LePage’s budget proposal shifts costs people who can least afford it, raises taxes, and could cripple Maine’s economy

Property taxes will go up dramatically if LePage’s two-year budget proposal is enacted

January 12th, 2013 · Filed under: Budgets, Business & Innovation, Capitol news, Community Maine, Economy, Issue 35, Issues · No Comments

State Capitol in winter. Photo Ramona du Houx

“This is one of the biggest tax increases the state has seen in a very long time, and it’s shifted to our municipalities, on our businesses, on poor people, and the middle class,” said Senate President Justin Alfond. “We don’t think that’s the way to build the economy. These are the governor’s priorities. These are his values.”

The governor’s two-year $6.2 billion budget proposal starting July 1 will eliminate state funds for programs that help the elderly pay for medicine, will gut property tax relief, and cut state funding to cities and towns, hurting thousands of Maine families and stifling the state’s weak economy.

“Thousands of Maine families can expect their property tax bills to skyrocket, if Governor LePage’s proposed budget is approved,” said Garrett Martin, executive director of the Maine Center for Economic Policy (MECEP). “The budget directly increases property taxes for 75,000 households by an average of $462, and as much as $1,600 for some households. At the same time, income taxes will go up for families who can least afford it, because of proposed changes to income tax brackets.

That subtle tax bracketing change to the state’s income tax indexing will result in a projected increase of more than $8.6 million in state income tax collections over the two fiscal years beginning July 1, and an estimated $1.5 million in subsequent years.

Martin based his comments on MECEP’s analysis of the impact of the governor’s proposal, which cuts more than $400 million in funding for cities and towns,  cuts property tax reductions, and increases educational expenses for local districts. The budget also calls for flat state funding for education and an increased local share of the cost of teachers’ pension plans — impacting cities and towns even more.

“A shift in educator retirement cost to the local communities is a prime example of the giant shell game Governor LePage is playing,” said Lois Kilby-Chesley, president of the Maine Education Association.

LePage’s proposal would eliminate revenue sharing for the next two years. State revenue sharing is paid from a fund that holds five percent of yearly sales tax revenue. Taking away this funding stream would devastate local town and city budgets, forcing up property taxes, while property tax relief would also be cut.

“The governor is trying to balance the state budget on the backs of towns and cities,” said Eric Conrad, a spokesman for the Maine Municipal Association (MMA). “If costs shift to towns and cities, they will be forced to cut spending and to lay off workers, further hurting the economy.”

The past few state budgets have underfunded revenue sharing to cities and towns because of cost shifting.

Bangor Citiy Councilman Joe Baldacci said, “The cuts for Bangor are over $7million- $7million. That would amount to laying off if not cutting 150 teachers, policeman, fireman and public works employees. Our public safety would be at risk, our children’s educations will suffer and economic development would be impeded. The LePage budget proposal was not put together with any input or discussion from any municipality in this state before it was presented.”

Portland should have received more than $9 million in this fiscal year from revenue sharing, under the state’s original formula, but the city received just $6.1 million.

“There has never been anything as radical and far-reaching as this proposal,” said Portland Mayor Michael Brennan. “It affects every municipality across the state — I can’t believe legislators would support such a radical proposal.”

LePage’s budget proposal ends funding for the Drugs for the Elderly program by cutting nearly $40 million over three years.

“The governor is prioritizing tax cuts for the wealthy over medicine for our elderly,” said Speaker Mark Eves.

LePage said the budget reflects a crisis caused by “out-of-control” welfare growth in MaineCare.

“Our state is facing an economic crisis, and we need to examine our spending practices, evaluate our delivery of services, and gain control of our welfare system,” his statement read.

MaineCare, the state’s version of Medicaid, provides health insurance and prescription drug coverage for the elderly, disabled, mentally ill, and the poor. Seventy percent of enrollees are either children, seniors, or individuals with disabilities. MaineCare payments go to hospitals and health-care providers to provide services — not directly to eligible individuals. According to the Department of Health and Human Services, the total funding for the MaineCare program has been largely flat since 2006. Last year, enrollment in the program was cut in the budget.

MaineCare caseloads have increased since 2002. That growth has been directly linked to the recession, when nearly 20,000 seniors and people with disabilities who receive help with prescription drugs were enrolled.

“The governor and the administration have made choices, and those choices have led to the budget deficit” said Sara Gagne Holmes, executive director of Maine Equal Justice Partners, an advocacy group for low-income Mainers. “And now he’s using that deficit to justify significant cuts to a majority of Maine people that will result in significant harm.”

LePage’s policies have been a major contributor to the state’s ongoing budget crises.

A new MECEP analysis, “Revenue Collapse Creates Budget Gap: Maine’s Budget Challenges Are Due to the Recession and Recent Tax Cuts,” found that “the recent recession and tax cuts enacted over the past two years are responsible for the $881 million budget gap over the two-year budget cycle that begins July 1, 2013.”

Maine’s recent budget gaps happened because the LePage administration’s policies hurt Maine’s economy, as the state emerged from the recession. In 2011, Maine was the only state in New England where the economy shrank. It is one of three states in the nation to have revenues fall below projections this year. With fewer revenues because of tax breaks and a climate of economic uncertainty — because of LePage’s outspoken ways and policies — budget gaps have occurred.

“Governor LePage created a false crisis through his tax breaks for the wealthy, and now he’s looking to make the middle class and the poor pay the bill with cuts to health care and local schools,” said Maine People’s Alliance Communications Director Mike Tipping.

The tax breaks in the LePage biennial budget, passed in 2011, only provide the average middle-income Maine family with $119. The top one percent, however, could get back almost $3,000. These tax cuts, which largely benefit the wealthy, contributed to a significant portion of the shortfall, accounting for over $400 million or nearly 45 percent of the structural budget gap. The changes cut the top income tax bracket rate from 8.5 percent to 7.95 percent.

“My budget proposal before lawmakers includes necessary reforms and achieves a budget that meets the needs of people while protecting our financial and economic security,” said LePage said in a statement.

Every other New England state but Maine had significant job growth last year. Maine could have increased the workforce by LePage releasing bond funds, already voter approved, for transportation, education, and land preservation. But he refuses to allocate those funds for jobs. Maine’s roads are visibly deteriorating, along with its economic security. Past governors have shown that it is possible to make necessary cuts by eliminating work that state government had been duplicating, while being able to continue to invest with bonds. Responsible consolidation policies have worked, and some members of the Appropriations Committee, like Rep. Peggy Rotundo, would like to bring back some of these types of cost-saving policies.

“We will be reviewing all proposals and weighing our options,” said Appropriations House Chair Peggy Rotundo. “There will be many opportunities for all members of the committee and the public to ask questions about the impact of the governor’s budget.”

The Appropriations and Financial Affairs Committee works on all budgets before they are voted on. The committee will begin reviewing the governor’s budget later this month.

By law, 49 states have to balance their budgets to be fiscally responsible. How they accomplish that task reflects their elected officials’ priorities and principles.

“We need a balanced and responsible budget that won’t undercut our state’s economy or harm our effort to grow the middle class,” said Sen. Alfond. “This budget will raise taxes on the middle class, small businesses, and the poor. Maine needs a budget that strengthens our towns and will get our economy moving.”

Maine Majority’s executive director, Chris Korzen, weighed in, stating, “This budget proposal hurts Maine’s middle class and threatens our economy. It is unconscionable and fiscally irresponsible to expect Maine’s hardworking families to shoulder the burden for a tax cut that the rich didn’t need. Our path forward requires investments in education, job creation, healthy families, and a clean environment. We can’t cut our way to prosperity.”

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