Wednesday, April 23, 2014
By Michael Shepherd email@example.com
State House Bureau
After months of partisan squabbling and political maneuvering in Augusta, a new two-year, $6.3 billion state budget begins to take effect Monday.
And, sometime soon, we all will feel the impact.
Maine's new budget means you will soon pay more for a television, a dinner out and a newspaper -- although not until the approved tax increases kick in this fall.
While some fear those added costs will encourage you to eat out less often or go to New Hampshire to buy tax-free appliances and other things, lawmakers decided it was a necessary burden for us to bear in order to balance the two-year budget and reach a compromise that kept the state government from shutting down on Monday. And, according to the Legislature, the tax increases will go away at the end of the two-year budget cycle.
Meanwhile, if you are a state employee or are supported by one, the new budget means you will see some new savings in your health insurance. And many state workers will soon get their first merit raise in five years because of the budget.
Some of the budget's biggest impacts on Maine families are still unknown, however.
Communities and school districts are now looking at the numbers in the final state budget to figure out how they might affect local property taxes, muncipal services and classrooms. That's because the budget increases some funding for schools, reduces funding for towns and cities and shifts other expenses from the state budget to the local budgets.
The impact, once it all settles out, will vary from town to town.
While many communities will have to choose between property tax increases and spending cuts because of big drops in state revenue sharing, a lot of school districts will have to decide what to do with state funding that they didn't expect to receive.
The details of the budget include many impacts on targeted groups and services.
About 3,100 severely disabled Mainers won't have to spend as long on a waiting list for services, for example. And anyone who wants to run for the Legislature to help pass the next state budget will find money in this budget to pay for a publicly funded campaign.
Here are five things you need to know about how the state budget will affect you.
1. Meals and lodging
You'll feel the impact of the new budget when you go out to eat or rent a hotel room. But not right away.
An increase in the state meals and lodging tax will take effect Oct. 1, rising from 7 percent to 8 percent.
That means a $40 restaurant dinner for two will cost $43.20 before the tip, up from $42.80 now. At the Atlantic Oceanside Hotel and Conference Center in Bar Harbor, a $229 suite with a king-size bed and patio would cost just over $247 before fees, up from just over $245 now.
Raising meals and lodging taxes is often seen as a way to shift the burden of paying for state services to tourists and out-of-staters. But industry representatives say it hits Mainers hard, too.
Greg Dugal, executive director of the Maine Innkeepers Association, said 64 percent of lodging taxes were paid by out-of-staters in 2012, while 70 percent of meals taxes were paid by Mainers.
Dick Grotton, executive director of the Maine Restaurant Association, said the increase could cost restaurants money to change software that calculates the amount, but members' reactions to the increase vary.
"Taxes are meant to discourage behavior," he said. "I really don't think we want to discourage people from eating out, but that's what some of our members think may happen to some extent."
Maine's meals tax will remain lower than those in New Hampshire and Vermont, which are both at 9 percent. It will remain higher than Massachusetts' statewide tax, although Massachusetts allows local taxes on meals while Maine does not.
Maine's lodging tax will remain lower than most of its neighbors, too, but only slightly. New Hampshire and Vermont are at 9 percent each. Massachusetts' statewide rate is 5.7 percent, but it's higher in cities, while Connecticut's is 15 percent. Rhode Island assesses a 7 percent sales tax on top of a 6 percent room tax.
Grotton said Maine should be careful not to give up its competitive advantage on meals and lodging taxes because of its far-flung location compared to other states.
"We always have to remember we're at the end of the trail," he said. "The fact that we're a little lower on the tax end is a good thing."
2. Sales taxes and newspapers
It's not just lobster dinners and hotel rooms that will get more expensive.
The state's sales tax will move from 5 percent to 5.5 percent in October. So, if you're planning to buy a $500 television, making the purchase before then would save a couple of dollars. That TV would cost $525 after taxes now. It will cost $527.50 in October.
Except for New Hampshire, which doesn't have sales tax, Maine will have the lowest sales tax in New England. Vermont, Massachusetts, Connecticut and Rhode Island all are at 6 percent or higher.
However, the fact that tax haven New Hampshire is Maine's next-door neighbor concerns Curtis Picard, executive director of the Retail Association of Maine, especially regarding big-ticket items.
"If you're shopping for a new washer and dryer, this 10 percent sales tax increase might be enough to push you over the border to get it tax-free," he said.
Also under the new state budget, newspapers and other periodicals will lose a sales tax exemption in October, gaining Maine $5.9 million in revenue over the two-year period.
So, for example, a $2.50 Sunday newspaper will cost $2.64 after taxes. The tax hikes will hit all sales, including newsstand purchases and subscriptions.
According to the most recent data kept by the Newspaper Association of America, which dates back to the early 2000s, only 16 states taxed newsstand sales of newspapers then. None of those were in New England.
