AUGUSTA, Maine — The only Republican senator on the Appropriations Committee proposed late Friday afternoon to replace all or part of Gov. Paul LePage’s unpopular plan to cut municipal revenue sharing for the next two years with a tax hike on large nonprofit organizations.
Democrats countered with a call to roll back tax cuts enacted earlier this year that passed two years ago under LePage and the GOP-controlled Legislature.
The committee has been working for months to hammer out a budget bill for the two-year period that begins July 1, but for the most part members have not addressed its most controversial and impactful elements. That process began in earnest Friday afternoon and is expected to continue through the weekend. The committee hopes to pass the budget bill on to the full Legislature by the middle of next week.
Sen. Patrick Flood, R-Winthrop, introduced a proposal that would allow municipalities to tax large nonprofit organizations, which he estimated could generate up to $100 million per year to help offset the impact of the state budget on local property taxes. Flood’s proposal would allow the assessment of income taxes on nonprofit organizations with gross annual receipts of at least $200,000 and total assets greater than $500,000. The tax would apply to private schools, private colleges, hospitals, nonprofit groups and charitable foundations but would not affect state universities, local government entities, public schools and religious institutions.
Flood proposes a 2 percent tax for those organizations on any assets in excess of $250,000.
“We’re all looking for options for communities as they deal with property taxes,” said Flood. “Every option that we’re looking at is a lousy one and we have to pick the best.”
Flood suggested that the measure could be temporary or crafted as a local option that municipalities could decide on individually.
“I expect fully that there will be many people who won’t like this at all,” said Flood. “Our job is to look at options that are out there and talk freely and openly about them and then come to some mature judgment about what makes sense or doesn’t make sense.”
Flood and others said they were concerned that a proposal of this magnitude coming forward so late in the session wouldn’t allow time for the public to weigh in.
“The public hearing challenge is pretty paramount,” said Rep. Michael Carey, D-Lewiston. “The scope of what we’re talking about and the time frame in which we’re talking is tough.”
Carey had some weighty proposals of his own, including rolling back income tax cuts for high earners and reducing cuts proposed by LePage on individual homestead exemptions and the circuit breaker program. Carey estimated that the package he proposed could restore some $183 million of the roughly $200 million in municipal revenue sharing that LePage proposes cutting. Carey said towns all over Maine are struggling to deal with the revenue sharing cuts. That includes his hometown of Lewiston, which would lose $4 million, an amount nearly equal the cost of the Police Department.
“It’s been said this winter and spring that there’s money that can be cut at the municipal level,” said Carey. “My experience in my community is that in the past few years, money has been cut. It’s not our role to reach into 500 different communities and cut their budgets.”
Republicans blamed increased spending on social programs run by the Department of Health and Human Services for the state’s budget woes.
“One area [of state spending] has risen dramatically and that’s the area of DHHS programs,” said Rep. Dennis Keschl, R-Belgrade. “I’m sitting here saying, how can we get a handle on this? I don’t know what the answer is.”
Committee Co-Chairwoman Peggy Rotundo, D-Lewiston, agreed that DHHS is expensive, but said the real culprit behind the exacerbated budget is the recent cuts to the income and estate taxes.
“These cuts [to revenue sharing and property tax exemptions] wouldn’t be happening if those tax cuts two years ago had not gone through,” said Rotundo. “That’s something that our caucus thinks a lot about.”
Rep. Kathleen Chase, R-Wells, said repealing or delaying the tax cuts, the bulk of which took effect in January, should be off the table.
“There’s got to be a solution somewhere but it is not the tax cuts,” she said. “Those tax cuts are there to benefit the people. To take that away now, you would be doing a tax increase. I think we need to give that program a chance.”
The committee expects to discuss some of these new ideas Saturday.
Correction: Because of an editor's error, the headline on an earlier version of this story incorrectly stated that churches would be taxed under the proposal. Religious institutions and public schools would be exempt from the new tax.