AUGUSTA — State lawmakers were bracing Thursday for a double whammy of bad budget news.
Gov. Paul LePage had until today at midnight to propose his plan for the state’s next two-year budget that begins July 1.
In addition, the governor is expected to release a proposal for more immediate budget cuts to plug a more than $100 million gap in the current two-year budget that expires June 30.
No details of LePage’s two-year spending plan had been revealed in advance, but Democrats, Republicans and their respective allies have been busy laying rhetorical groundwork for a proposal that is expected to include large spending reductions at the Department of Health and Human Services and other savings in an effort to protect a $400 million tax cut package that the Legislature passed in 2011.
The tax cut package received two-thirds support in the previous Republican-controlled Legislature, but the governor believes that the new Democratic majority will attempt to roll back the tax reductions during the coming budget debate. Over the last two weeks, LePage has touted the benefits of the tax plan, including in a video posted by his office and his weekly radio address.
LePage’s Republican colleagues also have defended the tax cuts on several fronts, saying the tax relief is especially important because Congress eliminated a payroll tax cut in the Jan. 2 fiscal cliff deal.
The cuts reduce the top income-tax rate from 8.5 percent to 7.95 percent and eliminate income taxes for about 70,000 Mainers. Supporters say the reductions will save a family of four with an income of $48,000 a little more than $300 annually.
The reductions went into effect Jan. 1, but the estimated lost revenues will be reflected in the state’s next two-year budget — the one LePage will present today. The state’s revenue forecasting committee has projected the budget must close a projected $880 million shortfall, 45 percent of which is represented by the tax cut plan.
Democratic leaders have not announced any specific plans to repeal the tax package, which would require some Republican support to overcome any potential LePage veto. Asked this week about repealing or delaying the tax cuts as a budget solution, Democratic leaders would only say that all options were on the table.
Advocacy groups, meanwhile, are gearing up for a fight over taxes.
Democratic-leaning groups have begun broadcasting the role of the tax cuts in ballooning the budget gap. The left-leaning Maine Center for Economic Policy, for example, released a report Thursday saying that the tax cut package “blew a nine-figure hole in the state’s balance sheet” when combined with a decrease in revenues due to the recession.
Republican-leaning groups countered that now was not the time to raise taxes or, in Maine’s case, roll back scheduled tax cuts. The Legislature’s House Republican Office on Thursday issued a media alert about an analysis by the conservative advocacy group the Maine Heritage Policy Center and a blog written by Matt Gagnon, the digital strategist for the Republican Governors Association. The gist of the MHPC report and the blog post were the same: Maine’s tax burden is too high and the tax cuts passed last session were necessary.
The parties also have been gearing up for other budget-related battles, too.
LePage has been championing the need to repay debts owed to Maine’s 39 hospitals, a priority that would likely mean added spending reductions everywhere else.
The state’s hospitals are owed $484 million in overdue Medicaid reimbursements. Maine’s share of the debt, some of which dates back to 2009, is $186 million. The state needs to repay that to release about $298 million in federal match dollars.
In last week’s radio address, LePage set the stage for a budget that will include paying back that debt, saying Mainers should “let lawmakers know that it’s time to pay the bills.”
Also, given that the Department of Health and Human Services and the Department of Education together represent nearly 80 percent of the state’s current budget, it’s likely that one or both will take a hit in LePage’s proposed budget.
Reducing education funding could be politically perilous for the governor. However, in a press conference on Wednesday, LePage did say that the state’s “failing” public schools may not warrant the increase in funding that he provided in 2011 when he directed an additional $63 million to education spending.
The shadowboxing over taxes and other issues on the eve of LePage’s budget announcement suggests that Republicans and Democrats are preparing for a public relations battle. The real work on the governor’s next two-year budget, however, will occur in the Legislature’s Appropriations Committee, with much of the negotiations behind closed doors.
The Appropriations Committee also will play a key role in the supplemental budget plan to plug the more than $100 million shortfall in the current budget. Most of that shortfall is driven by projected overspending in MaineCare, the state’s Medicaid program that provides health insurance for low-income residents.
Steve Mistler — 620-7016