AUGUSTA — Unable to reach bipartisan agreement on income tax cuts, Senate Republican leaders struck a tentative budget deal with the Legislature’s Democratic leadership that would make it harder for lawmakers to increase taxes in the future.

But the deal has revealed a deep rift within Republican ranks, with the top House Republican vowing to fight the emerging budget compromise because it lacks the income tax cuts and welfare reforms sought by party leaders and Gov. Paul LePage.

“I will fight tooth and nail to defeat a majority budget on the floor so that we can bring that budget back down here and have meaningful conversations about including those priorities in a bipartisan budget,” said Rep. Kenneth Fredette, R-Newport, the House Republican leader.

The tentative deal emerged late Sunday night after members of the budget-writing committee and legislative leaders met all weekend to finalize a $6.57 billion two-year budget. The Legislature has weeks to finalize a budget able to pass both chambers and survive a potential veto by LePage or else force a government shutdown – a prospect that appeared to deepen late Sunday amid the major disagreements between House and Senate Republicans.

The Appropriations and Financial Affairs Committee has yet to vote on or publicly debate the compromise, but several legislative leaders revealed aspects of the deal after midnight.

Senate President Mike Thibodeau, R-Winterport, said Democratic leaders have agreed to allow a constitutional amendment proposal that would require future Legislatures to receive a two-thirds vote in both the House and Senate in order to increase income taxes. Voters will have to approve the constitutional amendment – potentially on a statewide ballot in 2016 – in order to require the two-thirds threshold in the Legislature.

But in agreeing to the tentative deal, Senate Republican leaders appear to have given up hope of including any income tax cuts in the next two-year budget. LePage’s budget proposal included aggressive income tax cuts that were paid for with a controversial proposal to increase the sales tax 1 percentage point while applying the sales tax to hundreds more goods and services.

Thibodeau said a constitutional amendment would be “monumental in moving the state forward.”

“A constitutional amendment that will, again, bridle the growth of government into the future is incredibly important,” Thibodeau said. “We think that is a much bigger deal than a 1 percent income tax reduction. And remember, the Democrats are simply not interested in an income tax decrease in this budget.”

Democratic leaders in the Legislature have, in fact, put forward their own plan to cut income taxes for most Mainers earning less than $150,000 a year. But that plan failed to gain traction with Republicans in either the House or the Senate – two caucuses that appear increasingly fractionated – or with LePage.

House Speaker Mark Eves, D-North Berwick, did not rule out tax cuts in the final budget but reiterated his caucus’s opposition to tax cuts for the richest Mainers. Democrats are also insisting that any cuts be paid for in the current budget.

“We are still at the table,” Eves said early Monday morning. “We want to make sure that those initiatives we put forward in the (Democratic) plan – the middle class tax cuts, the property tax relief, the investments in our students and workers – those are the things we are looking for in this budget. We are not going to give, we will not give, a tax giveaway to the rich.”

The weekend’s negotiations revealed a clear division among House and Senate Republicans.

Just before midnight, the Appropriations and Financial Affairs Committee voted – in a non-binding vote – to reject major changes to the way the state reimburses municipalities for General Assistance. Those changes likely would have cost Portland millions of dollars and are part of a larger battle between the city and the LePage administration over welfare for immigrants.

The vote was 9-4, with all seven Democrats and the two Senate Republicans on one side and the four House Republicans on the other.

Fredette, who has emerged as LePage’s top ally this legislative session, was visibly frustrated after the committee votes.

“We will continue to support those causes that we ran on and won on” during the 2014 elections, Fredette said. “This will ultimately go to the floor and we will see where that vote comes out. But I think at the end of the day House Republicans want to stand on the principles that they believe are important to the Republican Party, and that is smaller government, income tax reduction and welfare reform.”

During hours of negotiations – nearly all of it done behind closed doors – Democrats and Republicans on the Legislature’s budget-writing committee made progress on key issues related to education funding, social services, municipal “revenue sharing” and property tax exemptions. They also cast a series of non-binding votes.

