June 4, 2013- Revenue and Priority Discussions

Dear House Democrats,

Tonight the Appropriations Committee, in collaboration with leadership, made a difficult but necessary decision toward getting closer to a budget. Democrats took the delay or repeal of the unfunded income tax cuts off the table as a revenue source. This was necessary because earlier in the evening, negotiations had stalled. It was a hard decision but one that was critical to moving the budget negotiation process forward.

During the committee’s deliberations, Democrats reviewed alternatives suggested by the Taxation Committee, including placing a penny on the sales tax and cigarette tax. In the next 24 hours, we expect more discussion on alternative tax proposals to come forward. While Democrats made a good-faith effort to compromise, Republicans remained silent about how they would prevent property tax hikes on middle class Mainers.

Tomorrow, we look forward to filling in the details, answering questions and talking next steps. Below please find a summary of the extensive work done by the committee today.

Thank you,

Mark

You can find this and past updates here: https://mainebudget2013.wordpress.com/

Tuesday

Tuesday afternoon AFA met to have further substantive discussion on the Governor’s budget.

Education

The meeting opened with a proposal to reconcile issues related to school funding. Sen. Cain presented the following scenario:

  •      Pre-curtailment 2013 funding restoring the most recent curtailment to school districts
  •       Flowing casino funds through the EPS formula instead of to special projects
  •       Accepting the Governor’s proposal to have districts assume the costs of 1/2 of teacher retirement ONLY IF the state increases the state share percentage by one percent per year until the state’s contribution reaches the statutorily mandated 55%

If the state fails to meet this goal the full costs of teacher retirement revert to the state.

This approach results in a $48.8M lower local contribution over the two year budget than that proposed by the Governor

By the end of the two year cycle when considered without retirement the state share rises from 46.6% (Pre curtailment) to 48.2%. Considered with the costs of retirement, the state share rises from 50.0% to 51.5%

Rep. Chase noted her appreciation for the work and effort put into the proposal. She raised concerns over the funds necessary to achieve 1% funding ($51M over the biennium). They also have reservations about the Governor’s mechanism of distributing the remaining 1/2 of teacher retirement to be paid by the state through the EPS formula.  Instead they propose distributing the funds on a per teacher basis to the districts.

General Assistance

Rep. Frey presented a proposal on General Assistance. The center of the proposal is to accept the recommendations of the General Assistance Work Group , a task force of experts and stakeholders created by AFA and convened by the 125th Legislature to examine GA.

The Democratic proposal accepts all of the recommendations of the GA Work Group. Further, DHHS calculated growth in GA at 13% for the budget as presented. Current estimates range from 3.4% to 10%, the final estimate obviously having an impact on the necessary funding. Recommendations focus on reducing fraud and streamlining the process for municipalities.

Representatives Clark and Keschl shared their enthusiasm for the approach being taken but expressed reservations that they hope can be resolved. They also expressed a preference for block grant approach to GA.

State Employees

Sen. Cain began discussion of a proposal on:

  • Merit pay
  • Longevity pay
  • Health insurance for state workers

The proposal rejects the Governor’s plan to eliminate Merit pay for the next biennium.

Resurrecting an past proposal, it has also been suggested that Longevity be frozen not eliminated. This has the effect of not removing money from the pay checks of those currently receiving longevity.

Another proposal seeks to replace the Governor’s proposal to freeze the State’s contribution to the costs of Health Insurance at FY 2010-11 levels, where they have sat during this current biennium. Instead rates would only be allowed to rise no more than the percentage increase of the medical care component of the Consumer Price Index (CPI).  In years after the upcoming biennium growth will be limited to the same factor plus 3%.

Education- GPA

Returning after a short break, the committee considered a pair of money saving amendments within GPA. The funding remains within GPA to be distributed to schools instead of used to fund positions at the department.

Municipal issues (Revenue Sharing, Homestead, Circuit Breaker & Property Tax Fairness Credit

Republican proposal

Rep. Chase started presenting her caucus’s proposal

Revenue sharing- $45M/$30M

Presenting a restoration to the Governor’s plan to fully suspend Municipal Revenue Sharing Rep. Chase noted that the above figures provides half of what towns received in the last biennium

Homestead- $50M/$50M

Citing a wish to focus on property tax owners, this proposal charges the State with funding the entirety of the benefit to homeowners.  25% of what towns received in the last biennium

LD 401- retail sales revenue sharing on new retail activity. The town would be allowed to keep 5% of new retail growth. Cost to the State for administration is $54K. Rep. Chase estimates that in past years Wells would have gained $45K.  The fiscal note estimates an FY16 loss of State GF revenue of over $1M.

Municipal Mandate Study- In response to municipal concerns about State mandates on municipalities the proposal creates a study, made up of MMA, DAFS & others, to review and recommend the

Nonprofit tax study- This refers to the study proposed to replace the Republicans plan to exact a 2% property tax on nonprofits to benefit the State.

Property Tax Fairness Credit

Replacement for Circuit Breaker- placed on income tax form and broadened to 190,000 recipients. The benefit limits would be $300 for those 69 years old and younger, $400 for those 70 years of age and older.

