🔒Budget battles

Revenues fall in October

• Corporate income tax below projections
• Year-to-date comparisons healthy

State revenues were $12.6 million below estimates in October, putting the overall revenue picture in the red by $6.7 million for the first four months of the budget year.

"When I looked at the bottom line, down $12.6 million for the month, I was concerned until I got the detailed explanation and analysis of what happened in October," said Finance Commissioner Sawin Millett. "It is not as bad as it first may appear."

He said most of the red ink was in the corporate income tax, which was $7.9 million below projections after performing well over estimates for several months. He said more businesses than expected requested extensions on filing returns from Maine Revenue Services.

Millett said some of the red ink in October was due to the state's making larger payments under the property tax relief programs than projected, including the individual tax and rent relief programs, as well as the Business Equipment Tax Reimbursement.

"I know it gets confusing when we talk about estimates and projections," he said, "so it is important to look at actual numbers year-to-date compared to a year ago, and that is good news."

Compared with the first four months of the last budget year, overall revenues are up $11.6 million, evidence the economy is improving, although slowly, said Millett. He said the sales tax is performing significantly better than for the same period a year ago, up 6.2%, while the individual income tax is up 2.7%.

"I think we are seeing a slow, steady improvement and we just don't quite have the spark yet to lift us up," said Sen. Richard Rosen, R-Bucksport, co-chairman of the appropriations committee. He said any time the revenues fall below projections, even for just one month, it is a concern.

Rosen and Millett are also concerned about the impact of federal debt reduction on state revenues.

"What we have to do when we re-project state revenues is look at what we actually know," Millett said. "Whatever Congress does will have an impact and we will have to deal with [expected cuts]after we know what they are; across-the -board cuts would be disastrous."

DHHS budget hole will grow

• MaineCare overruns continue
• Lawmakers ready for December emergency work

Gov. Paul LePage called legislative leaders and other key lawmakers to a meeting on short notice to inform them that the Department of Health and Human Services' budget has a hole of $70.9 million in the current budget year, and that part of the costs driving the shortfall will continue into the second year.

"Some of our concerns that we frankly had when we were dealing with the biennial budget last spring are now coming home to roost," said DHHS Commissioner Mary Mayhew. "Some are baseline assumptions that did not hold up."

Most of the cost overruns are for MaineCare, the state's Medicaid program. Doctors' claims are above budget for the current year by an expected $10.3 million. Another $9.9 million in hospital claims are projected to be over budget because of mistakes in the way Medicare and MaineCare interact in payments.

"Some of these costs will continue in the next year of the budget, but not all," said Mayhew. "We are still analyzing which are one-time costs this year and which ones will continue on."

Mayhew said that savings initiatives are expected to fall short by $4.1 million and that some items that should have been budgeted, like the increase in Medicare Part B premiums, were not. That is a projected $5 million problem.

She said there is a fundamental flaw in the way the state has been budgeting under MaineCare, lumping all the programs under one account instead of projecting costs program by program.

"We are looking administratively to see what we can do to limit our expenditures," she said. But, she acknowledged, a solution will require legislative action and she is not ready to make proposals as the analysis of the under-budgeted items continues.

"We are bleeding about $6 to $7 million a month and we are going to have to address this as soon as we can," said Rep. Patrick Flood, R-Winthrop, the House chairman of the appropriations committee. He expects the committee will start to meet in December, depending on when it gets an emergency budget proposal. "There are a lot of variables we know are coming, but we don't know when we will know what they cost," he said.

Mayhew agreed. She said Congress is considering deficit reduction proposals that will certainly have some impact on the DHHS budget. In addition, several federal audits of Medicaid-funded programs that could cause budget problems are under way.

LePage proposes ambitious energy goals

• Cites pellet and natural gas options
• Calls for halving oil dependence

Gov. Paul LePage wants to cut in half Maine's reliance on oil for heating homes and businesses, a goal that is drawing praise and doubt.

"Right now, 80% of our homes are heated with oil," LePage said in a speech. "I'd like to lower heating oil from 80% to about 40%."

He would like to reach that goal by 2014, the end of his current term in office. He said it could be achieved by shifting more urban areas to natural gas and rural areas to wood pellets.

"You need a hub, an anchor for natural gas, and we are working on getting gas lines to Calais from the line going to the Woodland mill," LePage said. Talks are also under way to bring a line from Bangor Gas to the paper mill in Millinocket.

"We are glad to hear [the governor shares] the goal of reducing our dependence on oil," said Dylan Voorhees of the Natural Resources Council of Maine. "The question is how we do it, and is it a realistic plan?"

He said both natural gas and wood pellets are alternatives, but he hopes the governor will address the easiest way to reduce oil consumption: conservation.

"People can make investments in conservation that have three-to-one paybacks on every dollar invested," he said.

Voorhees said there are a lot of competing needs for Maine's wood supply and the state needs to make sure its traditional uses have enough wood as demand for pellets grows. He said if supplies of pellets are outstripped by demand, the cost will go up and make it a less desirable option for many homeowners and businesses.

Rep. Stacy Fitts, R-Pittsfield, the co-chairman of the Energy, Utilities and Technology Committee said the governor's goal is laudable, but expressed concerns.

"We certainly have the foundation in place to move in this direction," he said. "I think time wise and cost wise, we are going to have to evaluate what people can afford. I just don't know if we can reduce our oil use that much in just three years."

Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz.