The Legislature passed a new state budget, which replaces $250 million in borrowing with spending cuts and a $1-a-pack hike on cigarettes, Friday night.

The Maine House narrowly passed the budget, 74-72, with four Republicans missing. The Senate vote was more decisive, with a vote of 19-14 in favor of passage, with two Republicans absent.

If all the Republicans had been in their seats when the House voted on the budget, the outcome could have been different.

What matters today, though, is that the new budget has been enacted – meaning an end to the this year’s Legislative session and no more extra pay for legislators, which was costing taxpayers $40,000 per day.

And, the Democrats have derailed a Republican-led people’s veto drive that could have thrown the state’s finances into havoc.

Supporters of that referendum officially called off the petition drive Monday, and said they had won.

“The message has had its intended impact,” said Sen. Peter Mills, R-Somerset. He added “a note of thanks to our friends the Democrats for admitting they were wrong.”

Two other controversial items have been tabled to sometime later this summer. They are a package of general obligation bonds, for everything from road improvements to land conservation, and an all-encompassing tax reform bill that would broaden the sales tax in order to lower income and property taxes.

The bond package requires a two-thirds vote of the Legislature to be put on the November ballot, which means at least some Republicans will have to support it.

Republicans blocked a bond package vote last session. They have also consistently said, this session, that they don’t want to approve more than $100 million in general revenue bonds.

They have indicated, however, they are willing to support something this summer.

Tax reform bill coming

State Rep. Dick Woodbury, an independent from Yarmouth, is co-chairman of the Taxation Committee and co-author of the tax reform bill.

In its current form, the bill would redistribute the taxes Mainers pay, putting more reliance on the sales tax and less on income taxes, essentially exempting a family of four with an income of $30,800 from paying any income tax at all.

At the same time, the bill expands the sales tax base to include more services and some goods. It also would increase the meals and lodging tax; tax soda for the first time; and raise taxes on beer and wine.

As part of the tax reform package, the state would meet its promise to fund 55 percent of K-12 education over the next two years – two years earlier than expected – and fully fund the $13,000 homestead property tax exemption, half of which is now being picked up by cities and towns.

There was just not enough support in the Legislature – even among Democrats – for the tax reform bill on Friday. Woodbury said he was willing to get the borrowing and spending cuts and pass the state budget first, and then work on tax reform.

“It would be a major rebalancing of this tax system,” he said, “and really would do what voters have expected of us,” in terms of shifting the tax burden off property and income taxes.

House Speaker John Richardson told members of his Democratic caucus he put the bill on hold because “I don’t want to see blood shed here or in the Senate,” unless the tax package has the votes to pass.

If a special session or special day is devoted to just tax reform later this summer, “it is incumbent upon us to pass something,” he said.

Budget battle

The drama on the new state budget, which on average cut 2.5 percent out of most state departments, was largely played out in the House on Friday.

Two of the missing four Republicans were out for personal reasons – one for a child’s college graduation and one for health reasons, according to Minority Leader Rep. David Bowles.

Two others had previously scheduled events in their districts they were attending.

“These are some of the effects of having a citizen legislature, where people have other commitments,” Bowles said. “We were supposed to be out by June 15,” and if that had happened, he said, all his members would have been present.

Two Democrats – Rep. Barbara Merrill of Appleton and Rep. Barbara Twomey of Biddeford – voted with Republicans. Rep. Thomas Saviello, D-Wilton, was there but did not vote. Rep. Charles Crosby, D-Topsham, voted against the budget the first time around, but came around to his party on final enactment.

He was initially opposed to the 10 percent cut in the Business Equipment Tax Reimbursement program.

Merrill, who voted against the original budget because of the borrowing, voted against it the second time as well, because it did not, in her words, prevent “the shenanigans” with the borrowing from happening again.

She authored legislation that would have required the state to establish a special reserve account, equal to 5 percent of the revenue it collects. If the reserve account fell short, the state could not issue any bonds.

Plans criticized

While the Republicans may have been able to hold up the Democratic-supported budget, if they had all been present Friday, they didn’t have the support to pass their own version of the budget Thursday.

With the entire House present, the Republican budget went down 77 to 74, with Merrill again voting against her party. Independent Woodbury and Green Rep. John Eder of Portland voted with the Democrats.

The Republican budget would have eliminated $250 million in borrowing with spending cuts and a few gimmicks, including delaying the state payroll until after the start of the fiscal year in the second half of the biennium.

The biggest criticism of the Democratic budget is that it’s based on raising an additional $125 million in cigarette taxes by doubling the existing tax to $2 a pack.

Some like Rep. Twomey say the tax hits the poor hardest. Others say it’s unrealistic revenue because smokers will simply buy their cigarettes elsewhere, including over the Internet.

The reduction in the business equipment tax program – which reimburses businesses for the personal property tax they are charged on equipment they purchase – also had its critics, including some Democratic representatives with paper mills in their towns.

Sen. Richard Nass, R-York, spoke out against the business euipment reimbursement reduction on the Senate floor Friday night. He said with the $7 million cut in the tax for fiscal year 2007, businesses in Bath – mainly Bath Iron Works – would pay $500,000 more in taxes; $140,000 more in Freeport; $200,000 more in Portland; $1.1 million in South Portland; and $70,000 in Westbrook.

He called the tax change “detrimental and hurtful,” saying it could lead to a loss in jobs.

While the Senate defeated the Republican motion to protect the business equipment reimbursement, by 19-15, a similar House amendment was defeated by only one vote.

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