Finish line | State budget approved, revenues on the rise
Budget signed, with complaints
- Gov. criticizes lack of welfare reform
- Compromise pushed budget through
Gov. Paul LePage signed the $6.1 billion two-year state budget into law, but immediately blasted lawmakers for only doing “half the job” and said that he will seek changes in the January session.
“They did cut taxes and they fixed the pension,” LePage said. “But, they did not do their job in welfare. They really fell short, they significantly fell short.”
He said he signed the budget because of the tax cuts, but further spending cuts will be needed for the state to recover from the recession. The failure to curb welfare spending means his administration will work this summer and fall on proposals for the January session to consider, he said.
Sen. Richard Rosen, R-Bucksport, the co-chairman of the appropriations committee that crafted the budget, said the panel and the Legislature did its jobs. He called the budget a package of compromises and said no one at the negotiating table got everything they wanted. He rejected the governor’s claim that there will be a budget gap in future years.
“When we look at the revenue growth that is expected even with the tax cuts … we still see enough growth to maintain the core services of government,” he said, noting significant reductions in areas such as the unfunded liability in the state pension system.
Rep. Emily Cain, D-Orono, the House minority leader, said no one is ever completely happy with a budget compromise, but said the governor got tax cuts, pension reform and welfare reform and should be pleased.
“The Legislature came to a point of compromise and agreement,” she said. “More than two-thirds of us thought it was the right thing for the state of Maine, so I would say we did the whole job.”
The budget reduces the size of state government by eliminating 259 unfilled positions, eliminates merit pay increases for state workers and changes longevity pay to reduce costs. It also includes an overhaul of the state pension system, but some key provisions, like the governor’s proposal for a 2% increase in employee contributions, was dropped. Retirees’ future cost-of-living increases are capped at 3% a year, but apply only to the first $20,000 of annual pension payments.
The budget also includes significant tax reductions, about $153 million, which is about $50 million less than LePage proposed. The top personal income tax rate is reduced from 8.5% to 7.95%, and Maine businesses get a boost under a provision that aligns Maine depreciation of assets with the Section 179 federal provision. That allows more investments to be written off in the same year they are made.
Transportation panel upset with budget
- Two attempts for new funds spiked
- Appropriations offers alternative
Members of the Legislature’s Transportation Committee were so angry they threatened to vote against the state general fund budget because it did not include funding they expected for road and bridge repairs.
“I am not happy with the way things worked out in reference to the highway fund,” said Sen. Ron Collins, R-Wells, the committee co-chairman.
Gov. Paul LePage proposed using $20 million from general state revenues to help pay for highway fund programs, and then revised the amount to $10 million. But the appropriations committee eliminated the funding during its deliberations.
“This has to be about priorities,” Collins said. “What I hear from my constituents is they want us to fix the highways and roads, and that should be a priority.”
The transportation budget and the general state budget are related. The highway fund receives most of its revenues from fuel taxes, and the general fund gets revenue from sales and income taxes, as well as other smaller sources of funds. Maine State Police are funded by both budgets, in addition to its own appropriation of $20 million; the Transportation Committee wanted the general fund to pick up two-thirds of the cost of the state police, which also failed to win appropriation’s approval.
Sen. Doug Thomas, R-Ripley, said the appropriations committee has to balance all of the needs of the state, not just transportation items. It put two items in the budget to provide some aid for transportation projects: one dedicates a small portion of the sales tax on rental cars to the State Transit, Aviation and Rail Transportation Fund, a $3 million per year allocation expected to draw down about $27 million in federal dollars; the other dedicates 25% of the revenue expected from the renegotiation of the state’s wholesale liquor contract. Rosen said the panel expects the revenue for the 10-year life of the contract will exceed $40 million a year.
Revenues up in May, surplus predicted
- Tax revenues exceed forecasts
- Welcome news for bond ratings
Even after the somewhat pessimistic forecast of state revenues in April, May revenues were $18.7 million above projections, prompting Finance Commissioner Sawin Millett to expect a “solid” budget surplus at the end of the budget year June 30.
“This is good news,” Millett said of results. “We were concerned about some of the line items, like the sales tax, and whether the high gasoline prices would drive down consumer spending. But sales tax revenue was up $3.4 million for May.”
He said all three major state tax sources — personal income tax, corporate income tax and sales tax — were above revised projections, an indication that the economy is continuing its slow rebound out of the recession. He was, however, perplexed by the personal income tax continued growth while unemployment rates have been steady around 7.6%.
“It is somewhat of an enigma,” Millett said. “We don’t see a lot of increase in the number of employed people; we do see some increase in the number of hours worked by those who are employed.”
Until employment starts to grow, the state will not see significant growth in revenues, he predicted. He said he will be watching the summer tourism season closely to see if both sales and income taxes show growth.
Sen. Richard Rosen, R-Bucksport, co-chairman of the panel, said he was pleased the corporate tax continues to outpace projections, a reflection of larger businesses continuing policies to conserve cash and make cautious investments.
June revenues are continuing to meet or exceed estimates, said Millett, the reason he is confident the state will end the budget year June 30 with a “significant” surplus.
That will be welcome news on appropriations, where there’s been concern about depleted reserves used to fund emergency budget measures.
“It’s an important indicator that the state can manage its fiscal house,” Rosen said. “When we talk about our bond rating, our level of debt and our reserves, those are all positive signs for the bond houses.”
Rep. Peggy Rotundo, D-Lewiston, said the state over the last few years has been struggling to keep adequate reserves as revenues fell and the costs of programs continued to rise. “This will be a help and I hope show the bond houses we are on the right track,” she said.
Millett said the actual size of the surplus will not be known until after the books are closed in late July or early August.
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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