Budget quandaries
Tax panel debates cuts
- Depreciation, estate taxes targeted
- Distribution of benefits weighed
Gov. Paul LePage submitted a budget with $203 million in tax cuts over the next two years, but the cuts that actually become law will likely be significantly different.
Sen. David Trahan, R-Waldoboro, co-chairman of the taxation committee, said the governor deserves praise for proposing a significant reduction in taxes, but he does not believe LePage’s proposals are targeted enough to Mainers. “I don’t see how there will not be changes,” he said. “There are always changes in the budget and we will take our lead from appropriations on how much we will have for tax relief and we will want to make sure the tax relief goes to Mainers.”
The big-ticket items for this tax year are for business tax deductions. The budget proposes the state conform to federal law on bonus depreciation rates, which would allow a company to write off the cost of new equipment and machinery in the same year it is purchased instead of depreciating the cost over a period of years. State law currently allows only $25,000 a year to be claimed under that provision. The budget proposal would match the federal limits for 2011 and 2012, which are $500,000 this year and $125,000 in 2012. According to Maine Revenue Services, about 14,000 individuals and 3,000 corporations claim depreciation or expensing every year.
Trahan is concerned that as drafted, the bonus depreciation proposal will largely benefit multi-state corporations. “I want to make sure the bulk of that money stays in the state of Maine,” he said.
Democrats have criticized a plan to modify the estate tax to double the value allowed for tax exemption from $1 million to $2 million of inheritance as unfairly benefiting Maine’s wealthy. “Windfalls for the very wealthy or tax giveaways to primarily out-of-state corporations are not effective economic development,” said Rep. Seth Berry, D-Bowdoinham, the lead Democrat on the tax panel.
Sen. Richard Woodbury, I-Yarmouth, an economist who serves on the tax committee, praised the thrust of the governor’s proposal, saying the tax burden needs to be reduced to stimulate job creation. “Many of the elements of this, I think, are exactly going in the direction Maine should go,” he said. “It does come down a bit to whether the affordability is there right now.”
Some of the proposals become effective this year but others don’t take effect until 2013, such as a proposal to lower the top personal income tax rate from 8.5% to 7.95%. The budget also proposes the state adopt the federal level for standard deduction and for the personal exemption starting in 2012.
DHHS red ink threatens budget
- Medicaid, hospital payments imperil reserves
- Lawmakers surprised by shortfall
Maine owes the federal government nearly $30 million after a court found the state overcharged for Medicaid reimbursements dating back to 2002 and 2003.
Adding to the fiscal pain, increased participation in Medicaid programs has upped costs for the current year by as much as $30 million. And it gets worse — Department of Health and Human Services Commissioner Mary Mayhew says payments to hospitals have exceeded budgeted amounts this year by at least $66 million.
Mayhew told lawmakers her agency did not adequately project the need for increased Medicaid services in the recession. “You have to stop bringing me bad news,” quipped Rep. Patrick Flood, R-Winthrop, co-chairman of the appropriations committee. “This has serious impacts on getting this budget year back on track and for the biennial budget we are working on.”
Mayhew said the problem with hospital payments was first uncovered last fall, but was not addressed by the previous administration. “We are taking steps to address the overpayments, and we are looking at the Medicaid utilization and drilling down to find out what the numbers really are,” she said.
Hospitals will see lower or no payments until the overpayments are recouped. Many are receiving tens of millions to pay unpaid bills from years ago, so they are not facing a cash flow crisis as a result of the mistake.
Members of the appropriations committee thought this year’s budget was brought into balance by the supplemental budget passed in January. Finance Commissioner Sawin Millett said the panel was aware of the court case and set aside funds in the budget to pay the expected amount, but it will leave a hole in the current budget that ends June 30. Meeting the needs for the rest of this budget year will likely drain state reserves, he said. “We have about $36 million in reserves,” Millett said. “I do not think that will be enough to meet all of the demands we are seeing.”
Insurance fraud unit eyed
- Maine would join 42 other states
- Trial lawyers question need
Every year, hundreds of complaints of possible insurance fraud are made to the state Bureau of Insurance. Sen. Nancy Sullivan, D-Biddeford, says it’s time to create a unit at the bureau devoted to investigating and prosecuting them.
“The people who are selling insurance are asking for this,” she said. “And we all know that it is going on here in our state like it is in other parts of the country.” Sullivan has sponsored similar legislation in the past, but was spurred to introduce it again this session after receiving her car insurance bill in the mail with a statement that she would have saved $100 if there were no fraud in the system.
Sullivan said she expects the unit would have staff to investigate complaints and an assistant attorney general in the AG’s office to prosecute cases. In 2007, fraud was estimated to cost Mainers $750,000 a year, about 25 cents annually per insurance policy issued in the state.“This would not be a General Fund item,” Sullivan said. “This would be paid for by the assessment on insurance companies that funds the bureau.”
Sullivan said 42 other states have similar fraud units. The bureau did a report for the Legislature two years ago that concluded a dedicated unit should have broad authority to investigate all areas of insurance fraud.
Before becoming Superintendent of Insurance, Mila Kofman was on the faculty of Georgetown University and did research on health insurance scams that led to a congressional probe of such fraud. “When government fails to protect businesses and individual consumers from the criminal element, it is a failure,” she said in testimony when the study was released. Kofman agreed a dedicated fraud unit is a good idea, but is concerned about the cost.
The legislation has been traditionally opposed as an unneeded cost in Maine by the Maine Trial Lawyers Association. The latest data from the bureau, from 2009, documented 332 incidents of suspected fraud reported to law enforcement or other agencies, up only two reports from 330 in 2005. “This [unit] will not be paid for by the insurance companies,” said MTLA lobbyist Richard Thompson. “It will be paid for by higher insurance premiums paid by consumers.”
Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz. Read more of Mal’s columns here.
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