AUGUSTA — The House of Representatives gave initial approval Thursday to a controversial bill that would forestall a $40 million cut in state revenue sharing with cities and towns by tapping the state’s rainy day fund and an account designed to reduce income taxes.

Democratic proponents said the bill, L.D. 1762, should pass because cutting revenue sharing would force municipalities to raise property taxes or reduce spending on such services as education, police and fire protection, and road maintenance.

But opponents, mostly Republicans, argued that tapping into the rainy day fund – money set aside to cover budget shortfalls or other expenses – would damage Maine’s credit rating and make it more costly for the state to borrow money for transportation, economic development and other needs.

Some Republicans sided with the Democratic majority to support the bill, reflecting the political consequences of casting a vote that could be construed in an election year as favoring an increase in property taxes.

But others opposed it despite the political ramifications, including Rep. James Gilway, R-Searsport. “I know this vote today will be used against me, to defeat me in the upcoming election,” he said. “But I don’t care, because we need to get this right.”

Maine law says that 5 percent of the sales tax and income tax revenue collected by the state should be shared with cities and towns. But the state now shares only 3.5 percent, says the Maine Municipal Association, because the Legislature has held onto the money to use for the state budget. In 2012 alone, the state kept $44 million that should have gone to municipalities, the association says.

As a percentage of city and town budgets, state revenue sharing varies widely.

In Portland, which has a $215 million municipal budget, Mayor Michael Brennan said recently that the city will lose $3 million – 1.4 percent of its budget – if lawmakers don’t block the revenue sharing cut.

Other communities are more dependent on state funds. Presque Isle City Councilor Mike Chasse told lawmakers last month that revenue sharing cuts since 2008 accounted for about 12 percent of that city’s budget.

The bill considered Thursday would fill a shortfall in the state budget that lawmakers approved last year. In crafting the budget, lawmakers came up $40 million short and decided to give the job of finding the money to a special committee.

That panel, which met last fall, was supposed to review sales tax exemptions and tax credit programs and recommend changes that would generate $40 million in additional revenue. But the committee was unable to reach an agreement and, by default under the budget bill, the $40 million is to be taken from state revenue sharing.

The bill was the source of a squabble earlier this week when Democrats on the budget-writing committee voted on it Monday while Republican members were absent, prompting a full day of accusations and competing claims of dirty tricks and lying.

The fight diminished Tuesday when Sen. Patrick Flood, R-Winthrop, said the Republicans had missed the vote because of a miscommunication between him and Democratic leaders on the committee.

However, Thursday’s floor vote rekindled some of that fierce rhetoric, as Democrats gave preliminary approval to the bill on a 114-21 vote after nearly three hours of floor debate and nearly a half-dozen Republican attempts to delay the vote. Many Republicans spoke against the bill, but 30 of them joined the Democratic majority in the final vote. Some lawmakers left the chamber and were not recorded in the roll call.

Several additional votes are required for enactment. The bill next moves to the Senate, which could take it up as soon as Tuesday.

Republicans have said that Democrats are fast-tracking the bill to make it appear that Republicans don’t support restoring the state’s financial commitment to Maine’s cities and towns. Combined with other cuts over the past several years, that commitment would be down 79 percent in 2015 if the latest $40 million reduction is made.

Republicans also object to raiding the state’s rainy day fund, saying it would jeopardize Maine’s credit rating.

Sawin Millett, Gov. Paul LePage’s finance chief, has issued similar warnings, citing last year’s assessment by Moody’s Investor Service, which assigned the state a negative outlook in part because it had a “minimal” rainy day fund.

Rebuilding the fund would improve the state’s bond rating, according to Moody’s 2013 analysis. LePage said this week that he will suspend all state borrowing if the revenue-sharing bill survives his veto.

Rep. Kenneth Fredette, R-Newport, the House minority leader, said Thursday’s vote was a politically motivated move that followed a flawed process. He pointed to the vote by the Appropriations Committee on Monday when no Republicans were in the room.

“That’s fundamentally wrong in a democracy,” he said. “We have time to do this the right way.”

Democrats said they pushed the vote because cities and towns are planning their budgets now.

Rep. Adam Goode, D-Bangor, said he could not be complicit in a state budgeting trend that would cause a “massive” tax shift to property taxpayers, or explain it to constituents in his district. He also addressed Republicans’ objections to a provision in the bill to take $4 million from an income tax relief fund that was established in 2011. He said the state’s commitment to cities and towns is a higher priority.

Rep. Linda Sanborn, D-Gorham, said Republicans’ claims that they want to restore revenue sharing seemed insincere because they had not offered a counterproposal. Sanborn also referred to comments the governor made last year when he was pushing a plan to repay the state’s debt to Maine’s hospitals. She said LePage urged lawmakers to “pay our bills,” but hasn’t shown the same urgency in fulfilling the state’s revenue sharing promise.

Democrats have tried to ease concerns about taking money from the rainy day fund. They have included a funding mechanism that would take $21 million from an anticipated revenue surplus and immediately replenish the fund.

Rep. Jeff McCabe, D-Skowhegan, said it’s important to pass the bill now to avoid inevitable property tax increases, or decreases in municipal services. He also downplayed Republicans’ concerns over tapping the rainy day fund, saying the Republican-controlled Legislature drained $27 million from the fund in 2011 to balance the budget and help pay for a $400 million income tax cut.

Thursday’s vote was the first of what could be many floor votes on L.D. 1762. House members have until 2 p.m. Friday to offer amendments.

Steve Mistler can be contacted at 791-6345 or at:

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