the two-year budget one of the most difficult he has worked on in decades of state service. He told legislators that the state’s projected revenue for the second year of the upcoming two-year budget will be less than what the state collected in 2008. In October, Millett said the state will forgo $342 million in income tax collections because of the tax cuts that took effect Jan. 1. The liberal Maine Center for Economic Policy pegs the revenue reduction resulting from tax cuts at $443 million.

LePage administration officials repeatedly emphasized that what they believe to be unsustainable entitlement spending drove them to propose difficult cuts. Millett and Health and Human Services Commissioner Mary Mayhew attributed most of the budget constraints to the loss of federal stimulus money, which has dramatically increased the state’s share of funding health care to low-income Mainers.

LePage’s proposed budget also relies on the office of policy and management, under the direction of former Appropriations Committee Chairman Richard Rosen, to find $10 million in additional savings in fiscal year 2014 and $20 million in 2015.

In his budget statement, LePage referred to the targets of that effort as the state’s “lowest-value programs,” which have yet to be identified.

Proposals to fill what Millett described Friday as a $112 million shortfall in the budget for the fiscal year that ends June 30 include tapping $40 million from the state’s budget stabilization fund, the state’s savings account, and delaying $18.5 million in June payments to schools until early July, which is in a new fiscal year.

Revenues from an anticipated estate tax payment and savings in various state accounts will help close the gap, Millett said.

In late December, LePage ordered $35.5 million in temporary spending cuts, including $12.6 million in aid to school districts and $13.4 million to the Department of Health and Human Services. The Legislature can alter those proposals as part of its consideration of the supplemental budget that the governor’s office released Friday. The state constitution requires a balanced budget.

Democrats, who criticized LePage’s prioritization of tax cuts over services for needy Mainers during the 2012 legislative campaign in which they reclaimed majorities in the Maine House and Senate, continued that theme after Friday’s briefing.

Pointing to LePage’s proposal to eliminate a state-funded Drugs for the Elderly program, House Speaker Mark Eves, D-North Berwick, said, “The governor is prioritizing tax cuts for the wealthy over medicine for our elderly.”

House Minority Leader Rep. Ken Fredette, R-Newport, praised Millett for presenting a budget that did not raise state taxes, especially at a time when Mainers are dealing with higher federal payroll taxes.

“We can’t borrow our way out and we shouldn’t tax our way out of the problem,” Katz said.

Quint, executive director of the Maine State Employees Association, said the union is “extremely unhappy” with the governor’s proposed budget, which continues a freeze on merit and longevity pay. He said reductions in the workforce will further stress state workers by spreading the workload to those who remain, but that the absence of significant layoffs in the proposal proved to be a relief.

A graph the governor’s office provided with the budget proposal Friday shows that the state’s workforce has decreased from 14,427 in 2004 to a projected 13,137 in 2015.

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