AUGUSTA — The administration of Gov. Paul LePage on Friday unveiled a proposed $6.3 billion budget that eliminates more than 200 state positions and drastically reduces the amount of tax revenue the state shares with local towns and cities.

The budget includes tweaks to the state’s tax code that would increase some revenue from those receiving certain levels of investment income. The proposal also removes a sales tax exemption for newspapers and magazines.

Over the next two years, beginning in July 2013, municipalities face a loss of more than $400 million statewide.

Under the proposal, revenue-sharing would return in the following budget cycle in 2014 and 2015, but LePage’s top commissioners said there was no way to close a growing budget gap without a drastic proposal.

The state budget is being ravaged in large part, according to officials in the administration, by increased costs and decreased federal funding of the state’s Medicaid program.

Department of Health and Human Services Commissioner Mary Mayhew said the elimination of federal stimulus funding that had previously been used to help cover the state’s share of its Medicaid costs was a primary culprit.

“Maine’s challenges are intensified and exacerbated by the generosity of its Medicaid and public assistance programs,” Mayhew said. “And as we stand on the edge of a fiscal cliff in a national climate fraught with financial uncertainty, we are hamstrung by the federal government’s refusal to allow our state more flexibility to implement reductions that were signed into law and to provide the state the means to balance its budget and manage more effectively its programs.”

The increases in state spending on Medicaid were far smaller than the reduction in federal support, but combined, the two items created a gaping shortfall for the state.

“The cost-shifting to the state is staggering,” Mayhew said, noting that state spending on Medicaid grew by only $16 million over the last fiscal year, but the reduction in federal support meant a 48 percent increase in the level of state funds needed to sustain the program.

“We must be realistic in our approach and admit that Maine cannot afford its programs as they exist today,” Mayhew said.

Changes in program eligibility, care management and payment rates are proposed in the budget offered Friday, Mayhew said. She emphasized that the new budget would provide funding to move off the waiting list for services about 1,100 people with severe intellectual and developmental disabilities.

Mayhew reiterated a LePage stance that the state’s financial and medical welfare programs need to be preserved for the most vulnerable citizens and the current system was fraught with inequities.

The budget proposal also eliminates the state’s Drugs for the Elderly program, which covers co-payments for prescription drugs under Medicare Part D premiums, out-of-pocket costs — often referred to as the “doughnut hole” — and the expense of excluded drugs. The elimination of the program would save the state about $1.75 million a year.

Education impacts

The proposed budget also affects public schools, which would be asked to shoulder 50 percent of the cost of teachers’ pensions previously paid by the state. That change would save state government about $14 million a year.

Education Commissioner Stephen Bowen said the good news for schools is that the amount of state funding in what is known as General Purpose Aid to Education would stay the same, about $895 million per year.  

Bowen outlined several education spending increases, including targeted support for school infrastructure improvements, funding for implementing school accountability, best practices and educational options.

An additional $13.1 million would go to schools in 2014 and $13.8 million in 2015. The funds are meant to help schools implement teacher and principal evaluation systems, develop proficiency-based high school diploma programs and create accountability programs for under-achieving schools.

“Tough choices that you’ve already heard something about so far this afternoon mean that we are able to minimize to the highest degree that we can the impact to our schools with these budgets,” Bowen said.

Republicans leaders offered measured responses to LePage’s proposal.

“It is very encouraging to see a continued commitment to education funding in the budget and no increase in income taxes,” Sen. Michael Thibodeau, R-Waldo, said. “But there are some difficult reductions in this budget, as well. I, like everyone else, have concerns about the burden this budget will place on municipalities, but at the same time, recognize the challenge of maintaining essential state services with the revenue we have.”

Thibodeau, the Senate minority leader, said the proposal would be fully vetted and that other budget ideas would be put forward.

Leaders in the new Democratic majority were quick to criticize the proposal, noting the cuts in revenue-sharing and the shift of retirement funding for schools was little more than a giant cost shift to local communities.

And, the elimination of programs would leave some of the state’s most vulnerable citizens, including the elderly, with having to choose from among food, heat and medicine.

“This will be devastating to the city of Lewiston and its residents,” said Rep. Peggy Rotundo, D-Lewiston, House chairwoman of the Appropriations Committee.

Senate President Justin Alfond, D-Portland, said the budget, if approved as presented, would result in steep property tax increases for all Maine families.

Republicans and Democrats in the Legislature will likely have their own budget proposals. Rotundo said those ideas, as well as the governor’s, would be fully vetted in the weeks ahead.

The meeting between LePage Cabinet members and legislative leaders and the Appropriations Committee was originally scheduled to be held in private, but the meeting was made open to the public and the media after a protest under the state’s Freedom of Access Act was lodged by the Sun Journal.

The governor’s staff had planned to brief the press on the budget proposal at 3 p.m. LePage was not in attendance at the meeting Friday and legislative leaders said he was the only governor of the past three who didn’t attend the presentation of his own budget.

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