CLOSING THE GAP

While legislative Republicans and Democrats were disagreeing on how to request jointly that Gov. King add enough savings to his earlier plan to close the current budget gap, the governor found the money by asking businesses that receive a tax break to wait a few or several months. It’s not a beautiful fix, but it’s also not a gimmick, at least not in Maine’s usual sense.

It will be called a gimmick, however, because it looks like the payroll push and education push of the 1990s, when state government held up checks for employees and school districts until the next fiscal year, then booked the liability on the next budget. One of the problems with those maneuvers was that they had to made up at some point, and they were, so their saved costs merely were deferred. The governor’s plan to switch payments under the Business Equipment Tax Reimbursement from being sent out a month or two after a business filed taxes to August of each year would be a permanent change and not made up in the future.

That means a loss to businesses equal to the time value of the money postponed – the gap between when they would have received their checks vs. receiving them each August. For some companies, this difference is only a month or two; for others it is several months. Businesses cannot be happy about this and, given his enthusiastic defense of BETR over the years, neither can the governor. But given the $100 million or so in cuts to government programs, including furlough days for employees and cuts to funding for local education, the $48 million to be generated by the change in BETR spreads the pain to include those who benefited from this program.

Legislators who will end their careers, at least temporarily, with the expected special session this fall will probably like the plan more than those who are re-elected in November and will return to budget issues in January. The BETR change does almost nothing to reduce costs for the next biennium, leaving the very large hole to close in the FY 2004-05 budget. Still, Maine’s state tax burden (excluding local property taxes) dropped from 13th to 17th highest in the nation last year. Just avoiding a tax increase while many states are approving their own will drive down the ranking further toward the middle. Rationally, taxes should be based more on affordability and need than on national averages, but Maine has been beaten up so often on its combined state and local tax burdens that getting out of the top group would be a huge relief.

The governor needs legislative support to make the policy change for BETR. Few will be happy with the proposal; some will interpret it as a tax increase on business. But unless lawmakers have better ideas specifically and immediately, they should back the governor’s plan.