Total cost of Republican proposal: $155.1M

Democratic members raised concerns about the impact of the Property Tax Fairness Credit on municipalities with comparatively high numbers of renters.

Democratic Proposal

Rep. Carey shared a Democratic proposal.

Revenue Sharing $152,521,887
Homestead (transparent to homeowner) $8,768,000
Circuit Breaker/Property Tax Fairness Credit $29,199,804
Spending $190,489,691
Vs. last year ($83,685,466)
Vs. statute ($173,959,218)

Rep. Carey includes both study proposals as well.

Members discussed the merits of each proposal and their expected impacts on municipalities and taxpayers.  There is $444M between the two proposals.

Revenue

Sen. Hill initiated a discussion of sources of revenue for inclusion in the budget. She listed a number of revenue ideas raised during public hearings:

  • Sales tax
  • Meals and lodging
  • E-fairness
  • Tobacco revenue and equalization
  • Repeal or delay of tax changes
  • Review of tax expenditures

Sen. Cain, on behalf of AFA D’s, took the step of removing from consideration in the budget a “push” of the tax changes enacted in the 125th Legislature. Citing the tension that this has generated and the how unlikely it is that it could be part of a 2/3 budget Sen. Cain expressed a hope that this measure will open the potential for serious discussions on other sources of revenue. Sen. Hill highlighted how difficult a decision this was for us.

Sen. Flood thanked the Democrats on the committee for their gesture and acknowledged that his caucus will. Have to make similarly difficult decisions over the next two days.

Rep. Frey made an impassioned statement about the responsibility he feels to solve the problems in front of the committee. He expressed that the State needs to be responsible for its share of solving those problems and have open, honest discussions between both caucuses about revenue.

To this point none of the Republican members chose to speak and offer options.

Rep. Jorgensen expressed a desire to hear some discussion from the Republican caucus.

At this urging Rep. Chase spoke. They are not willing to look at any revenues without further cuts. Rep. Keschl once again touted the “Gang of 11” plan. Represented in LD 1496, the Gang’s has a final work session in front of the Taxation committee on Wednesday.

Rep. Carey pointed to several instances of taxes and revenues being raised in the Governor’s budget as proposed. He estimates over $300M of sales, income and property taxes imposed by the Governor’s budget.

A number of options, a menu, was delineated. It was noted that these are not additive items and are not proposed as a package.

  •       Cigarette $1.00 – $96M for the biennium
  •       Tobacco equalization- $20M for the biennium
  •       Meals and lodging 2 cents- $60M for the biennium
  •       Sales tax 1 cent- $267M for the biennium
  •       Tuition new  exemption- $1M
  •       Capitated tax deductions at $27K- $20M for the biennium

Sen. Cain raised that constituents continually tell her about how in the early 90’s the State was faced with a similar fiscal situation. At that time a temporary 1 cent increase in the sales tax was adopted. They ask her why we do not use that approach, question asked at public hearings for the budget.

Drugs for the Elderly and Medicare Savings Plan

Rep. Sanborn gave a brief overview of a plan to restore DEL and MSP. The Governor’s budget eliminated DEL and reduces MSP eligibility to 135% of FPL.  In response to a proposal from Rep. Chase to restore DEL to the same 135% of FPL and concerns about crossover payments, Rep. Sanborn researched the necessity of making crossover payments to providers.

Her research found that the federal government does not require the State to make crossover payments. It is Rep. Sanborn’s hope that this finding will result in greater cooperation from her Republican colleagues.

Rep. Chase expressed her enthusiasm for this possibility.

Sunday

Sen. Flood presented an amendment regarding, Line 615- funding for GED testing that generates $160K in savings without negatively impacting the services by working with a different vendor. The committee unanimously approved the amended initiative.

Rep. Rotundo offered an amendment to replace Language Part HH, originally proposed to permit the construction of a new $100M prison. The new language instead creates a feasibility study intended to determine the best course of action regarding a new facility.   The committee unanimously approved the amended initiative.

Part EEEEE initially proposing $800K of funding for the State Board of Corrections to support the operations of county jails was unanimously amended to provide $500K of support.

Also presented was a draft letter from AFA to the chairs of the Criminal Justice committee urging the inclusion of several issues in a planned study of the operations of the State Board of Corrections and the facilities they oversee.  The committee approved a slightly edited version of the draft.

The committee also unanimously approved a series of technical amendments relating to DHHS.

Schedule

Appropriations will continue to meet throughout the weekend both in caucus and on mic.

The full schedule may be found here: http://www.maine.gov/legis/ofpr/appropriations_committee/schedule_agendas/index.htm

Audio and more

Please feel free to join the committee as they do their work. You may also listen online using the following link: http://www.maine.gov/legis/ofpr/appropriations_committee/audio/index.htm

You also may watch broadcasts of these and other committee hearings on the Maine Capitol Connection pilot channel through Maine Public Broadcasting.  You may watch over the air or through your cable provider as well as online here: http://www.mpbn.net/News/MaineCapitolConnection.aspx

Thank you and please let me know if you have questions.

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