Bill Diamond: Taking an inside look at Maine’s supplemental budget

By Senator Bill Diamond

The past year has had unexpected consequences, both positive and negative, big and small. One effect of the pandemic and our political climate is that most people are more tuned in than ever to what’s happening in their government. With lots of talk about spending at the state and federal level these days, I wanted to share with you what Maine’s budget process is, and where we stand now.

Every other year, the governor proposes a biennial budget, and the Legislature debates the budget and proposes changes before passing a version that gives Maine a roadmap for revenue and spending for the next two years. However, circumstances change, and an unexpected change in revenue or spending means that the Legislature must pass a supplemental budget. This is because Maine’s Constitution requires we end each fiscal year with a balanced budget. Like the biennial budget, the supplemental budget is a proposal by the Governor that the Legislature can then modify before passing. There isn’t a supplemental budget every year, but it happens often.

As we all know, the pandemic and its economic fallout had consequences for Maine’s budget, with the state experiencing a decrease in revenue. Luckily, this shortfall isn’t as bad as it could have been. Before the Legislature adjourned in March 2020, we passed legislation and a supplemental budget in preparation for the economic troubles we saw coming, leaving $106 million in the state’s General Fund to make up for future losses. And in September, Gov. Janet Mills issued a curtailment order to reduce department spending while avoiding staff layoffs and cuts to programs. With curtailment orders, departments are ordered not to use some of the funds that had been allocated to them in the budget, but which they haven’t spent yet.

Even with these measures, Maine is facing a budget shortfall of $255 million for this fiscal year, so in January, Gov. Mills proposed a supplemental budget to address this. This budget is currently moving through the Legislature as we debate how to adjust our spending and where we expect remaining revenue to come from before the fiscal year ends on June 30, 2021.

One part of the supplemental budget that’s been getting a lot of attention is whether the state will tax businesses for forgiven Paycheck Protection Program (PPP) loans. I wrote about this issue in a previous column. The federal government decided not to tax these forgiven loans as income, and as part of the supplemental budget, Maine needs to decide if the state tax code will treat them the same way.

Initially, the Governor proposed that all forgiven PPP loans be taxed, which I was opposed to. However, shortly after I wrote my column, the Governor proposed exempting the first $1 million of forgiven loans from income tax for all PPP recipients. This proposal would mean that 99 percent of Maine businesses that benefited from this program won’t have to pay any income tax on forgiven PPP loans. The businesses that have forgiven loans of more than $1 million won’t have to pay tax on the first $1 million, and all businesses can claim deductions on expenses paid for with these forgiven loans. This commonsense compromise by the Governor supports Maine’s most vulnerable small businesses without forcing critical cuts elsewhere. However, my preference is still that we remove the tax for all businesses because that was the intent of the PPP when it was initially passed.

Still, this exemption means a decrease in projected revenue of $82 million that the supplemental budget needs to make up for. The Governor had originally proposed leaving $40 million in the General Fund and adding $40 million to the state’s Rainy Day Fund in the supplemental budget, but now proposes using that money to fill the gap caused by exempting PPP loans. It’s worth noting that, due to careful planning and responsible spending, Maine’s Rainy Day Fund remains robust, at an all-time high of $258.9 million. In fact, we have not had to use any money from the fund to balance the budget.

Most other elements of the supplemental budget are straightforward adjustments of department spending due to Gov. Mills’ curtailment order. In the coming weeks, the full Legislature will vote on the supplemental budget, with a two-thirds majority vote needed. It’s important that we act quickly, because many corporate tax filings are due March 15, unlike individual income taxes that must be filed by April 15. Later this session, we’ll vote on Gov. Mills’ proposed biennial budget for 2022 and 2023, which she outlined in her State of the Budget address last week.

I know budget matters can be complicated, and I hope I’ve been able to shed some light on where we are. If you have any questions about the budget, or if I can be helpful to you in other ways, please don’t hesitate to reach out to me at diamondhollyd@aol.com or 207-287-1515. <