AUGUSTA, Maine — The Legislative Budget Committee agreed Thursday to entirely waive state taxes on federal loans to small businesses, but the parties remain separated by $32 million as Republicans refuse to support a spending plan requiring the adoption of supermajorities.
That means Governor Janet Mills’ short-term budget plan is in jeopardy as lawmakers rush to a first ballot in a pandemic-altered 2021 session at the Augusta Civic Center next week. For now, they run the risk of emerging without a deal before Tax Day on April 15.
The Democratic governor angered the business lobby when she announced a spending plan to fully tax Maine small business loan proceeds under the Paycheck Protection Program, a federal stimulus program. She then revised the tax exemption plan for companies that got less than $1 million, but minority Republicans pushed for a full rollback.
The Legislature Appropriations and Financial Affairs Committee unanimously agreed to a full pardon at a cost of $18 million more than Mills’ last proposal. But he has stalled along party lines on a comprehensive spending package amid other disagreements, largely around other ways the state is decoupling from the federal tax code and a Republican demand for two-thirds votes in each chamber on how to spend more aid likely to come soon from Congress.
Rep. Sawin Millett, R-Waterford, said his caucus would submit a package including that provision, full compliance and a reduction in money used from a liquor contract fund to stem a projected shortfall of $650 million over three years, among other changes. It would cost $32 million more than the Democratic plan.
“I do so with some concern that the message we’re ending here tonight – and what I think we’ll send next Wednesday to the Augusta Civic Center – is that the package won’t get the two-thirds needed to pass as a emergency bill,” he said.
The split could threaten one point of the bipartisan agreement the committee reached: a new provision exempting the first $10,200 in COVID-19 unemployment benefits Mainers received from state income tax. Senator Cathy Breen, D-Falmouth, co-chair of the panel, said the proposal would affect about 160,000 Mainers and that failure to reach an agreement could hurt Mainers struggling during the pandemic.
“I think we owe it to the taxpayers of Maine to push forward an agreement that we broadly agree on that provides truly critical tax relief to businesses that have received federal relief and those that have been impacted,” he said. Breen.
Lawmakers have been negotiating tax compliance for days. This so-called Supplementary Budget — a short-term spending plan — exists largely to adjust the state’s tax code and enshrine the spending cuts made by Mills to balance the state’s budget during the pandemic. The Legislature is still negotiating the governor’s $8.4 billion two-year budget proposal.
The fight for tax compliance has been the biggest partisan debate in this legislature so far. Republicans have been bullish on the issue, threatening to completely sink the extra budget if the parties fail to reach an agreement.
Mills’ latest proposal would have delivered 99% of businesses that received loans in full compliance, leaving 251 businesses that collectively employ 43,000 people. This provision was to cost the state $82 million.
Other elements of the supplementary budget were not as controversial. The majority of Legislative Assembly straw votes on the package in recent working sessions – now finalized with Thursday’s vote – were unanimous. Members voted to remove a few items, such as a $5 million provision for COVID-19 tests and vaccines that the state is able to cover with other funds, and kept reimbursement funding. nursing homes and some health care providers.
The committee voted to remove language that would have transferred $25 million from the general fund to the MaineCare stabilization fund and $40 million from that fund to pay MaineCare payments. He also agreed not to contribute $41 million to the state’s rainy day fund, though Republicans were hoping for a deal in the final package to return money in the future.