🔒Capitol Update: Budgets underwhelm

State starts budget year above estimates

Sales tax lower than expected

Other revenues over projections

Maine started the new budget year with revenues exceeding estimates by $14.5 million in July but sales tax receipts are lagging — a situation worrying lawmakers and budget officials.

"The sales tax is only running 1.7% over last year," said Finance Commissioner Sawin Millett. "It was projected to be 3.7% and that has to be a concern as we look at what is happening in the economy."

He said the state's economic forecasting commission will have to review the sales tax assumptions when members meet this fall to see if the growth rate needs to be modified. He said the various categories of sales tax are mixed with lodging taxes and are nearly 15% above a year ago, but building supplies are 10.2% lower than a year ago.

"We are seeing a slowdown on the retail side from what we were seeing earlier this year in the winter and spring," Millett said, speculating on the impact of rising gasoline prices on Maine consumers.

"Increased prices for oil, gasoline in the summer, heating oil in the winter, has a very quick and immediate impact," said Sen. Richard Rosen, R-Bucksport, co-chairman of the Legislature's appropriations committee. "People have less money to spend and that is reflected in the sales tax."

He said retail sales are only slightly ahead of last year and if energy prices continue to increase, the ability of consumers to buy everything from back-to-school clothes to big ticket items like washing machines is affected.

"The period we are in right now, when people are buying back-to-school clothes and supplies, will tell us a lot about what is happening with consumers," Rosen said. August sales tax receipts are available in October.

"I will be looking very carefully at those reports," said Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the committee. "The sales tax is a key indicator of how Maine families are doing and if it continues to not meet projections we need to be concerned."

While consumers seem reluctant to spend, they might have more cash available to spend. The individual income tax made up most of the increased revenues in July, up $12.1 million with that revenue coming from better than expected withholding payments by employers and higher-than-projected estimated payments by the self-employed.

"Withholding increased by 7.7% in the first month of the fiscal year," Millett said, "in stark contrast to the 1.3% growth experienced for the first half of calendar year 2012."

He said it appears the economy is continuing to "bump along" with some growth.

Millett said the corporate income tax continues to do better than projected. In July, it was $1.1 million above estimates, which is 12.8% above projections made last spring. And the lottery brought in $500,000 more than was projected — 12.4% better than the estimates. He said two other revenue sources were way above estimates due to timing issues or one-time payments. The estate tax was 47% above projections and the insurance company tax was 213% over estimates.

State ends year with tiny surplus

$26 million surplus a new low

Hospitals get less than half in owed payments

Maine ended the last budget year June 30 with the smallest surplus in the memory of Finance Commissioner Sawin Millett, who has been involved with state government for more than 40 years. The surplus was just over $26 million, mostly from income taxes above estimates.

"We ended up with less than $2 million of general fund appropriations that didn't get spent," he said. "I can't remember a time when it was that low."

Millett said unspent funds usually account for $5 million to $10 million of a surplus, but not this year. He said various accounts had surplus funds diverted to fund supplemental budgets earlier this year.

The budget law allocates where a surplus will go. The governor's contingency account gets restored at a cost of $300,000 and the reserve fund at the Finance Authority of Maine gets $1 million before any other allocations.

The budget law then allocates the next $15 million for a cost-of-living adjustment for state retirees, and the next $25 million to hospitals for payments they are owed. While the retirees will get a cost-of-living increase, the hospitals will only get about $9.7 million, which will draw down about twice that in federal Medicaid funds.

Sen. Richard Rosen said while he wishes the amount was greater to help reduce the debt owed hospitals, the panel did craft a long-term solution to hospital payments.

"We did change the payment system in this budget so that hospitals are being paid for services on an ongoing basis," he said. "This does mean the new Legislature will have to deal with a larger problem."

Steve Michaud, president of the Maine Hospital Association, said the change in the payment system was a "huge" improvement for hospitals. But, he said, the hospitals are still facing debt of about $460 million from past years.

"The $25 million would have leveraged another $50 million in federal funds and it would have been a good down payment," he said.

The governor looks for feedback

Business forums evoke familiar themes

Online survey touted

Over the summer, Gov. Paul LePage held another round of meetings with business owners and managers to gather feedback on ways to make Maine a better state for business. The four meetings held across the state have been closed to news coverage, but the Governor's Office said there have been several clear themes in comments to the governor, commissioners and staff who have attended the sessions.

One is there are still areas where the state can improve its regulatory climate; another is the cost of health care. There is also concern that the state does not have the trained work force it needs and businesses have trouble accessing capital to expand.

"Quality of life was most consistently rated as the best part of doing business in Maine, while businesses clearly stated that work force issues are what they would like see the biggest focus on in the future," LePage said in his weekly radio address summarizing the findings of his online survey unveiled during the business forums.

Work force issues have been high on the list of concerns from respondents to the survey, with 44% saying they are not confident they have access to the quality work force they need here in Maine. Attracting and recruiting talent, retaining talent and access to trained workers were all rated as "critical" or "very important."

The need for more affordable energy was a major concern as well. Access to natural gas was one area that businesses say needs improvement.

LePage said he would like to see all of the state's more than 40,000 small businesses take the online survey developed by the Department of Economic and Community Development.

"So far, nearly 500 businesses have provided feedback that will help us develop policy that will spur job creation and economic growth," he said.