The real story behind Governor Mills’ second budget proposal
Maine Governor Janet Mills released the details of her second proposed biennial budget last Friday following a closed-door media briefing and multiple press releases with minimal detail. It was clear the administration wanted to control as much as possible the initial headlines that would be written about the budget. Just as planned, the Maine media parroted the governor’s talking points that this is a “no drama” budget that does not “change tax rates” and grows the Rainy Day Fund to an “historic” level.
As expected, the coordinated, controlled release of the proposal did much to obfuscate the unfortunate truth: the state will continue to kick the can down the road, even if the topline talking points are (mostly) true.
The proposal shows that the Mills administration will do everything possible to maintain current levels of government spending instead of making the hard choices needed to fix our structural demographic and economic issues, at least not in the next two years. The proposal largely maintains the strategy of her September curtailment order. By directing federal dollars to state programs and carrying over savings from higher staff attrition rates, plus some tinkering with the definitions of a few small taxes and fees, the administration will likely avoid significant political fallout from either side of the aisle.
The result? A budget that essentially continues the status quo and does very little to prepare Maine for an uncertain economic future.
Does this budget balance without raising taxes and fees? Not for Mainers who purchase digital media subscriptions. Digging into the language of the governor’s proposal, she proposes to tax online services like Amazon Prime, Netflix, Spotify and countless others under the “Service Provider Tax.” Today, digital subscription services are untaxed. If this portion of the governor’s budget is approved, these services would instead be taxed at 6%.
The Department of Administrative and Financial Services (DAFS), home to the governor’s budget office, estimates that this change will bring in $10 million more tax revenue over two years. Granted, it would only increase the cost of one $119 yearly Amazon Prime subscription by $7.19, but this move goes to show how the government can nickel-and-dime taxpayers, even while claiming it has not changed tax rates.
The proposal also broadens the scope of the 10 cent per line fee that the legislature and governor enacted, beginning in 2020 to go to ConnectME, a state agency that provides grants to municipalities and companies to develop internet infrastructure. Under Part AA, Governor Mills proposes to require all private residential and commercial phone lines, public lines, Voice Over Internet Protocol (VOIP) customers, and non-prepaid wireless customers to pay the ConnectME fee.
How does Gov. Mills put enough unspent revenue into the Budget Stabilization Fund (BSF), also known as the Rainy Day Fund, to reach an “historic” total? As stated in the governor’s press releases, it is true that the BSF would be at its highest level ever under the proposal, both in nominal amounts and as a percentage of the previous year’s General Fund revenues. This is positive given the unstable ground upon which the Maine economy currently rests, but the governor doesn’t get there without tinkering on the margins here as well.
In the proposal, 90% of unspent General Fund revenue would go to the BSF, instead of 80% in previous years. It would apportion the remaining 10% of unspent revenue to a fund dedicated “solely for capital projects that construct, renovate or improve state facilities.” Repealing the property tax relief fund and absorbing its remaining budget ($300,000), and dedicating $20 million to the BSF over the biennium, is how the Rainy Day Fund achieves its highest level ever.
Although the administration says that this budget provides relief for property tax payers and will help stabilize municipal tax burdens, they do so because they must. In regard to the homestead exemption—the amount that permanent Maine residents may deduct from the valuation of their primary residence for property tax assessment—the latest budget proposal merely follows what was passed in the previous biennial budget. Then, lawmakers raised the exemption amount for homeowners from $20,000 to $25,000.
The previous budget also raised the rate at which the state reimburses municipalities’ for their residents’ exempt homestead valuations, from 62.5% to 70% of lost valuation in tax years beginning April 2020 or later. This was the third time in since 2017 that the state raised the municipal reimbursement rate; then, it was only 50%. That directed over $21 million more to cities and towns over Fiscal Year 2021, ending July 1 of this year. Over the next biennial budget, covering Fiscal Years 2022 and 2023, the administration allocates $15 million more to towns through the higher reimbursement rate.
So, while Mills and company can say that this budget does attempt to stabilize any potential property tax increases by paying more of the losses to municipalities, it does so by following, not reforming, the status quo.
Overall, the second proposed budget from Gov. Mills is not groundbreaking by any stretch of the word. Because of this, it is likely to attract sufficient bipartisan support to pass with a two-thirds vote and become law following its passage, though some political onlookers believe Democrats might proceed with a majority budget. Republicans in the legislature will likely call for reduced spending due to to the state’s uncertain economic footing. Nonetheless, negotiations within the legislature and its appropriations committee in the coming months will ultimately determine what form Maine’s next biennial budget will take.