AUGUSTA, Maine — The budget gap Maine lawmakers need to fill has grown by about $60 million as they tackle Gov. Paul LePage’s proposal for a new two-year budget.
Financial projections released Friday by the state’s Revenue Forecasting Committee predict $60 million less than previously thought will flow into state coffers during the two-year budget cycle that starts July 1.
LePage said he’s preparing a package of amendments to his budget proposal as a result.
Lawmakers are already dealing with a tight budget in which LePage has proposed cuts to the state’s municipal revenue sharing program, property tax relief programs and a number of programs in the Department of Health and Human Services. LePage’s budget proposal was an attempt to address a structural budget gap that had grown to $880 million.
Democratic lawmakers, however, have opposed many of those cuts as part of their initial recommendations to the budget-writing Appropriations Committee, and members of the Education Committee recently voted to add $30 million in funding for public schools.
The Taxation Committee this week held public hearings on a number of bills that would raise the state income, sales and lodging taxes in an effort to generate more revenue for state coffers.
The $60 million downward tick in revenues over the next two years follows a one-time, $43.4 million revenue uptick for this budget year, which ends June 30.
Michael Allen, the state’s associate commissioner for tax policy, said that positive change was a reflection of a number of higher-income residents shifting income from 2013 into 2012 so they could avoid tax hikes on high-income earners that took effect at the start of the year as part of a partial rollback of the President George W. Bush-era tax cuts. New federal taxes that took effect at the start of the year connected with the federal Affordable Care Act are another factor, Allen said.
While the state is seeing an increase in individual income tax revenue from those changes, he said, sales and corporate income taxes are falling short of previous projections. They’re projected to continue falling short of previous projections throughout the upcoming budget period.
LePage, who has generally opposed raising state-level taxes, said in a prepared statement that lower revenue projections point to a need for “policies that reduce state spending, remove red tape and allow businesses to invest and create jobs.”
The revenue forecasting committee predicted individual income tax collections would exceed previous projections over the next four years while sales and corporate income taxes would slip below previous projections.
LePage said the uptick in income tax projections was the result of income tax cuts he signed into law two years ago that dropped the top tax rate and eliminated income taxes for 70,000 low-income earners. Allen, however, said the upward income tax projections reflect the fact that residents are claiming smaller mortgage interest deductions as a result of historically low rates.
Finance Commissioner Sawin Millett said the drop in state revenue collections is “not a temporary problem.”
“We must identify long-term savings for the Legislature to implement,” he said in a statement released by LePage’s office.
While the state is seeing $43 million in additional revenue this year, it doesn’t necessarily mean lawmakers will be able to save it until July 1 and use it to balance the next two-year budget. Some of the money might be needed sooner, Millett said in an interview.
“We’ll be looking at using [it] not only for filling the revenue gap but also addressing some known needs during [fiscal years] ’13, ’14 and ’15,” he said, using programs in the Department of Health and Human Services as one example.
John Martins, a DHHS spokesman, confirmed that “DHHS will have a need for some of these funds,” but didn’t offer further details.
Sen. Patrick Flood, R-Winthrop, who sits on the budget-writing Appropriations Committee, said the lower revenue projections add to an already steep budget challenge.
“It won’t help us get closer to a solution,” he said.
Rep. Peggy Rotundo, D-Lewiston, the Appropriations Committee’s House chairwoman, said the downward revenue projections, particularly in the sales tax category, indicate Maine’s economy isn’t recovering from the recession.
“To me, that’s the greatest indication of how Maine working families are doing,” she said. “The governor’s policies that have been put in place are not working as they should, and we are not seeing the same economic rebound in our state that we’re seeing in other states around the country.”