While Gov. John Baldacci threw a few election-year goodies into budget plans announced last week – including an offer to kiss every new baby in Maine with a $50 gift certificate toward a college-savings account – K-12 education and health services for the poor continue to consume the greatest share of the state’s new revenues.
The governor’s $178 million proposed supplemental budget earmarks all of the state’s surplus revenue – save $2 million – but would put $35 million of it in the state’s rainy day or reserve account.
The surplus revenue was largely a result of increased capital gains, corporate income and estate taxes, including a $17 million windfall from one estate in October.
The budget also proposes to give some taxes away in the form of tax exemptions. The costs included in the budget – totaling a little more than $2.5 million – cover lost revenue for just a year or two, even though the tax breaks will continue for years to come, unless the exemptions are repealed – something that almost never happens in Maine.
The $50 gift certificates offered to parents of the 13,000 new babies expected to be born this year will be good toward starting a NextGen College Investing Plan offered nationally by Merrill Lynch and administered here by the Finance Authority of Maine. The $50 will come from administrative fees collected nationally on the NextGen accounts, and FAME anticipates 20 percent of eligible families will take advantage of the offer. No taxpayer money will be involved in the program.
Republicans promise to review the governor’s budget with an eye toward supporting one-time emergency expenses versus those that grow new programs. The budget is supposed to be a supplement to the $5.6 billion, two-year budget passed by the Legislature last year.
“I’m going to be doing everything I can that comes up with a document that Republicans can support,” said Sen. Richard Nass, R-York, who sits on the Appropriations Committee, which will begin reviewing the supplemental budget next week. “Obviously the Democrats would like to have a bipartisan budget.”
“He loaded it up with campaign stuff,” Nass said of the governor’s budget, but “we’re obligated to take care of some of the problems we know about.”
Those problems total more than $70 million in spending related to the Department of Health and Human Services. Proposed expenditures include:
n $31.5 million to cover a shortfall in the Medicaid account
n $7 million for consulting services to help fix the Medicaid computer billing problem and restructure the Medicaid office
n $4 million to reimburse Medicaid providers for interest owed during the time they weren’t being paid properly through the Medicaid billing system
n $23 million owed to the federal government for taking over drug coverage for the state’s elderly poor and disabled
n $9 million to cover settlements required by audits of DHHS books
The state Department of Education is requesting $42 million including:
n $18 million to cover the state’s share of local education after overestimating enrollment declines and underestimating teacher salaries.
n $4.3 million for schools losing funds under the new Essential Programs and Services funding formula
n $8.6 million for the state’s share of underestimated special education costs
n $6 million in the state’s share of the $10 million cost to replace laptop computers in the seventh- and eighth-grade
n $6 million to replace school aid the Legislature took out to balance last year’s biennial budget in violation of new state law requiring the state to pick up 52.6 percent of education costs in 2007.
The tax breaks in the budget include a film tax incentive funded at $495,000 to encourage more movie-making in the state; funding a less restrictive definition of domicile when it comes to paying Maine income tax for $848,000; restoring the Maine child care credit to 25 percent of the federal credit and conforming with the federal student loan interest deduction for a cost of $1 million; excluding from Maine use tax any aircraft purchased outside of Maine that is minimally used in Maine for a cost of $144,000; exempting military retirement plans from the income tax for any person who retires here on or after Jan. 1, 2007, for $94,000; and, a refundable historic rehabilitation credit to a developer that owns two or more structures located in the Kennebec Arsenal District National Historic Landmark, limited to $500,000 per year for four consecutive tax years beginning in 2007.
Independent state Rep. Dick Woodbury of Yarmouth, the House chair of the Taxation Committee, said he favors fewer exemptions, not more.
“The more exemptions you put in the system, the higher the rate needs to be. As a general principal, I favor a tax system that has fewer exemptions and taxes a broad range of economic activity that allows you to have a lower rate for everybody,” Woodbury said.
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