But time was running short for the committee and its work on a $6.57 billion spending plan able to pass the full Legislature with veto-proof margins before forcing a government shutdown on July 1.

“Republicans and Democrats continue to make progress on the budget,” Sen. Linda Valentino, D-Saco, said in a statement. “We made great strides to protect property taxpayers and seniors.”

On Friday, the budget committee took several unanimous, but non-binding, votes to reject major provisions of the governor’s tax overhaul. However, the votes are not final until the committee ratifies the entire budget deal.

Committee members rejected LePage proposals to increase the sales tax from 5.5 percent to 6.5 percent and administration plans to eliminate a host of tax exemptions for goods and services, such as haircuts, legal services and peanut butter. Under the scenario shaping up in committee, Maine’s sales tax rate would drop back down to 5 percent on July 1, as planned under a temporary increase approved by lawmakers several years ago.

But allowing Maine’s sales tax rate to fall back to 5 percent means less revenues for other programs – or for tax cuts.

The governor’s sales tax increase and base-broadening scheme were designed to help the government pay for income tax cuts, which LePage has cast as the centerpiece of his $6.57 billion two-year budget proposal and a major focus of his second term in office. While Republicans support lowering the income tax rate, they rejected the sales tax increase and base broadening, in part because many lawmakers helped overturn a similar proposal enacted by the Democratic-controlled Legislature in 2009.

The votes Friday evening signal that major provisions of the governor’s tax overhaul are likely dead, a fact LePage acknowledged Friday while signaling again that he would veto a budget that does not include tax cuts.

“I put in a budget and that budget died a long time ago, so I don’t know what the budget is going to look like,” LePage said during a lengthy and frustration-filled press conference in Augusta. “I don’t know what’s in it and I don’t know what’s out of it. But I will tell you this: It’s going down and they need two-thirds (vote) and they can override me easily, if they choose to.”

Other non-binding votes by the committee included:

• Retaining current spending on state aid to municipalities, also known as municipal “revenue sharing,” at $62.5 million per year. The governor had proposed eliminating revenue sharing in the fiscal year beginning July 1, 2016.

• Retaining the current Homestead property tax exemption at $10,000 for a resident who has owned a home for at least 12 months. LePage had proposed eliminating the exemption for homesteaders below the age of 65 and doubling the exemption to $20,000 for people 65 and older.

• Maintaining all tax break programs designed to encourage economic growth.

• Rejecting the governor’s proposed cuts to the Medicaid Savings Plan and the Drugs for Elderly program.

• Supporting by unanimous vote a provision to ensure salary parity between Department of Corrections employees and county jail employees who do the same kind of job. Currently Department of Corrections workers are paid a higher salary than county jail employees.

On Saturday, the committee voted on a number of items related to the Department of Health and Human Services budget. It decisively rejected the governor’s plan to cut funding for methadone treatment to drug treatment providers, cutting reimbursements to critical access hospitals, the elimination of 101 positions at the Center for Disease Control and Prevention, and diverting funding from the Fund for a Healthy Maine – an anti-smoking program – to primary care physicians.

The committee endorsed the governor’s proposal to increase general purpose aid to school districts by $15.2 million in the fiscal year beginning July 1 and $16.6 million in the fiscal year beginning July 1, 2016. Democrats described the funding as a baseline figure and were hopeful more school funding will be found before the budget talks are complete.

The committee also voted to reject LePage’s request to add $2 million to his legal defense budget. The Maine attorney general defends the executive branch in most instances, but LePage requested more money for his office’s own legal budget, citing differences with Attorney General Janet Mills, a Democrat.

Talks are continuing, but time to resolve differences is diminishing. The budget committee has already failed to meet two self-imposed deadlines to reach a deal. However, a more serious deadline – the shutdown of state government – looms. The Maine Constitution requires lawmakers to enact a balanced budget to keep state government open. Funding for the current budget ends June 30, while the Legislature is scheduled to adjourn June 17.

A budget bill also requires drafting before it goes to the House and Senate for floor votes. Once enacted, the governor has 10 days to sign, veto or allow the spending plan to become law without his signature.

 

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