AUGUSTA — Gov. Paul LePage’s final two-year state spending plan, delivered to the Legislature late Friday night, includes sweeping cuts to state spending including the elimination of 500 state jobs, new reductions to Maine’s income tax, a complex overhaul of the state’s public education funding system and new reforms meant to reduce welfare dependency and grow jobs.

The ambitious $6.8 billion proposal in many ways encapsulates LePage’s governing themes while repeating previously failed initiatives including a renewed attempt to eliminate the state’s estate tax.

Read Gov. LePage's budget proposal

The changes are needed, according to LePage, if the state hopes to attract new businesses and become more prosperous.

Highlights in the budget include reducing the state’s top income tax rate from 10.15 percent to a flat income tax of 5.75 percent and reducing the state’s corporate income tax from 8.93 percent to 8.33 percent.

The budget highlights also suggest LePage’s proposal will attempt to “modernize Maine’s sales tax base to reflect current consumer habits.” LePage has previously proposed increasing and applying the state’s sales tax to a broader range of goods and services. The new proposal would extend the sales tax to more services including amusements and recreation such as concert and ski lift tickets; household cleaning, lawn care and snow removal services; and barber shops, hair salons and spas. The proposal would also increase the lodging tax paid at motels and hotels from 9 percent to 10 percent.

The budget also proposes increases in funding to the University of Maine System as a means to maintain current tuition levels and seeks to repeal and replace the state’s funding formula for the K-12 education system.

Another portion of the proposal includes funding aimed at helping students who attend Maine’s university system or the Maine Maritime Academy with zero-interest student loans.

Other portions of the budget direct $55 million of surplus revenue to the state’s budget stabilization fund, otherwise known as the “rainy day fund.” LePage has long pushed state budget writers to increase funds in the state’s savings account as a means to lower state costs when it borrows money through the bond process.

The budget proposal also includes provisions that would ask voters to approve a $50 million borrowing package for the Maine Department of Transportation to use to continue improvements to the state’s highways and bridges.

LePage also is offering a guaranteed “property tax fairness credit” of $400 for Mainers 65 or older with incomes of less than $20,000.

The proposal also again attempts to give cities and towns the option to charge large nonprofits like hospitals, colleges and land trusts fees in place of property taxes they are now exempt from.

It will now be up to lawmakers in the narrowly divided Legislature – where Republicans control the Senate by one seat and Democrats the House by five – to likely dismantle and then enact the budget before June 30 to avoid a state government shutdown.

The budget that lawmakers finally adopt might look nothing like what LePage offered Friday.

LePage’s new budget clearly looks to offset ballot questions approved by voters in November, including one that tacks a 3 percent surcharge on household incomes over $200,000.

“Now more than ever, after well-meaning citizens voted on these initiatives with little or no understanding of how destructive they would be to Maine’s fragile economy, we are teetering on the precipice of a financial catastrophe,” LePage wrote in his budget summary. “I cannot in good conscience submit a budget that would exacerbate the damage to our economy and hurl the state over the edge.”

Earlier this week, the LePage administration sent preliminary layoff notices to at least 26 social workers in the Maine Department of Health and Human Services’ Office of Aging and Disability Services.

The so-called “intent to layoff notices” informed the employees – who work in South Portland, Bangor and several other offices – that the proposed budget does not contain funding for their positions beyond June 30.

Mary Anne Turowski, director of politics and legislation for the Maine State Employees Union SEIU Local 1989, said the 26 positions are case workers in the aging program.

“It’s ironic that this is a population that he wants to improve services for and yet he is eliminating positions within the department,” Turowski said.

House Minority Leader Ken Fredette, R-Newport, told reporters Friday that House Republicans, like LePage, believe the state would be best served with no state income tax. Fredette said LePage’s latest budget again moves the state in that direction while trying to offset the voter-enacted 3 percent surcharge on Maine households earning more than $200,000 a year.

“When you look around the country, those states that are prospering are the states that don’t have income taxes,” Fredette said in advance of the budget release.

“This governor has been committed to continuing to drive down and lower the income tax.” That tax cut is sure to be a sticking point in negotiations with Democrats.

Also Friday, House Speaker Sara Gideon, D-Freeport, said Democrats in the Legislature would carefully review LePage’s proposal but any tax cuts would have to be part of a bigger overhaul of the state’s tax system.

“Any conversation about income tax cuts has to be within the context of full tax reform,” Gideon said. “It has to have a revenue component as well. We are looking for a budget that works for Maine people, that helps grow the economy, that gets people out of poverty.”

The governor is obligated under the state’s Constitution to present the Legislature with a budget every two years. The current budget expires on June 30. Lawmakers must have a balanced budget enacted by July 1 or be forced to shut down state government. That hasn’t happened in Maine since 1991.

Fredette, a staunch LePage ally, said Friday that lawmakers would have to get to work right away once they had the proposal, telling reporters that the Legislature will have the final say on the state’s next two-year spending package. He said LePage and House Republicans will stick to their promise to reduce income taxes and spending.

“The governor proposes and the Legislature disposes,” Fredette said.

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