Rep. Sawin Millett, R-Waterford, listens to proceedings in the Maine House of Representatives chamber in this 2019 file photo. Credit: Troy R. Bennett / BDN

AUGUSTA, Maine — The Legislature’s budget committee agreed on Thursday to fully forgive state taxes on federal loans to small businesses, but the parties remain $32 million apart as Republicans withhold support for a spending plan requiring supermajorities to pass.

It means that Gov. Janet Mills’ short-term budget plan is in danger as lawmakers hurtle toward an initial round of votes during a pandemic-altered 2021 session at the Augusta Civic Center next week. For now, they run the risk of emerging with no deal before Tax Day on April 15.

The Democratic governor irked the business lobby when she announced a spending plan to fully tax proceeds from loans to Maine small businesses under the Paycheck Protection Program, a federal stimulus program. She later revised the plan to forgive taxes for businesses that got less than $1 million, but minority Republicans pushed for full forgiveness.

The Legislature’s Appropriations and Financial Affairs Committee unanimously agreed to full forgiveness at a cost of $18 million more than Mills’ latest proposal. But it deadlocked along party lines on a full spending package amid other disagreements, largely around other ways the state is decoupling from the federal tax code and a Republican demand for two-thirds votes in each chamber on how to spend more aid likely to come soon from Congress.

Rep. Sawin Millett, R-Waterford, said his caucus would submit a package that includes that provision, full conformity and a reduction in money used from a liquor contract fund to stem an expected $650 million shortfall over three years, among other changes. That would cost $32 million more than the Democratic plan.

“I do this with some concern that the message we’re ending here tonight — and what I think we’ll be sending next Wednesday at the Augusta Civic Center — is that the package will not get the two-thirds necessary to be enacted as an emergency bill,” he said.

The division could threaten one point of bipartisan agreement the committee reached: a new provision exempting the first $10,200 in COVID-19 unemployment benefits Mainers received from state income taxes. Sen. Cathy Breen, D-Falmouth, the panel’s co-chair, said that proposal would affect about 160,000 Mainers and that not reaching an agreement could hurt Mainers struggling during the pandemic.

“I think we owe it to the taxpayers of Maine to move forward on a deal that we largely agree on that provides really critical tax relief to businesses who have received federal relief and those who have taken a hit,” Breen said.

Lawmakers have been negotiating over tax conformity for days. This so-called supplemental budget — a short-term spending plan — largely exists to adjust the state tax code and enshrine spending cuts made by Mills in order to balance the state budget during the pandemic. The Legislature is still negotiating over the governor’s $8.4 billion, two-year budget proposal.

The fight over tax conformity has been the biggest partisan debate in this Legislature so far. Republicans have been bullish on that issue, threatening to sink the supplemental budget altogether if the parties could not come to an agreement.

Mills’ latest proposal would have provided 99 percent of businesses that received loans with full conformity, leaving 251 businesses that collectively employ 43,000 people. That provision was projected to cost the state $82 million.

Other elements of the supplemental budget have not been as controversial. The majority of the Legislature’s straw votes on the package during recent work sessions — now finalized with Thursday’s vote — were unanimous. Members voted to remove a few items, such as a $5 million provision for COVID-19 testing and vaccines that the state is able to cover with other money, and retained reimbursement funding for nursing homes and certain health providers.

The committee voted to remove language that would have transferred $25 million from the general fund to the MaineCare stabilization fund and $40 million from that fund to pay for MaineCare payments. It also agreed to not put $41 million in the state’s rainy day fund, though Republicans were hoping for an agreement in the final package to put money back in the future.