Earl Brechlin, editor of the Mount Desert Islander and president of the Maine Press Association, a newspaper trade group that the Portland Press Herald/Maine Sunday Telegram and sister papers belong to, called the repeal of the exemption "unfortunate." But, he said, the association accepted the tax change in exchange for keeping state public notices in print newspapers, an important revenue stream for the industry.
3. State employees
If you work for the state of Maine, you are much more likely to feel the impact of the budget -- and like it.
After a five-year freeze, state workers will get merit pay increases again thanks to $7.6 million in the budget that also protects longevity pay that Gov. Paul LePage proposed to eliminate, said Chris Quint, executive director of the Maine State Employees Association, a state employees union.
Of the 9,375 state workers represented by the union, Quint said 5,962, almost 64 percent, will be eligible for a periodic merit increase this year. The rest aren't eligible.
In another victory for state workers, their health insurance program will receive a $7.7 million boost in the budget.
Quint said that is money the State Employee Health Commission did not expect to receive, and the commission has yet to decide what to put it toward. Reducing co-pays or deductible costs for state workers are options, he said.
"They're going to see their health insurance costs go down. We just don't know how yet," Quint said.
4. Local services and property taxes
The end of the drawn-out state budget process means there are now tough choices ahead for many cities and towns.
And it means you may eventually feel the state budget's impact in property tax increases or municipal spending cuts that have not even been decided yet.
Municipal revenue sharing -- the money collected by the state and returned each year to local governments -- will be reduced by $75 million statewide. That's a deeper cut than officials in some communities had guessed when they adopted budgets during the spring.
Some towns, such as East Millinocket and Beddington, are estimated to receive as much as 65 percent less in state help than they did last year, the highest year-over-year cut, according to estimates released by the state late last week.
Only seven communities will receive more than they did last year, with most -- 393 of 493 municipalities -- facing reductions of between 20 percent and 40 percent.
Even if towns had planned on losing part of their funding, the state cuts will still force many back to the drawing board to decide what to cut, what to keep, and what programs or services are worth a tax increase.
Portland will see its state revenue sharing drop $1.9 million, leaving a total this year of $4.2 million in state aid. Bangor will lose nearly $1.2 million, meaning it will get $2.25 million, and Augusta will shed $526,000, allowing it to receive $1.16 million in aid.
In Portland, the City Council predicted the city's $1.9 million revenue reduction and decided to make the budget changes ahead of time. The council cut $1.1 million in planned expenses, including the elimination of two vacant jobs, employee raises and reduced overtime.
Many cities and towns, meanwhile, counted on receiving more assistance than the new state budget provides, and meetings may be necessary in the coming months to decide how to close the gap.
In general, towns have until they finalize their tax commitments and set property tax rates to adjust their budgets, potentially stretching the discussion about municipal spending into September for some communities.
"The most common practice was to assume flat funding of revenue sharing, or something more conservative," such as 80 percent funding, said Geoff Herman, director of state and federal relations at the Maine Municipal Association.
"To the average citizen, irrespective of the nuances of how you get there, the result will be the same -- an uptick in the tax rate or a reduction in services, or a combination of both," he said.
5. Aid to Education
For many school officials around the state, this could seem like a budget season that does not end.
And as the dust settles from the state budget vote, it's going to take time to see how it affects classrooms and school-related property taxes.
School administrators across Maine may have to revisit their spending plans, and some may even have to hold a second round of budget-validation referendums later this summer.
The impact is going to vary from town to town, depending on whether school districts underestimated or oversestimated the amount of state money they will receive.
On one hand, the bipartisan budget approved June 27 allocated $19 million more than expected in general purpose aid for education next year.
The additional education money, however, was paired with an added burden to towns. The budget shifts teacher retirement costs previously paid for by the state onto local school district budgets. The net effect will vary from district to district, and depends on whether administrators banked on paying the future retirement costs when they built their budgets.
But whether they are getting more than expected or less, districts that are forced to amend their budgets may have to hold a second round of budget referendum votes, as required by state law.
However, lawmakers saw that problem coming and gave initial apporval to a bill last week to allow school districts -- for this year only -- to amend their budgets without new town-wide votes. That bill had not been enacted or signed by the governor as of Friday, however, and some expect it to be vetoed.
Cities and towns are less than eager to spend money on a second round of referendum votes.
"It costs us anywhere from $13,000 to $14,000 to put on a referendum," said Portland Mayor Michael Brennan, who is hoping the one-time referendum exemption passes.
Herman, of the Maine Municipal Association, said multi-town districts will likely handle the situation differently from municipal school systems such as Portland and Lewiston, which may have more incentive to reopen the budgets and move money around.
Multi-town districts, meanwhile, may opt to divert any unexpected influx of cash into a fund to be used next year, Herman said.
Michael Shepherd can be contacted at 370-7652 or at:
Matt Byrne can be contacted at 791-6303 or at: