Gov. Paul LePage’s budget proposal, which he summarized in a written statement to lawmakers and the public, will frame much of the next session of the Legislature. Below, we’ve annotated that statement. Our notes are interspersed with LePage’s text, which is in italics.
This budget also protects our state’s most vulnerable people, especially our elderly, who are already struggling to make ends meet.
Now more than ever, after well-meaning citizens voted on these initiatives with little or no understanding of how destructive they would be to Maine’s fragile economy, we are teetering on the precipice of a financial catastrophe.
I cannot in good conscience submit a budget that would exacerbate the damage to our economy and hurl the state over the edge.
I ask the 128th Legislature to join me in protecting our economy, our families, our small businesses and, most importantly, our elderly. I ask them to do no harm. Maine should not step back; we must continue moving forward.
Over the past six years, our administration has worked hard to move the state forward in a fiscally responsible manner, despite enormous challenges and fierce opposition from career politicians, special interest groups and the media. I was sworn into office on the heels of the Great Recession, the most damaging economic downturn in 80 years.
Financial markets had collapsed, Mainers from all walks of life were out of work and discretionary consumer spending – a key part of the sales taxes that fund state operations – was virtually frozen.
In the face of these challenges, our administration set out and executed a multi-year strategy of major structural reforms for state budgeting. We have confronted the toughest, most stubborn problems and fixed them for the long term—without using the financially irresponsible budget gimmicks employed by previous administrations. Instead of hiding from our state’s challenges, we took them head-on and got to work to begin Maine’s turnaround.
This required the ability and the fortitude to fix Maine’s political third rail: the deeply entrenched fiscal, budget and balance-sheet problems that threatened our state’s future. We tackled Maine’s staggering unfunded public pension liability, paid off the long overdue welfare debt to Maine’s hospitals and provided Maine families with their first income tax cut in 20 years.
We moved our state back from the edge of financial ruin and started it on the path to prosperity. It took brutal pragmatism and came at the expense of political capital, but it was the right thing to do and our approach worked.
More importantly, when I first took office, Maine’s top income tax rate was one of the highest in the nation.
Our efforts resulted in two significant tax cuts that lowered Maine’s top rate to 7.15 percent and allowed Mainers to keep more of their hard-earned money. Because of our solid financial management, I was named the nation’s most fiscally conservative Governor.
I inherited a Budget Stabilization Fund (BSF) that was zeroed out by the Great Recession. Over the last six years, we have built the balance to $122.7 million. While progress, this balance still represents an insufficient reserve for state government to rely on during the next economic downturn. It is in the best interest of the state’s fiscal health to make deliberate deposits. That is why my budget dedicates $40 million to bolster this important fund.
Our administration has significantly reduced the structural imbalance between spending and revenues that begins every budget planning cycle from $1.2 billion, when I first took office, to $165 million six years later. This marks the single lowest structural gap in the last 16 years, proving that significant, ongoing reforms – not one-time gimmicks – get real results for the Maine people.
The state’s financial position has improved, unemployment continues to be low, personal income growth is up, and the state is meeting its financial obligations.
Unfortunately, liberal special-interest groups are trying to reverse all of our fiscally responsible reforms. They poured millions of out-of-state money into Maine and hijacked our citizens’ initiative process to usher in a massive tax hike on our state’s small businesses and job creators. Thanks to efforts funded by wealthy, out-of-state unions and progressive groups, Maine has gone from moving in the right direction to having the second-highest top marginal tax rate in the country at 10.15 percent.
To counteract the damage that will be caused by this high tax rate, policymakers in Augusta must have a serious conversation about how we can work together to respect the will of the voters, while at the same time protecting our economy. Maine already ranks 44th in the Family Prosperity Index, which measures the strength and prosperity of families by combining the most important social and economic data into a single number.
We must work to improve opportunities for Mainers and their families to achieve their American dreams, not shatter them with high taxation and job losses.
California, which is a wealthy state, has the highest tax rate in the nation, but it kicks in at $1 million of income. Maine is not California. We are not a wealthy state. We do not have the jobs, employers, industry and investment California has. We cannot afford to chase professionals out of our state and watch our small businesses close because of this draconian new tax rate.
That is why my budget begins by delaying the Question 2 tax hike for one year.
In 2018, Maine will simplify its tax code by reducing the number of rates from three to two: a 2.75 percent bottom rate and a 3.15 percent top income tax. The new 3 percent surtax imposed by Question 2 will be applied to both rates, resulting in effective rates of 5.75 percent and 6.15 percent. By 2020, Maine will join the ranks of forward-thinking states, such as Massachusetts and North Carolina, in adopting a flat 2.75 percent tax rate on income. With the Question 2 tax hike, Maine’s effective statutory rate will be set at 5.75 percent for all Maine families.
