Task force seeks to end $40 million in tax breaks to avoid more cuts to revenue sharing

The State House in Augusta.
The State House in Augusta. Buy Photo
Posted Oct. 21, 2013, at 5:59 p.m.
Last modified Oct. 22, 2013, at 8:41 a.m.

AUGUSTA, Maine — Pressure is growing on the panel tasked with finding $40 million of savings in the budget in order to avert further reductions in revenue sharing that some have said would decimate municipalities around the state.

From a distance, it might look easy. There are billions of state revenue dollars lost to tax expenditures and carving $40 million from that number would seem like a piece of cake. The Business Equipment Tax Reimbursement, or BETR, program alone is worth $70 million.

In reality, it’s complicated: Each tax expenditure is meant to serve some goal, such as encouraging business development, reducing the burden of student loans on college graduates, or shielding purchases of life necessities, such as groceries, from taxation. Broad program eliminations or reductions would have ripple effects in Maine’s economy, so the panel’s charge is to find a way to raise revenue fairly.

The assembled group of lawmakers, economists and others that comprise the Tax Expenditure Review Task Force held their third meeting Monday at the State House, during which the group held its first public comment session. The group must have its recommendations ready by December.

The savings must be found in order to balance the budget approved by the Legislature in June. If they are not, the $40 million will be taken from municipal revenue sharing, a program already cut down to only $60 million in the biennial budget.

Gov. Paul LePage had proposed totally suspending revenue sharing — then worth about $200 million — during the 2014-2015 budget. The specter of those cuts rankled municipal leaders, teachers and others in the public sector, who said they forced municipalities and school districts to eliminate necessary public services or raise property taxes. Ultimately, the Legislature restored about 30 percent of the program, but still, the appetite for further cuts is nonexistent.

“If this $40 million comes out of revenue sharing, the program will effectively be eliminated,” said Geoff Herman, director of state and federal relations for Maine Municipal Association. “If you fail on this, there is very serious damage done to local government.”

Still, every tax break has its constituency, and many of those constituencies have advocates in Augusta. Though it couldn’t offer any policy suggestions, Linda Caprara of the Maine Chamber of Commerce urged the task force not to cut any tax expenditures, which she said are necessary to keep businesses in Maine. But she also said reductions to revenue sharing would be unpalatable because of the property tax increase it would likely cause.

“Reductions to revenue sharing or getting rid of these programs is going to be a tax increase [on businesses], either way,” she said. “I suggest you look at surplus or rainy day funds, if it exists, but we don’t have any suggestions at this time.”

At a recent meeting with conservative women, LePage said the state had $47 million in surplus, but that he was hiding the money from Democrats. He later said he was joking.

Other commenters targeted large companies operating in Maine, saying their tax breaks should be the first on the chopping block. The top programs were BETR and its sister, BETE, or the Business Equipment Tax Exemption program.

“Within the BETR program there are seven notable corporations receiving subsidies totaling over $20 million,” said Mary Ann Turowski from the Maine Employees Association in written testimony. “These corporations are General Electric, Nestle, Walmart, TD Bank, Irving Oil, Home Depot and Rite Aid. There are roughly 1,800 businesses in Maine that receive this subsidy, but these seven corporations receive approximately 28 percent of the BETR pie. Is that the most effective way to expend this money?”

Maine People’s Alliance, one of the state’s preeminent liberal advocacy groups, also said the money should come from tax cuts offered to businesses. The total cost of tax expenditures on the state is a difficult number to pin down, but the MPA’s Ben Chin told the panel that he estimated the state would lose $2.2 billion in the 2014-2015 budget because of tax breaks for businesses.

“We would suggest capping the level of direct tax subsidy a corporation can receive — particularly large companies like Walmart that really are not in any kind of financial trouble, pay their workers low wages and then rely on a host of state services like Medicaid to subsidize their workforce,” Chin wrote in testimony.

If the task force opts to find the $40 million by hitting programs that benefit businesses, its recommendations will likely divide the Legislature along partisan lines. Eliminating expenditures will be seen by some conservatives as a tax increase on businesses, while liberals will likely view the proposal as simply closing a loophole in the tax code.

Ultimately, the task force has yet to arrive at any firm conclusions about which programs it will target. The general consensus seems to be that programs aimed at increasing access to “necessities of life,” such as food, are safe, while other incentives for businesses and individuals are still on the table.

“We need to take the time to look at everything and really do the best we can,” said task force member Merrill Barter, an accountant from Portland.

The group meets next on Nov. 4.

Follow Mario Moretto on Twitter at @riocarmine.

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