King eyes increase in taxes as budget fix State Senate president prefers belt tightening

AUGUSTA – Meeting with reporters Wednesday, Gov. Angus S. King confirmed what many Maine politicians had feared for the last two weeks: Higher taxes may be necessary to bridge a looming budget gap that could reach $180 million.

“I’m not going to sit here with all these cameras running and say ‘No, never under any circumstances will [a tax increase] ever happen,’ because, you know, I can’t foretell the future and we haven’t had the chance to really dig and see what our options are in the way of cutting,” the governor said. “But I can tell you that I start from a premise that taxes are not an option and then we’ll do everything we can to avoid that. But I’m not going to make a categorical statement, because I just don’t think you can do that and I just don’t think it’s responsible.”

Raising the state sales tax by a penny to 6 percent would generate $70 million annually, state officials said Wednesday. Maine Senate President Rick Bennett, R-Norway, emphatically countered that a tax increase has to be beyond the governor’s consideration as he ponders his options.

“The voters’ reaction would be one of great hostility,” Bennett said. “I don’t think the voters want to raise the sales tax to pay for more state government. We really need to tighten the belt.”

Bennett renewed his suggestion Wednesday for the governor to call the Legislature back into special session to deal with the budget problem.

The precise timing of a special legislative session to address the dramatic decline in capital gains revenues continued to be something of a cryptic issue for the governor. King told reporters last week that a special session could be convened later in the year to allow lawmakers to weigh in on his solutions for solving the budget dilemma. The governor inched closer to that possibility Wednesday, saying it was “likely” he would call the Legislature back, but not until after the close of the fiscal year on June 30.

“I’m not ready to say it will be in July or August or any other time,” King said.

The governor is pursuing a strategy that would allow him to balance a $90 million capital gains deficit in the current state budget, which expires on June 30, by making a number of state spending cuts through an executive order. But the lion’s share of the deficit will be achieved by borrowing a large percentage of $86 million from the state’s Rainy Day Fund that has already been earmarked to plug a gap in the budget cycle that begins July 1.

King will have to find a way to replace the borrowed portion of the $86 million as well as address another potential deficit of $90 million next year from the loss of capital gains revenues stemming from the stock market’s anemic performance in 2002. Across-the-board cuts, which King said would have to meet a court-ordered standard for equitability, would have to be a little more than 7 percent in order to meet the necessary budget targets.

“Anything over 7 percent would be very difficult; that would essentially eliminate any increase to” local education, he said. “It would also be pretty hard on Medicaid.”

The governor’s financial analysts are waiting for final income tax payments and the arrival of June tax estimates before recommending a course of action to the Legislature. David Clough, state director of the Federation of Independent Business, which has 6,000 members in Maine, said the real problem facing the governor resulted from a failure to rein in state spending – not unforeseen revenue drops.

Clough likened the situation to a horror movie in which the monster keeps growing, no matter what is done to try to stop it.

“The state budget is like ‘The Blob’: It just keeps getting bigger and bigger every year,” he said.