AUGUSTA – The proposed state budget to be considered by the House and Senate next week calls for tax cuts, major reforms to the state pension system and some of the welfare reforms that Gov. Paul LePage advocated.

The $6.1 billion, two-year plan that earned unanimous approval from the Legislature’s 13-member Appropriations Committee late Thursday night represents a series of compromises designed to win the two-thirds support it needs in the House and Senate.

The committee’s House chairman, Rep. Patrick Flood, R-Winthrop, said Democrats and Republicans worked to find money to avoid some cuts to human services. On the final night of negotiations, Flood presented an amendment offering $20 million in future revenue from wholesale liquor sales to help prevent any budget gap.

“Back in February, when I saw all the significant policy changes (proposed by LePage), it made me believe we were going to need additional resources” to balance the budget, Flood said.

He’s hopeful that the compromises made in committee by both parties will lead to passage of the budget for the two years that start July 1.

LePage, a Republican who took office in January, said Friday morning that he hadn’t seen all of the details. “Unfortunately, I like to look at the little print,” he said. “That little small print? That’s where the devil is.”

In particular, LePage said he wants to review the proposed tax cuts and pension reform. “And I understand there’s been minor changes in the welfare, and I want to look at the changes,” he said.

PENSION SYSTEM

Appropriations Committee members agreed last week on a series of reforms to the state pension system, using LePage’s proposal as a starting point.

LePage told lawmakers when he proposed his budget in February that the state had to take major steps to address two issues with the Maine Public Employees Retirement System: rising short-term costs that will demand a larger and larger share of state money, and an estimated $4.1 billion unfunded liability that must be paid off by 2028.

LePage wanted to require state workers and teachers to put an additional 2 percent of their pay into the system, while lowering the state’s share of the cost. That and other changes were designed to free up money for tax cuts.

Last week, the committee voted to eliminate that requirement, with revised figures showing that the change would require most workers to contribute 9.65 percent of their pay, while the state’s share would be less than 1 percent.

The committee made other changes, limiting annual cost-of-living increases for retirees to 3 percent, rather than 2 percent as proposed by LePage. It also voted for a one-year freeze on increases, followed by state payments to replace the increases for two additional years.

One controversial part of the committee’s proposal is a $20,000 cap on the annual retirement income to which the increases are applied. The Maine State Employees Association worked to increase that to $25,000, but the additional $26 million cost was more than lawmakers could afford, said Rep. Peggy Rotundo, D-Lewiston.

“Democrats worked hard to push back against the governor’s proposals on pensions,” she said in a prepared statement. “We have a bipartisan commitment from those of us on the committee to continue to work to raise the cap on cost-of-living adjustments and find a longer-term solution.”

Chris Quint, executive director of the Maine State Employees Association, said the union is happy with some of the concessions but cannot support the budget because of the $20,000 cap.

“This is going to permanently impact over 50 percent of current retirees,” he said.

The committee-approved plan would shave an estimated $1.7 billion from the retirement system’s long-term debt.

It would freeze state workers’ salaries for two years, and create a study group to consider an alternative pension system for future state workers.

For health insurance, state workers will have to reach normal retirement age — 60 or 62, depending on the terms of their jobs — before the state will pay the full cost of coverage.

TAX CUTS

LePage proposed $203 million in tax cuts, but after legislative review the total under consideration is $150 million.

The biggest chunk is $91 million in income tax cuts that would come from lowering certain rates, including cutting the current 2 percent rate to zero. The budget would reduce the top rate from 8 percent to 7.95 percent, and make Maine conform to the federal personal exemption and standard deduction.

“There are tax cuts for almost all Mainers,” said Sen. Roger Katz, R-Augusta.

The committee also voted to increase Maine’s estate tax exclusion from $1 million to $2 million, and to give a tax break to people who withdraw money from retirement funds.

The budget also contains tax cuts for businesses, including conforming to federal deductions for equipment; a capital investment credit; a new market credit; an income tax credit for investment in fishery infrastructure; a sales tax refund on fuel used in commercial fishing; and an exemption on bags used at bottle redemption centers.

HUMAN SERVICES, WELFARE REFORM

This week, the Appropriations Committee agreed to a nuanced version of the welfare reforms proposed by LePage regarding benefits for legal noncitizens and people who receive Temporary Assistance for Needy Families.

It would allow legal noncitizens who are receiving help or have applied by July 1 to continue to get food stamps and federal cash benefits. But it would remove an estimated 1,550 legal noncitizens from Medicaid health insurance if they have not lived in the United States for at least five years. Pregnant women and those under 21 would continue to receive health coverage, as mandated by federal law.

The proposal calls for a five-year lifetime limit on federal cash benefits for any welfare recipient in Maine, sanctions on those who violate the “family contract” to receive benefits, and drug testing for applicants who have been convicted of drug-related felonies in the past 20 years.

LePage proposed to shift $18 million from the Fund for a Healthy Maine, which is supported by tobacco settlement money, to the Medicaid program to meet increasing demand. The committee restored nearly all of the cuts, including money for tobacco prevention programs, family planning, and substance abuse treatment centers.

It also voted to continue providing health insurance for low-income childless adults and some parents who would have lost coverage under LePage’s plan.

“Budget negotiators were able to protect health care for nearly 30,000 people, make sure seniors and the people with disabilities can afford their medicine, and protect programs that help Maine families who are struggling during this difficult economy,” said Sara Gagne-Holmes, executive director of Maine Equal Justice, an advocacy group for the poor.

MPBN AND OTHER ITEMS

In a package offered last month to balance the budget, LePage proposed to end all state funding for the Maine Public Broadcasting Network — about $4 million over two years.

Dozens of people packed the Appropriations Committee room to protest the cut. Late Thursday, Rep. Ken Fredette, R-Newport, offered an amendment to preserve the full funding for the first year, beginning July 1, and trim $200,000 from the second-year allocation.

He said there were concerns about the network’s ability to fund the emergency broadcast services it provides and said there will be efforts to look for federal funding to pay for that in the future.

In the end, Flood said, the committee tried to honor the direction provided by LePage while working to be sensitive to people who need help.

“Everybody on the committee cares about people,” he said. “We wanted to be caring and still make significant reforms that are absolutely necessary.”

MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at:

scover@mainetoday.com