AFA Update- January 15, 2015: Budget materials, retirement, revenues & tax proposal

Materials

A guide to the highlights and the language portion of the Governor’s budget prepared by the Office of the Speaker of the House can be found here.

The Administration provided the following documents on Tuesday:

2016-2017 Biennial Budget Briefing

2016-2017 Biennial Budget Assumptions Personal Services

2016-2017 Unified General Fund Budget Table of Contents

2016-2017 General Fund Status (Biennium)

AFA meeting Wednesday, January 14, 2015

Wednesday afternoon the Appropriations and Taxation committees met with Sandy Matheson of the Maine Public Employees Retirement System (MePERS) and Mike Allen of the Department of Administrative and Financial Services (DAFS) Office of Tax Policy.  Executive Director Matheson provided an introduction and overview to Maine’s public retirement system while Deputy Commissioner Allen presented the December revenue report and further information on the tax changes proposed in the Governor’s biennial budget proposal.

MePERS- Public Retirement System
Executive Director Sandy Matheson walked the committee through the following presentation on the basics and status of Maine’s public retirement system and its individual plans.

  • At 81% funded, Maine’s State Employee and Teacher plan is stronger than at any time for which we have data
  • The trustees are recommending a change in the time period over which losses are amortized to reduce the impact of shocks such as the 2008 recession

December Revenue Report

Mike Allen of DAFS discussed the December 2014 revenue report with Appropriations.  General Fund (GF) revenues remain over budget in FY15, now $18.9M, that is above the updated figures from the most recent revenue reforecast at the beginning of December.  Drivers include growth in sales and individual income tax receipts.

Proposed Tax Changes

Dr. Allen then led both committees through a discussion of the Governor’s proposed changes to taxation as outlined in the biennial budget.  Allen provided a Fiscal Note for many of these changes.

Highlights of the discussion include:

  • The Administration claims that in FY2019, the end of the next biennium, the changes will result in a $300M tax reduction at full phase in. Recent reports dispute that figure.
  • Central to the plan is a change in the top marginal rate from 7.95% to 5.75% over 4 years. Allen noted that the rate has fluctuated over the years initially set at 6.0% in 1969 and resting at 8.5% until 2011.
  • Proposes to eliminate the tax on military pensions with the intent of impacting Maine’s demographics by attracting younger retirees)
  • Timberlake asked about the cost of providing the 100% military exemption. Dr. Allen replied that it is $10-$15M
  • Jorgensen asked to know how many states have this 100% exemption.  9 states have no income tax, 12 others fully exempt military pensions. Dr. Allen will provide information on how many people are impacted in Maine
  • Currently pensions are exempted from taxation at $10K this proposes to phase that exemption up to $35K. Maine does not tax Social Security benefits
  • Proposes a decrease in the corporate tax rate
  • Eliminates Corporate Alternative Minimum Tax (AMT)
  • Individual AMT eliminated in 2011

Corp 1

Corp 2

  • Proposes the elimination of the estate tax elimination in 2 steps
    • Conformity with the $5.5M federal exemption in FY2016 from the current exemption of $2M
    • Elimination of the estate tax in FY2017
  • Allen noted the Administration’s intent to modernize the tax system in response to growing portion of economy dealing with services

Sales

  • Eliminates credits and exemptions- analyzing how many tax expenditures to be eliminated
  • Eliminates itemized deductions
  • Creates new credit for medical expenses 5% of federal itemized medical expenses
  • Contributions to MePERS to be exempt from state taxes
  • Eliminate revenue sharing to municipalities in FY17
  • Local tax on non-profits with property assessed at more than $500,000
    • More than $60M for municipalities according to Maine Revenue Services (churches are excluded)
    • MMA says 150 towns have property eligible for tax
  • Expanded Property Tax Fairness Credit

PTFC

  • Chairman Goode of the Taxation committee asked if the Governor proposed changing the income limit for the program. Deputy Commissioner Allen replied ,No, the income eligibility remains at $40K under this plan
  • Under questioning it was admitted that the fiscal note and currently available impact analyses do not take into account what property tax actions towns may take in response to loss of Revenue Sharing
  • Seavey requested more detail on the changes to sales tax exemptions
    • Still Exempt:
      • Medical expenses
      • Mortgage payments
        grocery staples
      • home heating oil
      • motor vehicle repairs
    • Asked about the elimination of the Earned Income Tax Credit (EITC), Allen pointed to the expansion of “zero” bracket the group of taxpayers with no tax liability
    • Martin requested that the Administration give the committees scenarios displaying the impact of all the moving parts on individuals. The Administration agreed to do so but requested that they be provided with specific parameters and that requests be presented through the Chairs.
    • Chairwoman Rotundo asked Dr. Allen to share what analyses are currently being done and when will they be available?
      • Fiscal detail today
      • Impact of households across the spectrum
      • How many tax expenditures are being eliminated

Closing the meeting, Sen. Valentino asked questions about outstanding Financial Orders from the Attorney General’s Office.  Requests for consideration by the Governor include:

Replacement of the Office’s ability to perform x-rays

-Replacement of a Homicide prosecutor

-replacement of 2 Child Protective prosecutors

-Funding for Medicaid Fraud unit match dollars

It was agreed that this item be added to the next meeting agenda and that an invitation be issued to the Governor’s Office to address concerns.

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