Crunching the numbers
Budget year ends with unexpected surplus
- Income, tobacco taxes ‘way up’
- $100M shortfall still looms
The state ended the budget year on June 30 with a surplus of $70.4 million, higher than expected as monthly revenues came in above estimates and state agencies spent nearly $8 million less than appropriated.
“The surplus puts Maine in a better position to address a number of challenges facing our state,” Gov. John Baldacci said. “We are beginning to see signs that our economy is recovering from the recession, but things remain fragile and we must be vigilant.”
Revenues in June were a mixed bag, with the sales tax continuing to come in slightly above projections, while the personal income tax ended the year just under estimates, according to Acting Finance Commissioner Ellen Schneiter. Among other revenue lines performing better than expected were the corporate income tax and tobacco taxes. “They were way up,” she said. “They were $2.8 million (above estimates) for the month and $8.9 million for the year.”
But unless Congress provides additional Medicaid aid, the budget must be cut by $100 million, said Rep. Emily Cain, D-Orono, co-chair of the Legislature’s appropriations committee. “We are in the first month of a new fiscal year,” she said, “in the middle of what so far has been a decent summer for the tourist season. But we have to be mindful of the fact it was not all that long ago that we were facing hundreds of millions of dollars in shortfalls.”
Sen. Richard Rosen, R-Bucksport, the GOP senator on the committee, said he is pleased revenues appear to have stabilized over the last few months, but said the size of the surplus is small compared to the $2.7 billion in revenues taken in during the year. “We seem to have leveled off and so that seems to be the positive signal here,” he said.
Both legislators said Baldacci needs to continue the process of identifying $100 million in cuts should Congress fail to provide the delayed Medicaid aid to the state. Only the Legislature can change how the surplus is allocated, and it is not in session.
Next budget faces $1B gap
- DHHS, education costs top list
- Fixes to go beyond ‘tweaking’
Don’t ask members of the Legislature’s appropriations committee to pin down exactly how bad the budget gap will be next session. All they’ll say is it will be bad — to the tune of at least $1 billion.
“There are so many moving parts that we just won’t know until we see where everything settles down,” said Sen. Bill Diamond, D-Windham, co-chair of the panel.
Sen. Richard Rosen, R-Bucksport, the GOP senator on the committee, said the various estimates add up to a significant budget dilemma that will not be resolved by “tweaking” spending or trimming programs. “It will be a problem with a big number with a ‘B’ in it, as in billion,” he said. “This is a serious problem whatever the final number is.”
And the budget problems will only be exacerbated by the loss of one-time federal stimulus funds. “Many of the programs will have inflationary cost increases, although in this recession that is very low, projected to be about 2.1% a year for the next biennium,” said Grant Pennoyer, director of the Office of Fiscal and Program Review. There are also constitutional requirements for spending for state debt and for the state retirement system, he said. “If you add those together, that would add another $172 million to the shortfall,” Pennoyer said.
The committee’s staff analysis uses existing law in developing its estimates, so it includes such items as the $240 million needed to bring the state’s share of the cost of local schools to 55%. While law, the budget has overridden that requirement every year since it was passed by referendum. “I think we need to be honest with people and tell them up front that the state cannot afford to pay 55% of the cost of education,” Diamond said.
Pennoyer said his office can account for a budget gap of about $800 million, but that does not include the Department of Health and Human Services. DHHS estimates it will need of another half billion dollars to keep programs operating at current levels. “I am not ready to go there yet,” he said.
Neither are committee members. Rep. Emily Cain, D-Orono, House co-chair of the panel, said information provided to the committee by staff and by Acting Finance Commissioner Ellen Schneiter means the next session will have difficult decisions to make on state priorities. “We are going to have to answer the question of ‘What do we want to do and what can we afford on that list of things we want to do?’” she said.
Consolidation awaits state’s new leaders
- Gov’t administration eyed for savings
- Debate spurs worry over local control
Consolidating services at all levels of government will prove a daunting task when the new Legislature and governor take office next January, according to veteran lawmakers.
“The bottom line is we have too much administration in too many areas,” Gov. John Baldacci said. ”We need to consolidate those back office administrative functions so you get the resources to the citizens.”
Local and county governments should consider following the example of state government in consolidating such functions as payroll and bookkeeping, Baldacci said. “A real sleeping giant in Maine is the county governments,” he said. “There are a lot of opportunities for county governments to really be the central point for municipal and school administrative services.”
With the loss of federal stimulus funding, reduced state revenues as a result of the recession and increased costs of government services, cutting administrative costs will be a high priority for lawmakers, said Sen. Bill Diamond, D-Windham, co-chair of the Legislature’s appropriations committee. “We can’t afford to do things the same way anymore,” he said.
Creation of the state corrections board to oversee county jails is an example of how to reduce the property tax burden, he said. “Consolidation itself needs to be, has to be, a major point, a foundation in the next legislature,” he said. “We can’t continue to go on as we are with individual units, 500 towns doing their own thing. We can’t afford it.”
Rep. Sawin Millett, R-Waterford, the ranking GOP member of the committee who served as both finance and education commissioner in previous administrations, said the financial problems affecting all levels of government make consolidation efforts more likely. “I think there is a greater chance for some municipal consolidations, both at the individual municipality level and multiple municipalities and further consolidations of county-state functions like law enforcement,” he said.
Even “significant” consolidations wouldn’t likely solve the financial issues facing Maine governments. “I have told those who have asked that I think it will take a dozen $100 million ideas to solve what we are facing in January,” he said.
Sen. Gerald Davis, R-Falmouth, said he is unsure how efforts to promote consolidation will fare. “In Maine, loyalty to the towns goes very deep and has deep roots,” he said. “I think it has to be cooperation first and consolidation will take a long time.”
Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz. Read more of Mal’s columns here.
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