AUGUSTA – Gov. John Baldacci promised greater tax relief to Mainers, and the Legislature delivered. But he didn’t supply the funding needed if Mainers take him up on his offer.
If all those who are eligible for his expanded tax and rent subsidies apply, the state will be short about $70 million. Baldacci didn’t include the additional money in his budget.
The possible first-year price tag for the new and improved circuit-breaker program will be roughly $112 million if everyone eligible applies, which is Baldacci’s goal. But Baldacci is expected to fund the expanded program at about $42.5 million next year.
And if the state makes applying for the program easier by combining it with state income tax forms, the first-year cost will increase to $157 million, according to the Maine Revenue Service, a difference of about $115 million.
Lee Umphrey, Baldacci’s spokesman, said the governor would find the money.
“We’re looking under every rock in Augusta,” he said. “Every nook and cranny is being explored.”
The proposal comes on the heels of Baldacci’s latest biennial budget, where a projected $733 million deficit already needs to be filled.
The Legislature passed a tax relief package recently that would allow the circuit-breaker program to reach more people and would pay higher refunds. Officials originally estimated that if participation in the program stayed the same, the higher refunds to those people already in the program would add about $17.5 million to the cost of the program in the next fiscal year, bringing the total cost of the program to about $42.5 million.
But about half of the Mainers who are entitled to a refund don’t apply for the program, according to models used at Maine Revenue Service, said Jerome Gerard, acting state tax assessor. If they all apply, the MRS estimates the cost of the refund program will shoot to $112 million.
In order to capture a greater percentage of those who are eligible, Baldacci endorsed a measure that would combine applications for the circuit-breaker program with the state tax return process, now two separate procedures that carry different paperwork and deadlines. It will cost an additional $45 million in the first year for the circuit-breaker program to catch up with the income tax filing cycle.
Sen. Joseph Perry, D-Bangor, chairman of the Taxation Committee, said the cost of leapfrogging the circuit-breaker program into the next fiscal year to match with the income tax cycle “seems to be the biggest problem. I don’t know how we can get past that problem.”
But, he said, that’s not his problem. It’s Baldacci’s.
“It comes with quite a price tag. But if he’s confident he can pay for it, I’m confident we can get it though the Legislature,” Perry said.
Perry, who also served on the Joint Select Committee on Property Tax Reform, said that group of lawmakers discussed the pros and cons of the proposal at length. Its passage appeared to have bipartisan support, he said, but only if everyone can agree on where the money would come from to pay for it.
“There are limited resources,” Umphrey acknowledged. But, he said that would not deter Baldacci from coming up with the money.
Cost isn’t the only problem posed by combining the refunds with returns, Gerard said.
There are practical concerns, he said.
Because there is now no overlap of the filing periods for the two programs, the same staff is able to handle the paperwork of both. If the programs were combined, more staff would be needed between January and April and fewer staff members needed between August and December, when the circuit-breaker filing period occurs.
In addition, the tax return paperwork would have to be rewritten and expanded to include the circuit-breaker application, and MRS computer software would have to be revised.
Also, there is a higher error rate among circuit-breaker applicants, and thousands of those who are eligible for the circuit-breaker program are not required to file a tax return.
The Legislature did agree to extend the filing period for the program so that it could overlap with the tax filing period, to accommodate people who wanted to do both at the same time.
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