June 16, 2009

124th Legislature Session Wrap-up

by Rep. Sawin Millett

The end of the First Session of the 124th Legislature came at 2:16 a.m. on Saturday, June 13. Over the course of six months, legislators enacted a new two-year state budget, authorized a $150 million bond issue, passed a Highway Fund budget of $630 million, dealt with about 1,500 individual bills and passed a tax package that lowers the income tax rate but expands the 5 percent sales tax to scores of services and thousands of small businesses.

Let’s look at these items by category:

State Budget – For the first time since the 1970s, the state’s spending will decline. The budget for the 2010-2011 biennium, which starts on July 1, is $5.8 billion, down by about $500 million from the previous budget. The new budget utilizes $610 million in stimulus funds and draws $116 million from the Budget Stabilization Fund and Working Capital Reserve Fund – the so-called “rainy day” reserve. Without those extra sources of funds, the budget writers would have had to cut more than $1 billion.

The budget makes cuts in numerous programs, all necessitated by the ongoing economic downturn that has seen state revenues decline by $1.1 billion since January. Homeowners will feel some of the cuts in the form of $140 million worth of pressure on property taxes from reductions in revenue sharing and aid to local schools. The Homestead Exemption will drop to $10,000 in the budget’s second year, and property tax rebates will decline by 20 percent in the Circuit Breaker program.

The budget also imposes a 20-day shutdown of state government over the next two years, with most shutdown days timed to coincide with holiday weekends. State employees, including legislators, face a two-year pay freeze; and all will, for the first time, begin paying towards their health insurance coverage. State workers already pay 40 percent of insurance costs for family members.

Bonds – Governor Baldacci proposed a $306 million bond issue, and legislative Democrats sought a $275 million package. In light of the state’s existing debt and the economic crisis, Republicans insisted on no more than $150 million, which was the final amount. Roughly half of the bond money will go for transportation needs, including $55 million for road construction. The transportation package, which will go to the voters in November, also includes $5.75 million for ports and smaller amounts for rail improvements, ferries, aviation, bulkheads and Lifeflight helicopter ambulances.

The bond proposal features $25 million for economic development, such as $8 million to redevelopment initiatives at Brunswick Naval Air Station. Another $10.3 million is targeted for wastewater and drinking water infrastructure projects, and $18 million is reserved for ocean and wind energy projects and weatherization. The bond proposal includes $15.5 million for higher education and $9.5 million for the Land for Maine’s Future program and preservation of working waterfront areas.

Voters will decide whether to issue these bonds in three elections over the next 18 months.

Highway Fund – The highway budget usually slides under the radar screen, but this year it was contentious and wasn’t settled until the session’s final minutes. After weeks of discussion, the two sides finally agreed to a two-year, $630 million budget that addresses road needs and funds the Department of Transportation, the Bureau of Motor Vehicles and the State Police. A Transportation Committee proposal to raise the fuel tax by 11 cents (to about 40 cents per gallon) over four years was defeated when legislators decided that raising taxes during a recession was bad policy. Approximately $9 million from other accounts was shifted to a road maintenance program to “skim coat” some 300 miles of road. The Highway Fund has been augmented this year by $130 million in stimulus money for highway and bridge work, including the reconstruction of I-295 Northbound from Topsham to Gardiner.

Tax Policy – In the biggest change to Maine’s tax structure in 40 years, the Legislature approved a plan to lower the top income tax rate from 8.5 percent to 6.5 percent while expanding the sales tax to cover hundreds of services and activities. It also raises the tax rate on meals and lodging to 8.5 percent. Republicans opposed the plan due to its adverse impact on small business and the job losses that are expected after the change takes effect on January 1.

Rep. Sawin Millett (R-Waterford) is serving his sixth term in the House. He currently serves as the lead House Republican on the Joint Standing Committee on Appropriations & Financial Affairs.

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