Maine’s economic turnaround gets under way

By Rep. Joyce Fitzpatrick
    Last winter, when the 125th Legislature opened for business, voters expected to see action on jobs and the economy. Republicans and Democrats both campaigned on those issues. Maine residents understood, however, that Democrats had controlled the Legislature for several decades while economic conditions deteriorated.
    One of the most stunning statistics to illustrate the decline came from Charles Colgan, a former state economist currently at the University of Southern Maine. Between 2000 and 2010, he reported, Maine created a grand total of 56 net new jobs – about five per year.
    Seeking a course correction, voters elected Republican majorities in the House and Senate. Under new leadership, the GOP caucus developed a game plan to get Maine’s economy moving again. Government cannot create private-sector jobs, but it can establish favorable conditions for business development.
    The economic game plan centered on four major themes – pension reform, regulatory reform, health insurance reform and tax relief. Directly or indirectly, all four have an impact on Maine’s business environment. Each of those issues has been dealt with in ways that will benefit our state for years to come.
    Let’s consider some important elements.
    Pension Reform: The state’s new two-year budget includes changes to the public pension system for teachers and state employees. Together, they will improve the system’s long-term stability while substantially reducing the unfunded actuarial liability (UAL), dropping it from $4.1 billion to $2.4 billion.
    The budget freezes state employees’ pay for the next two years, thus impacting earnings-based pension benefits. It also caps cost-of-living increases at 3 percent annually, down from 4 percent previously. The retirement age has been raised to 65 (from 62) for new hires and employees not yet vested. However, retiree benefits do not go down, and employees’ costs do not go up.
    In reducing the UAL by $1.7 billion, these modifications will save taxpayers $338 million over the next two years. Under the State Constitution, the UAL must be paid off by 2028. Over the next 17 years, factoring in inflation, Maine taxpayers will save an estimated $3.155 billion.
    Regulatory Reform: Maine’s aggressive regulatory bureaucracy has been one of the most serious impediments to business success. Last December, new legislative leaders took up the cause of regulatory reform with LD 1, “An Act To Ensure Regulatory Fairness and Reform.”
    That signaled a new attitude in Augusta. In meetings throughout the state, a bipartisan committee of legislators met with business owners, workers, farmers, fishermen and entrepreneurs to learn about their frustrations with regulators. The message from the business community was clear – cooperate with us instead of standing in our way, and be certain not to harm the environment.
    The resulting legislation, passed by overwhelming margins in the House and Senate, eliminates numerous bureaucratic obstructions to doing business in Maine, striking a balance between reasonable safeguards and allowing free enterprise to flourish. Changes include commonsense reforms to the Department of Environmental Protection and new business liaisons to help job-creators navigate the maze of permitting agencies.
    Health insurance reform: Our health insurance costs, among the highest in the country, have directly impeded job growth. LD 1333, the sweeping overhaul that is now law, will put us back in the American mainstream with more competition, more choices and a more rational rating structure. The goal is to drive down costs and make insurance more affordable for everyone.
    Individuals with expensive or chronic conditions can get insurance at reasonable rates, thanks to a new subsidy program. Businesses can band together to obtain better rates for their employees, and Mainers will be able to shop for insurance across state lines starting in 2014. These features will be phased in gradually to ensure an orderly transition.
    Tax Cuts: The new budget includes the largest tax cut in Maine’s history – $150.7 million. Virtually every tax filer in the state will see an income tax cut. Due to fiscal constraints, some of the most significant reductions, such as increases in personal exemptions, don’t begin until January 1, 2013. Over time, however, these cuts will stimulate the economy by leaving cash in the pockets of the people.
    The package eliminates the Alternative Minimum Tax, as well as the 7 percent tax on meals served at retirement facilities, retroactive to 2010. It fully restores the Business Equipment Tax Reimbursement Program, which will encourage businesses to invest in capital equipment. The estate tax exclusion has been increased from $1 million to $2 million, effective January 1, 2013; fewer family farms and businesses will have to be broken up and sold off to cover “death taxes.” Due to tax bracket changes, some 70,000 lower-income filers will pay no state income tax.
    All told, this Legislature took decisive action to improve Maine’s economic future.
    State Rep. Joyce Fitzpatrick (R-Houlton), a first-term legislator, serves on the Insurance and Financial Services Committee.