AUGUSTA — State lawmakers have lots of ideas about what to do with a projected $461 million in surplus tax revenue, including funneling it into public schools, nursing homes, health care programs or even the state’s savings account.
But while Democrats are looking for ways that government could use the money expected when the state closes its two-year budget on June 30, Republicans have their own priorities, the highest being to give some of that money back to Mainers in the form of tax credits.
The state’s Revenue Forecasting Committee upgraded the tax revenue picture last week and will issue its formal written report early this week. But conversations about what to do with the extra cash have already started at the State House.
Gov. Janet Mills’ press secretary, Lindsay Crete, said the administration was developing three proposals, including a bonding package, a plan for using the recently announced $1.8 billion coming to the state from the federal American Rescue Plan Act, and a supplemental budget.
“These proposals are different from one another and will be offered separately,” Crete said. “However, they are intended to complement each other in supporting Maine’s public health response, driving short- and long-term economic recovery and job growth, and improving essential infrastructure such as broadband, child care, schools and roads and bridges.”
Crete said the supplemental budget would reflect Mills’ longstanding priorities of investing in “the health and well-being of Maine people and in our kids and our public education system.”
She said Mills also wanted to remain “fiscally cautious” and recognizes that while the economy appears to be recovering from the effects of the COVID-19 pandemic, it was still also in a period of uncertainty, which the Revenue Forecasting Committee declared last week. To that end, Crete said Mills would likely propose placing some of the surplus revenue into the state’s budget stabilization – or “rainy day” – fund.
Legislative Democrats say they intend to work with the Mills administration as it advances its supplemental budget package and other proposals on bonding and the American Rescue Plan Act.
Rep. Teresa Pierce, D-Falmouth, House chair of the Appropriations and Financial Affairs Committee, offered a list of priorities, including public schools, higher education, workforce development, revenue sharing for city and town governments, and higher reimbursement rates for home care providers.
As for tax credits for those who worked through the pandemic, Pierce said that would be an “ongoing conversation,” but she did not commit to the idea. She also pointed out that many small businesses were still struggling to regain their footing.
“Many of them just still aren’t up and going, and we need to pay some attention to that as well,” she said.
The state’s constitution requires a balanced spending package, which means the extra revenue will need to be accounted for either by spending it or saving it or even possibly returning some of it to taxpayers.
Republican leaders have competing ideas for using the surplus, which they detailed in a statement late Friday from their leaders, Sen. Jeff Timberlake of Turner and Rep. Kathleen Dillingham of Oxford.
Their top priority is tax relief, in the form of a $10,200 income tax exemption for taxpayers who did not receive one for unemployment income. The unemployment tax exemption was built into the new two-year state budget by the Legislature, which is controlled by Democrats.
Republicans also want to increase the homestead exemption reimbursement to municipalities from 70 percent to 100 percent, meaning cities and towns would recoup the revenue they forgo when homeowners take the $25,000 property tax exemption.
In addition, Republicans are proposing an increase in state revenue sharing with municipalities, from 3.75 percent to 5 percent.
Timberlake and Dillingham said in their statement that their plan “funds needs not wants” and protects taxpayers.
“Income and property tax relief goes directly to workers, property owners and municipalities rather than new government programs,” they said. “Other financial support goes to frontline workers, and programs that serve citizens impacted by the pandemic. One-time spending can also be used for economic development grants. The investments we are supporting will benefit Maine as a whole.”
The highly detailed statement also listed 55 pieces of pending legislation that were seen as priorities, in such areas as health care, economic and workforce development, criminal justice reform, environmental protection and infrastructure.
Politically, the surplus is a windfall for Mills, who faced early criticism from Republicans for growing state government spending with her first budget. That budget, which ends June 30, increased spending by about 11 percent compared to the last budget of her Republican predecessor, Gov. Paul LePage.
Fears of a deep state revenue shortfall, triggered by an economy severely constricted by the pandemic, seemingly imperiled the budget for the next two fiscal years. In July 2020, economic forecasters warned that Maine could face as much as $1.4 billion revenue shortfall over a three-year period.
But that deep shortfall never materialized, as sales and income tax receipts outpaced projections, largely because of federal stimulus aid. The new $8.3 billion state budget, which goes into effect on July 1, was effectively a flat budget that included no tax increases.
Republicans have also claimed that Mills has or would spend down the state’s rainy day savings fund. In reality, she has increased it by $50 million, and its balance now stands at $267.9 million, the largest in 20 years. The fund is a key metric for the state’s bond rating, which determines the interest rate the state pays when it borrows large sums of money for new roads, bridges, buildings or other infrastructure projects.
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