AUGUSTA — Top Republicans said they remain optimistic about their chances to pass structural tax reform this year, but Gov. Janet Mills and Democratic leaders have shown no signs of conceding to the minority party’s central demand amid record state revenues and surpluses.
The debate is expected to heat up next week as the Legislature’s tax committee takes up Republican tax reduction proposals and the budget-writing committee delves into Mills’ proposal for $900 million in spending initiatives that would be added to the two-year state budget passed in March.
At a news conference Thursday, Republicans urged Mills and Democrats to include some of their priorities, which include welfare reform, school safety and mental health care, in addition to tax relief, in order to receive bipartisan support.
Senate Minority Leader Trey Stewart, R-Presque Isle, said existing state services, along with public schools and municipal revenue sharing programs, are fully funded for the next two years after Democrats passed a partial $9.9 billion budget in March without Republican support. And now it’s time for structural tax reform, rather than piecemeal tax credits or one-time checks, he argued.
“What we’re talking about quite literally is the excess above and beyond everything else, and that’s what the fight is going to look like for the next month or so,” Stewart said. “That’s where you’re going to see the biggest contrast between Republicans and Democrats.”
Mills’ budget change package allocates another $900 million, which would bring the two-year budget to nearly $10.32 billion, which is about $2 billion more than her previous biennial budget proposal. Some of the additional revenue flowing into the state’s treasury is being transferred outside of the general fund budget to be used for one-time expenses.
Upon releasing the revised budget proposal, Mills and Democratic leaders in the Legislature spoke only of the need to invest in pressing issues, such as homelessness, affordable housing, food programs and emergency medical services. None of their statements mentioned tax cuts.
But Sen. James Libby, R-Standish, who serves on the tax committee, believes the growth of the state budget will cause Democrats to rethink their position since families continue to struggle to pay for basic needs. He said Republicans are looking for $400 million in income tax cuts, which is nearly twice as much as they were demanding earlier in the session.
“It’s the growth in the size of the budget,” Libby said. “I don’t think it’s a good sell for them. I think they’re going to realize that. Maybe I’m a little more optimistic than I should be.”
The Republicans’ news conference came several days after Kirsten Figueroa, commissioner of the Department of Financial and Administrative Services, laid out Mills’ opposition to additional tax relief.
On Monday, Figueroa told members of the budget-writing committee that Mills already has worked with the Legislature to provide $400 million in ongoing tax relief over the next two years by expanding the earned income tax and property tax fairness credits, increasing the amount of retirement pensions exempt from income tax and expanding student loan debt relief.
“Tax rates have not changed during this administration, and tax relief for Maine citizens has never been greater than under this administration,” Figueroa said.
That line was echoed by the lead Senate Democrat on the budget-writing committee in a written statement this week. Sen. Peggy Rotundo, D-Lewiston, said her party will look to include shared commitments in the budget, adding that “the $350 million in tax relief for working-class families already included in the proposed change package is a good start.”
Rotundo said the proposed spending is needed and widely supported.
“However, our caucus is committed to building on that by investing in child care, affordable housing, emergency medical services, paid family medical leave and other initiatives that make it possible for working families to thrive in Maine,” Rotundo said. “Many of these initiatives have strong, bipartisan support and are sorely needed by Maine families, communities and businesses.”
Republican leaders pushed back on Mills’ and Democrats’ claims of having provided ongoing tax relief, saying those programs were enacted as part of previous budgets, and pointing out that the state continues to take in more revenue than it needs to operate state government.
‘DOESN’T PASS THE SMELL TEST’
House Minority Leader Billy Bob Faulkingham, R-Winter Harbor, said Democrats’ claim that tax relief passed by a previous Legislature should satisfy Republican demands for structural relief in the current budget “doesn’t pass the smell test.”
“The government should not prosper off the backs of people falling further behind,” Faulkingham said. “We need to respect and support them (and) prioritize them over the special interests that exist off their tax money.”
Faulkingham said he would look to eliminate the roughly 400 new positions created in the proposed budget given that the state currently has about 2,000 positions it can’t fill.
Other than that, Republican leaders offered little information about their tax proposals, saying details will be worked out in committees beginning next week.
“I don’t want to overshare here today,” Stewart said.
Republicans, who are in the minority in both the Senate and House, lost much of their leverage to force tax cuts in March, when Democrats passed a partial budget to carry forward funding for existing services. The move removed any threat of a partisan stalemate leading to a government shutdown.
Figueroa formally presented the governor’s latest two-year spending proposal – referred to as Part 2 of the budget – to the Appropriations and Financial Affairs Committee on Monday.
Before delving into the details of the $900 million plan, Figueroa explained Mills’ rationale for not including tax cuts, saying that $233 million in revenue is expected to be one-time money and should be used for one-time expenses because nonpartisan revenue forecasters predict revenue will level off in the coming years. Using the funding for temporary expenses means it could be available to cover other cost increases in future budgets.
Figueroa said that existing bipartisan programs such as funding 55% of public education costs, returning 5% of sales and income tax revenue to municipalities and expanded homestead exemption programs will continue to grow in costs, as will state personnel costs and the cost of other bills enacted by lawmakers.
“To reduce those revenues by $200 million or $400 million would threaten the state’s ability to meet its ongoing, bipartisan commitments to Maine people,” she said, “unless to maintain a fiscally responsible and sustainable budget, you cut spending, which will mean reneging on commitments, or you find another way to increase revenues.”
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