🔒Balancing act

Revenues drop in July

• Incomes taxes fall short
• Cuts in federal funds expected

The first month of the new budget surprised state officials and lawmakers, with revenues falling $17.2 million short of projections and stirring worries that Maine's economy has stalled.

"Much of that shortfall is in the individual income tax line and we know that withholding receipts were down; we know that estimated payments and quarterly payments for those who file estimated returns were actually up," said Finance Commissioner Sawin Millett. "But the withholding piece is a concern because it reflects lower payrolls or the absence of payroll growth." Withholding has been the most stable portion of income tax revenue throughout the recession, and Millett is concerned whether the estimates on a month-to-month basis are correct.

Millett said corporate income taxes also fell below estimates after months of coming in above projections. The corporate tax was projected to bring in more than $9.1 million in July but only about $8.6 million was collected. That's 6.2% below target — any revenue source more than 5% off in a month draws extra scrutiny.

"It is the estimated payments that are off and that may be a timing issue," Millett said. "We need to watch what happens with August and September to see whether it is timing or the estimates are off." Grant Pennoyer, staff director for the appropriations committee, told legislative leaders that it was not a timing issue, cautioning that one month of revenue reports does not make a trend.

With the expected loss of federal funds resulting from the federal deficit reduction law, Millett and committee members are worried the state could face a "double whammy" of needing to fill a state revenue hole as well as loss of federal money. "I think this may mean a continued period of economic uncertainty," said Rep. Peggy Rotundo, D-Lewiston, the Democrat lead on the panel. "If you look at what is happening internationally, and nationally, that is being reflected in our state's economy."

"The question once again is whether this signals a change in trends, or is it a one-month blip?" said Sen. Richard Rosen, R-Bucksport, the co-chairman of the committee. "But even if it is just a one-month blip, its size has to be a concern."

LePage zeroes in on contracts' administrative costs

• DHS, other agencies eyed
• Contracting policies a longtime target

Gov. Paul LePage says he'll be focusing on squeezing savings from the administrative costs associated with the state's hundreds of millions of dollars in contracts for services every year, mostly in the Department of Health and Human Services.

"As tough as it is going to be, we have to prioritize spending and we have to make sure every dollar is as effectively and efficiently spent as it can be," LePage said. A 2009 study by the legislature's Office of Program Evaluation and Government Accountability found that in one narrow area of contracted services — children's outpatient mental health services — administrative costs represented 27 cents of every dollar, he said. "Only 73 cents of every dollar [goes] to provide a service," he said. "I believe it should be 88 or 89 cents."

David Flanagan, a former president of Central Maine Power Co. and a member of the budget-cutting taskforce, said while DHHS may contract the most, all contract administrative costs should be reviewed by the panel. "One of the issues we have that adds to the cost of government is having a very large number of very small contracts that entail huge costs of contract administration and oversight," he said. "What I would like to get at is what the quantity is, and the quality and what the procurement practices are of contracted services. "

Finance Commissioner Sawin Millett said the appropriations committee has looked at the issue over several sessions. Millett, who served on the panel for eight years, said two staff positions were added at the Bureau of Purchasing to improve contracting policies.

The contract review process was an initiative by then-finance commissioner Ryan Low, now vice president for finance at the University of Maine at Farmington and a member of the taskforce. Low said the consolidation of information technology services could serve as a model for consolidating contracting of services under a single agency.

Rep. John Martin, D-Eagle Lake, who also serves on the taskforce and on the appropriations committee, said the issue hasn't been resolved because service providers lobby against caps on administrative expenses or other cost controls. "But if we have the momentum in the Legislature and from the governor's office to achieve that goal, it is doable and achievable and will be a great money-saver for Maine people," he said.

He said the panel should also explore limiting the number of vendors providing the same services in the same area of the state.

CDS deficit projected, again

• Children's program faces nearly $1M shortfall
• Restructuring cut some costs

Although it's early in the budget year, the Department of Education is already projecting it will need additional funds to pay for the Children's Developmental Services program.

CDS provides both case management and direct services for children through age 5, with needs ranging from learning disabilities to mental health services. "We are doing what we can to reduce costs, but those services need to be provided to kids, they are entitled to those services," said Education Commissioner Stephen Bowen.

He said even though the state has been reducing administrative costs, the program suffered a revenue shortfall because changes in Medicaid rules reduced the amount of federal funding available for the mandated program. Some services can be covered under the state's Medicaid program, called MaineCare, which means the federal government pays roughly two-thirds of the cost for children that meet the eligibility standards. "We are looking at a revenue shortfall of the program of roughly between $600,000 and $900,000 this year," said Deputy Education Commissioner Jim Rier.

He said a question mark is how many children will continue with CDS services for another year because their birthdays fall between July 1 and Oct. 1. "We have included an estimate of 117 students at a cost of $966,000," Rier said. "I still remain concerned that number will be higher."

Rier was the DOE finance director in the previous administration and has been dealing with the reorganization and restructuring of the program for a couple of years. A major reorganization of CDS that took effect July 1, 2010, reduced the number of centers and the administrative overhead of the system. That was in part a response to federal concerns that some of the services billed to MaineCare were not allowed, and to inconsistent regulations among CDS sites across the state.

Rier said after the first quarter of the budget year ends on Oct. 1, he will be able to give lawmakers a better estimate of the program's expected shortfall. "There is no question we will have one," Bowen said, "and at some point we are going to have to bring that budget back into balance."

Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz. Read more of Mal's columns here.