Breaking down Gov. Mills’ supplemental budget
Last week, Governor Janet Mills’ office released their much anticipated supplemental budget proposal following her annual State of the State address. The governor made several points in her speech, looking back at the last three years since taking office but also casting a vision of the future through several policy proposals included in the bill language of her supplemental budget.
It would spend around $810 million of the $822 million projected revenue surplus, funds extracted from Mainers through taxation above what the state government originally planned to spend. Much of it, about $640 million, would be one-time spending, with about $73 million of increased spending to be built into the baseline budget.
Mills has offered $411 million, half of the projected surplus, as another round of direct payments to Mainers. The proposal would send $500 to each full-time resident of Maine who made less than $75,000 in 2021 ($150,000 for married couples). Mills has framed this as outreach to legislative Republicans, who have called for returning extra revenue to taxpayers since October. This round is in addition to the $371 million spent to send $285 to each of the same pool of taxpayers last year.
Maine Policy Institute (MPI) has been vocal about returning money to taxpayers as well, arguing last June for paying down tax rates instead of sending checks to taxpayers. Yes, this would mean reduced revenue in successive budgets, but since the state budget has grown from less than $7 billion to $8.5 billion in less than four years, Mainers could use a tax (and spending) reduction. Instead, they’ll get a small refund sometime between July 1 and December 1.
That’s why this session, MPI submitted legislative language to the Appropriations and Financial Affairs committee on LD 327, sponsored by Rep. Jeff Hanley of Pittston. This plan would dedicate 90% of future “unappropriated surplus,” also known as money leftover after the state pays its bills, to fund lower rates of consumption taxes for the next budget. Since those who earn less income spend more of it on staple consumer goods like fuel, food, and clothes, lowering consumption taxes would make sure every cent of surplus revenue helps struggling Mainers into the future.
For example, using all of the funds spent to send Mainers checks over the last year, about $780 million, could lower the Sales & Use Tax rate from 5.5% to around 4.3%, leaving Maine families with more in their pockets year over year, and making the state more friendly to regional shoppers and thus prospective retail businesses. Maine and New England would feel the effects of a virtuous cycle whereby higher state revenues trigger lower taxes, which in turn trigger greater economic activity, leading to another year of significant tax revenues.
Other aspects of Mills’ supplemental proposal include publicly-funded two-year community college for recent high school graduates, salary bonuses for child care workers, and expanded tax credits for low-income Mainers, seniors, and those with higher education debt.
For high schoolers in the graduating classes of 2020 through 2023, Gov. Mills proposes to fund two years of community college, as long as they enroll full-time, and either qualify for in-state tuition or commit to living and working in Maine. It would be a very specific benefit, targeting about 8,000 potential students, though it is not clear if students would be required to obtain a degree in order to keep the money.
Is this a worthy investment? Maine community colleges overall post a 36.75% graduation rate, consistent with the national average of around 34%, but in other words, more than 60% of those who enroll do not finish. Some argue that most community college dropouts happen because of financial instability, so this could help some of the enrollees stick it out and finish their program. It could also over-incentivize enrollment since it will be “free,” even if it is not a student’s best option. Mills’ plan also does not differentiate by financial means, so students who could afford their two-year program will qualify as well as for those whose “free” tuition might keep them from dropping out.
Community colleges generally serve as a place for adults and recent high school graduates to gain skills quickly and begin working. Clearly, there is abundant demand for workers today, so how does this get the economy what it needs? Maine needs more trade workers, and more workers in general, in many careers that don’t require any college education. State leaders shouldn’t place their finger on the scale and incentivize students to go to community college instead of the workforce. They should first work to clear away unnecessary occupational regulations that keep hard-working Mainers from making a living in their preferred fields.
For those who have already graduated college, Mills proposes to expand the Opportunity Maine tax credit by more than $42 million in ongoing spending, consistent with a bill sponsored by Sen. Matt Pouliot of Augusta. One of the other bigger ticket items in the governor’s bill—after the direct checks—this item in the supplemental budget request would streamline eligibility and allow graduates of any Maine college, employed and living in-state, to write off up to $25,000 in lifetime student loan payments on their taxes, up to $2,000 each year.
Mills is proposing to put more than $27 million in ongoing funds toward doubling the maximum benefit for Maine’s Earned Income Tax Credit (EITC), a program that allows households making under $57,414 to claim a portion of their income toward their taxes. She is also putting $7 million in ongoing funds to expand the maximum Property Tax Fairness Credit to $1,000 for those under 65 and to $1,500 for seniors.
The supplemental budget proposes to dedicate $12 million more ongoing to administer and fund “salary supplements awarded to individuals who provide childcare or who are early childhood educators.” No doubt that Maine’s child care industry needs help, but grants to help the industry can only go so far without an attractive environment for entrepreneurs. State leaders’ unwillingness to address the current regulatory regime is leading to industry consolidation around more expensive center-care providers versus family care. This hurts families by driving up costs and limiting their options.
One point made in Mills’ speech that is not contained in the supplemental is her promise that every Mainer who wants broadband internet will be connected by 2024. This bold policy goal does not appear in the supplemental because there are already millions of dollars in state and local hands destined for this purpose. What’s left out of the conversation is, for how many yet-unconnected residences is affordability the issue, versus access?
Since legislators and state broadband bureaucrats have made overtures toward funding entire networks owned by municipalities, more guardrails are needed to protect against wasteful public spending. Some communities are served by multiple private internet service providers (ISPs) already. Mainers for whom affordability is their main problem might be better served by a flat voucher-style payment in order to purchase faster speeds, instead of subsidizing their town or county to build, maintain, and operate its own parallel broadband network.
Overall, Gov. Mills’ supplemental looks the way it does simply because the state took in more money than it needed over the last year. This came about by both overtaxing the people and through billions in pandemic-related disbursements from the federal government, which helped shore up state revenues amidst the pandemic. Though Mills will tout this spending bill as proof of her success, many Mainers will remember it as another lost opportunity for a long-term commitment to tax reform.