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Maine's $40 Million Budget Hole: No Easy Answers
01/22/2014   Reported By: A.J. Higgins

A $40 million problem in the state budget created last year now has to be solved. And it's creating a sharp rift between municipal officials and Maine's business community. Unless lawmakers can find the money somewhere else, the burden will fall to Maine's cities and towns. Some have suggested that the money instead be taken froma fund that provides tax relief for businesses. As A.J. Higgins reports, critics claim that could translate to lost jobs.

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The effort to redirect $40 million in municipal revenue sharing funds to Maine's cities and towns reopened some old wounds from last year's state budget battle. At that time, Gov. Paul LePage sought to cut revenue sharing by $200 million. But the Legislature voted to override LePage's budget veto, and restore $125 million, while setting a $40 million placeholder for the second half of the budget cycle to allow lawmakers more time to find offsetting savings.

Now the bill has come due, and municipalities will take the hit if those savings aren't identified. Appropriations Committee House Chair Peggy Rotundo says Maine's cities and towns will almost certainly be looking at local property tax increases.

"If the state doesn't keep its promise, no town will escape the choice between cutting bare-to-the-bone services or raising property taxes - and many will have to do both," Rotundo said.

Majority Democrats are coalescing around a plan that would take an undetermined amount from the state's $60 million budget stabilization -- or Rainy Day - fund to head off the new round of revenue sharing cuts. Four million dollars would also be transferred from the tax relief fund, and the scope of tax relief benefits under the Business Equipment Tax Reimbursement Program, also known as BETR, would be narrowed.

Lawmakers are drawing lines in the debate that they say pits corporate welfare against municipal welfare. Maine Senate President Justin Alfond says state government won't save a dime by cutting revenue sharing.

"This is a classical false choice," Alfond said. "If we break our promise of revenue sharing, we will simply be shifting the costs to our towns, to our homeowners and to our business property owners. They will pay the price. I don't believe anyone here wants to do that, no matter which political party you belong to."

Two of the state's big lobbying groups, the Maine Municipal Association and the Maine State Chamber of Commerce, turned out large numbers of their members to voice opposing views on the plan. Bill Cohen, spokesman for Verso Paper in Bucksport, says his paper mill is struggling, and that reducing tax relief benefits under the BETR program would be a blow to an industry trying to survive on a razor-thin margin.

"Yesterday I walked through the mill, four paper machines in a pulp mill dead silent," Cohen said. "It's down. Five hundred employees taking an unexpected two-week vacation because of high natural gas and the soft market. I really, sincerely hope that's not a harbinger of what's ahead of us."

Under its original 1996 provisions, the BETR program contained a 12-year limit on eligibility that was subsequently extended to the lifetime of the property. Linda Caprara, of the Maine Chamber of Commerce, says BETR has already taken a 30 percent cut in benefits and that the program can't sustain anymore reductions.

"We believe further cuts to BETR are nothing more than playing Russian roulette with the future businesses in this state, the economy and jobs," Caprara said.

Proponents of the Democratic plan tended to avoid asking lawmakers to choose between corporate welfare and municipal welfare. Instead, they asked the state to keep its promise by returning its share of the tax receipts that it collects from Maine communities.

In Bangor's case, City Council Chairman Ben Sprague says that amounted to $1.2 billion in taxable sales last year. Still, with last year's municipal revenue sharing cuts and rising costs, Sprague says Bangor had to hand city residents a 6 percent increase in their property tax bills.

Sprague says he's not sure that Bangor will weather further revenue sharing losses without forcing additional property tax increases.

"Quite honestly, I can envision a scenario where then upward pressure on property taxes encourages more people to move out of Bangor, leaving the burdens to fall on a declining number of property taxpaying residents," Sprague said.

Sawin Millett, the state's chief financial officer, told the Appropriations Committee that any efforts to reduce the $60 million that's currently been built up in the state's Rainy Day Fund would almost certainly have a negative impact on the state's bond rating.



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