Gov. Janet Mills released a supplemental budget proposal Tuesday that would send $500 to checks to most taxpayers and make significant investments in roads and bridges, education, health care and child care.

Mills’ supplemental budget would return half of the state’s projected $822 million revenue surplus to taxpayers in the form of direct checks, spend $100 million to fix roads and bridges, and increase the state’s budget stabilization fund – commonly known as the rainy day fund – to more than $500 million for the first time in state history.

Her proposal also would pay for other priorities outlined last week in her State of the State address, including a $20 million plan to provide free community college tuition for high school students affected by the pandemic and $27 million to provide universal free meals in schools. It includes $7 million in property tax relief and $26.7 million in income tax relief for low- and middle-income families.

The budget also proposes $9.2 million in additional funding to address PFAS, or forever chemicals, in soils and drinking water. It leaves $12 million to be used at the discretion of state lawmakers, according to a statement.

“This budget proposal is bipartisan in nature,” Mills said in a written statement, “drawing on good ideas from both Republicans and Democrats to tackle some of Maine’s most pressing issues, like inflation and our longstanding workforce shortage, by giving back money to Maine people, delivering tax relief for working families, and providing two years of free community college to help our students and our employers.

“It accomplishes these important things in a fiscally responsible manner while also increasing the rainy day fund to a new, record high,” she added. “I look forward to working with the Legislature as they consider this proposal and applaud them for the ideas we incorporated into it.”

The release of the supplemental budget will formally kick off negotiations in the Legislature, which will likely make changes to the governor’s proposal before a final vote in the spring. The process could be complicated by election-year politics, with the governor’s office and the entire Legislature up for grabs.

Her supplemental budget comes after the state’s nonpartisan Revenue Forecasting Committee projected a surplus of $822 million through mid-2023, with revenues exceeding expectations because of federal relief funding and consumer spending. However, budget forecasters warned that the long-term revenue picture remained volatile because the pandemic remains unpredictable.

An updated revenue forecast is due by March 1, which could lead to additional changes by the governor or lawmakers.

Mills laid out her priorities during her State of the State address last Thursday.

Mills also has proposed a $50 million investment in hospitals and nursing homes that would include one-time funding of $25 million each, including $6.8 million in general funds for hospitals and $7.5 million in general funds for nursing homes. And $12 million would fund a bill sponsored by House Speaker Ryan Fecteau to increase pay for child care workers.

While administration officials say that responsible budgeting helped produce a surplus, the Maine Republican Party and former Gov. Paul LePage, who is the front-runner to take on Mills this fall, have accused Mills of using federal “funny money” to balance the state budget. They have accused Mills of mismanaging the state economy, pointing out that Maine’s unemployment rate is higher than New Hampshire’s even though the state’s gross domestic product now exceeds pre-pandemic levels.

“Instead of working to fully eliminate Maine’s income tax like I have proposed, Janet Mills is promising more and more spending, propped up with funny money from deficit spending out of Washington, D.C.,” LePage said in a written statement following the State of State. “However, no debt-fueled, funny money from Washington, D.C., can paper over Janet Mills’ failure to manage Maine’s economy.”

Mills, meanwhile, has emphasized that her spending proposals are partly based on Republican ideas.

Republican lawmakers originally proposed returning half of the surplus to taxpayers through a “Give It Back” initiative, which they credited with returning $150 million last year to workers in the form of $285 checks. But their messaging appears to be shifting, as they are now criticizing Mills and pushing for long-term tax and spending reforms.

‘SOLVING THE WRONG PROBLEM’

Senate Minority Leader Jeffrey Timberlake of Turner sponsored a bill, “An Act To Give Back Excess Revenue to the People of the State of Maine,” which would have put half of any surpluses on a monthly basis into an account to be returned to taxpayers. But legislative leaders declined to put it on the docket this session.

In the Republican response to Mills’ State of the State address, Timberlake said that her plan to send direct checks to taxpayers is “solving the wrong problem.”

“We need to reform our tax structure from income and sales taxes so you get to keep more of your money for you and your family,” Timberlake said. “We also need to reduce our spending and adjust for inflation to match tax cuts or else future generations will be saddled with unsustainable financial cliffs that we’ll be creating today.”

While Mills has framed her budget as bipartisan, Republicans will not have much leverage to force changes because Democrats control the Blaine House and have majorities in both chambers of the Legislature.

Spokespeople for House Speaker Ryan Fecteau, D-Biddeford, and Sen. President Troy Jackson, D-Allagash, referred questions about the budget plan to Democratic chairs of the Appropriations and Financial Affairs Committee.

During her State of the State address, Mills called on the Legislature to send $500 checks to about 800,000 taxpayers. That proposal exceeds in both size and scope the previous payback program, initiated by Republicans, which sent checks of $285 to about 500,000 Mainers who worked during the pandemic. This round would reach more Mainers because it’s targeted at taxpayers, rather than workers, the administration said.

FREE COMMUNITY COLLEGE

Mills also proposed tens of millions of dollars in investments for education, including $20 million to pay for up to two years of tuition at community colleges for high school students most affected by the pandemic – the classes of 2020, 2021, 2022 and 2023. She also proposed $7.9 million in funding for the University of Maine System to prevent tuition hikes. And she proposed a $30 million Education Stabilization fund to help ensure the state continues to meet its commitment to fund 55 percent of local education costs.

The supplemental budget also provides a one-time adjustment to state employee pensions to keep pace with inflation. However, the one-time, noncumulative $14.7 million adjustment is well short of what was requested. The state employees’ union, in a letter signed by a bipartisan group of lawmakers, called for an increase to the base pensions, which would have cost nearly $147 million.

Mills proposed $7 million in additional funding for Maine’s Property Tax Fairness Credit to help reduce the property tax burden for low- and middle-income households. If approved, the ongoing funding would help an estimated 100,000 property owners and renters paying more than 4 percent of their household budgets on property taxes or rent by providing a refundable tax credit of up to $1,000 each year. Seniors would received a maximum  benefit of $1,500.

Income tax relief for low- and middle-income families also was proposed. Mills proposed $27.7 million in ongoing funding to increase the value of the Maine Earned Income Tax Credit. The administration projected it would help 100,000 Maine residents, primarily working families with incomes of less than $57,414, by increasing the maximum benefit by an average of $400 per family, bringing the total EITC benefit per family to an average of $764 per year.

Mills also proposed adding $10 million into the state’s rainy day fund.

INVESTING IN CHILD WELFARE

Also included is an $8 million investment to improve the state’s child welfare system by strengthening the Office of the Child Welfare Ombudsman, adding caseworkers to reduce pressures on existing staff, improving staff training and expanding support for families. The initiative was announced ahead of hearings on several bills offered in response to four child deaths within a month of each other last summer and a record-setting 25 child deaths last year.

Rep. Sawin Millett, R-Waterford, and the ranking Republican on the committee, declined to comment on the supplemental budget before meeting with his caucus. Millett said the committee will schedule hearings the week after next, with the goal of voting out a spending bill sometime in March.

Sen. Cathy Breen, D-Falmouth, a co-chair of the Appropriations and Financial Affairs Committee, said in a written statement that committee members worked hard last year to create a “responsible, bipartisan budget” that invested in property tax relief, funding public education and increasing the rainy day fund. She looks forward to doing the same in the coming weeks.

“This work has left our state in good financial health with an impressive surplus,” Breen said. “I’m hopeful we can work together to pass a supplemental budget that meets the needs of Maine families, communities and small businesses. The governor’s supplemental proposal puts us in a strong position to begin our work.”

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