My budget sends a message that we are cutting taxes, we welcome professionals and small businesses and we want working people to keep more of what they have earned.
We have fought to completely eliminate the income tax, which would be the biggest pay raise Mainers could get, but the Legislature does not have the political will to enact such bold tax reform.
So this budget simplifies the tax code and gradually reduces the top tax rate over the next three years. This will dramatically improve Maine’s competitive position in the global economy and prevent our job creators and high-wage professionals from fleeing our state.
By 2020, Maine families and small businesses will have seen a reduction in their income tax burden of more than $600 million a year because of tax cuts ushered in during my administration.
We will achieve this significant reduction, in a fiscally responsible manner, by cutting the size of state government and modestly expanding our sales tax base to reflect the current spending habits of consumers.
Another citizens’ initiative that will wreak havoc on the economy is the law to raise the minimum wage. Mainers agreed at the ballot box to raise the minimum wage, but they did not understand the consequences of the law they voted for. It will devastate the restaurant industry, prevent teens and low-skilled workers from getting jobs and push the elderly on fixed incomes deeper into poverty by raising prices on everything they buy.
The minimum wage hike will hurt the 325,000 elderly Mainers and others living on fixed incomes.
As the minimum wage increases so high and so fast, businesses will have to raise prices on goods and services to absorb the new labor costs.
The elderly will be forced to pay more for everything they buy—but they will not get a pay raise. While the minimum wage will go up $4 an hour, the average increase in Social Security will be just $4 a month.
This budget was crafted to assist the elderly and shield them from the sharply rising costs they will be facing because of the minimum wage law. As we continue to reduce the tax burden on working families and retirees, we will ensure our most vulnerable continue to receive the care they need and deserve. My administration has realigned the Medicaid program in a way that allows us to chart a new course and prioritizes the elderly, the disabled and those with intellectual disabilities while advancing common-sense welfare reforms.
In this budget, elderly and disabled Mainers account for more than 40 percent of those served by MaineCare. That is an increase of 35 percent since the beginning of our administration. In fiscal year 2019, it is predicted that the elderly and disabled will make up 45 percent of those served by MaineCare.
The budget includes more than $30 million to support increased costs for Medicare Part B and Part D. It also provides direct property tax relief to low-income and elderly Maine homeowners through the Property Tax Fairness Credit.
To ensure we have the infrastructure that allows a safe and efficient flow of commerce and citizens, this budget makes significant investments in our public infrastructure. The Highway Fund budget is 11.1 percent higher, which will allow for 1,200 miles of paving during the biennium. Funding for the Maine State Police has been transferred to the General Fund from the Highway Fund, directing more money to road repairs. In addition, this budget will support $2.3 billion of infrastructure investments identified in the MaineDOT Work Plan, with state funding supplemented by millions in matching federal and local funds.
This budget also makes important reforms in education funding. Rather than spend money on a bloated administrative structure, we will direct funding to where it is needed most: our students and our underpaid teachers in the classrooms.
With this budget, we are in a position to address the serious demographic challenges that face our state. We need to attract small businesses and successful professionals. We need to keep our families here and attract new families from other states and countries.
We need to give our young people the opportunity to stay and work in Maine and raise their own families here.
In addition to resources in the budget for direct property tax relief to help Maine families stay in their homes, I will introduce other stand-alone initiatives to reduce the property tax burden on Mainers. Municipalities will have the authority to collect service charges from large non-profit entities and to require land trusts to contribute to municipal coffers.
It is important to note that while executive branch agencies are essentially flat funded, the legislative branch and judicial branch have increased their spending. We have worked hard to reduce spending and reduce the growth of government. It has not been easy. The decisions we have made will have impacts across state government. But we were elected to make tough decisions on behalf of the hard-working Maine taxpayers—not legislators seeking the limelight or career bureaucrats actively resisting change—and we have done that.
This budget reflects my vision for an economically viable Maine in which families, businesses and future generations can thrive and succeed. Our state needs bold initiatives to make it a place where people want to live and work and an attractive destination for young families from across the country. This budget should serve as a roadmap not only for this legislature, but for future legislatures and future governors.
Our administration has proven that by responsibly introducing tax cuts and prioritizing state spending, we can allow Maine families to keep more of their money and still deliver the services demanded by the public.
Over the next two years, I hope we can work together to set Maine on the path to future prosperity. More importantly, I hope you pledge to do no harm to Maine’s elderly population and to our state economy.
Paul R. LePage
Read the full supplemental budget briefing below.