April 02, 2020

State surplus to provide welcome row > Some consensus emerging

AUGUSTA — Of all the complicated issues the Legislature has to deal with this session — from forestry to utilities deregulation to the prison system — one thing is clear. They have a lot of money.

After years spent figuring out where to cut and how much to cut, the revenue surplus estimated at more than $200 million will define the session which begins Wednesday.

But most people are not acting like they’ve got a blank check. Leaders in both parties, as well as Gov. Angus King, talk about the revenue cautiously, suspiciously, as if they have found money that they’re not sure is theirs to spend.

Some legislators say the surplus is a result of people being overtaxed and should be returned to them as soon as possible.

On the other hand, after years of budget shortfalls, there are lots of people and programs hoping to get more money from the state.

In spite of differences in political philosophies, as the session approaches, lawmakers sound more moderate and closer together on the issues than might be expected in an election year, with less talk about huge tax cuts and big spending projects and more talk about paying bills and saving money.

There is an emerging consensus on meeting the obligations the state has, increasing funding for education, and providing some kind of tax relief, according to House Speaker Elizabeth Mitchell, D-Vassalboro.

Of course, that doesn’t mean it will be easy.

“The devil will be in the details,” said Senate President Mark Lawrence, D-Kittery. He said the parties are not far apart, but predicted the debate will be on “how much goes to education versus tax relief versus paying your bills.”

“I think there’s a lot of common ground,” said GOP House Leader James O. Donnelly, R-Presque Isle. “Everyone talks about tax reform, but it just comes down to how much we can do. We all want to pay our bills, but everyone has a different spin on what that means.”

Senate Minority Leader Jane Amero, R-Cape Elizabeth, said that while the stated goals of both houses, parties and the governor’s office are “similar,” it remains to be seen “who’s going to produce.”

“The governor has said that we must decrease the overall tax burden in this state, and I think he must show his commitment to that goal in this session,” she said.

King’s priorities in the coming session will be tax relief and his $26 million emergency spending bill. He said he will support any proposed suggestions for the revenue surplus as long as they provide “real tax relief.”

“We have to be very careful to avoid proposals that would result in permanent changes, should the economy turn sour,” he said. “We just don’t know how long we can count on these revenues. Therefore we must not make unsustainable cuts [in taxes]. Any decreases must be achieved slow and steady.”

King’s legislative agenda is still being refined, but much of it will be detailed in his anticipated Jan. 21 State of the State address. The governor’s supplemental budget request is his only bill among about 450 pieces of legislation before lawmakers thus far. King can submit bills as long as the 118th Legislature remains in session, a session the Democrats have said will be finished by the end of March, under budget and at least a couple of weeks ahead of schedule.

Mitchell said, “We’ll start with what we agree on,” such as adding more money to the rainy day fund, increasing funding for schools, and spending some amount on unfunded liabilities.

“Unfunded liabilities, like borrowing money from the Maine retirement fund, is kind of obscure — it’s not something the public lies awake nights worrying about,” said Senate Majority Leader Rochelle Pingree, D-North Haven. But she said she’s surprised by what she has heard from constituents. “When I take the ferry, when I’m in the coffee shop, people say, `If I get extra money, I pay off my credit card debt.”‘

After years of economic problems, people in Maine seem wary of the surplus, several legislators said. People are asking for tax cuts, but aren’t interested in “relief” that just shifts the burden. Lawrence said Democrats have heard a lot of “don’t give it to one pocket just to take it from another.”

There’s a lot of talk about fixing the system that has created such a surge in revenue, rather than just seeing it as a windfall. But that doesn’t mean that fundamental tax reform — changing the system to try to prevent the large swings in revenue that exaggerate the ups and downs of the economy — is likely.

“I think people are fearful of reform,” said Pingree, “and of the issue of taxation. It has become the focus of election campaigns.

“Coming out of a recession, and with the economy more volatile, people are afraid to take big risks,” she said. “The Legislature is more conservative in its spending habits now and more prone to compromise. That means a little of everything is likely, not one big thing.”

Mitchell said that while fundamental changes in the tax code are unlikely to happen this session, there are smaller reform efforts that may well be possible: Instead of adding sales tax to more things, for example, an effort which failed last year, they could lower the sales tax on items such as cars and washing machines, but keep it at the same rate for boats and other luxury items.

While some people have asked for wholesale changes to the property tax system, Mitchell also said the state could help relieve the property tax burden in smaller ways, such as paying for more of the things it requires from towns. She suggested increasing funding for schools, setting up a pool of money for school construction loans, and having the state help pay for students with special needs who have to be sent to another district to get an education.

For Republicans, priority No. 1 is returning to the pre-1991 sales tax rate of 5 percent. That rate was raised to 6 percent in 1992 as one of several mechanisms to close a yawning gap in the state budget. Lowering the tax rate by a cent would decrease revenues by about $114 million annually.

“We really think that is an important need in this state right now,” said Amero. “The Legislature promised that in good times, the penny would be returned and this is about as good as it’s been in a long time. The money’s there and we need to reduce the sales tax.”

Other GOP tax relief initiatives include eliminating the snack tax and raising the standard minimum income tax deduction of $2,150 to match the federal level of $2,650.

Both parties and the governor have agreed that the contingency account known as the rainy day fund needs more money, and the legislative and executive branches all support increasing state funding for education by 5 percent to help both property taxes and schools.

The governor’s $25.6 million emergency spending proposal includes money for the youth center and adult prisons, for community mental health programs, and for children with special needs. It also includes funding that some legislators argue is not an emergency, like increasing compensation for judges or funding for tourism promotion.

Mitchell said she hopes after legislators have agreed on the priorities to pay off some of the state’s debts, increase money for public schools, and cut taxes, they then will begin to address other “unmet needs.”

There are many needs, she said, mentioning funding for school construction, the university system, mental health, medical care for the elderly, and corrections as top concerns. “The Maine Youth Center — that’s not a new expenditure, it’s a disgrace,” because it so desperately needs funding, Mitchell said.

Mitchell also believes the State House needs repairs and renovations, and has submitted a bill to do that which Republicans said they would be interested in reviewing.

A task force has recommended a plan for expanding health care coverage to an estimated 15,000 more children in Maine. About $20 million in federal and state money is available for the first year of the program, which would be run by the Department of Human Services starting as early as this spring, if approved by the Legislature.

A handful of forestry bills developed to address a variety of timber harvesting issues in the aftermath of this year’s failure to enact the Compact for Maine’s Forests will also preoccupy much of the Legislature’s time this session. Political parties have yet to align with any of the initiatives and the governor says he intends to make his views known on the various bills.

Another complicated and important set of issues is how to solve the problem of “stranded costs” that are expected with the deregulation of Maine’s electrical utilities. Those costs, defined as the difference between what it now costs utilities to produce a kilowatt of electricity and what they’ll be forced to charge in a free market, could exceed $1 billion.

As far-reaching as those issues are, however, what to do with the surplus will be the framework for the session, pulling everything else together.

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