Numbers game
LePage details budget choices
- Pension promises prompt cuts
- Medicaid costs up $80M
Gov. Paul LePage says he’s made several difficult budget decisions to improve the state’s business climate, the only way he sees to improve Maine’s economy.
“I guess it could get worse. I guess we could be fifty-second [in business climate] if you count Guam and Puerto Rico,” he told Capitol News Service. Maine ranked in last place in Forbes magazine’s annual “Best States for Business” list in October. “If you want prosperity, you have got to make sacrifices.”
Crucial to improving the business climate and growing the state’s economy are his proposals to lower overall tax rates and conform to federal tax provisions to bolster investment, he said. “At the rate we are going now, it is going south and it’s not going to turn around until we stop the bleeding,” LePage said. “We need businesses to grow.” Overall, taxes will fall $203 million over the two budget years with his proposal, he said. “If we don’t do it in the biennium, we don’t have a prayer of turning this state around.”
Teachers and state workers are right when they say he is balancing part of the budget on their backs, LePage acknowledges, saying the state’s “horrible” debt situation is due to past promises of benefits that cannot be funded. “We did not cut benefits, we are cutting the growth,” he said.
The budget proposes that the retirement age for most state employees increase from 62 to 65 and freezing cost-of-living adjustments for current retirees and capping future increases at 2%. LePage also proposes that state employees contribute another 2% from their paychecks toward the pension system to help pay down the estimated $4.4 billion unfunded liability. State workers currently chip in 7.65% of their salaries to the pension system.
LePage said some budget-balancing options he would have liked to use, such as changing benefits under the state Medicaid program, could not be considered because of federal law requiring that past levels of benefits be maintained. The budget for the state share of Medicaid is up nearly $80 million. As a result, he proposes capping municipal revenue sharing and reducing the state reimbursement under the general assistance program. “Either I freeze revenue sharing to the communities or I take money away from the schools,” he said. “Take your choice. As a former mayor, the kids came ahead of the communities.”
Lawmakers keep tabs on rising energy costs
- Oil, gas prices could affect revenues
- Tax income stabilizing
State revenues were up in January, bringing the total to $5.1 million above revised estimates for the budget year, but the turmoil in Libya is pushing up energy prices and threatening to hurt the revenue outlook.
“We saw that last year with the troubles in Greece,” said Mike Allen, research director at Maine Revenue Services. “Energy prices went up and Mainers felt it and we saw sales tax revenues go down because people had less disposable income.”
Finance Commissioner Sawin Millett said sales tax revenues lag a month in reporting, so the sales tax receipts this month will reflect post-holiday sales. It appears sales were “about flat” in January, he said. “Both income tax lines are performing reasonably well when you look over the year,” he said, “even though the corporate [tax income] was down a little in January.”
General fund revenues were over budget by $3.1 million for January, bringing the year-to-date number to $5.1 million, but Millett stressed that was after revenue estimates were revised. Compared to the same period last fiscal year, revenues are up $98.2 million. “It is encouraging news,” said Sen. Richard Rosen, R-Bucksport, co-chairman of the appropriations committee. “But it would be hard to emerge from the last two years without some shell shock, so I think we are all very cautious about the economy and state revenues.”
Rep. Pat Flood, R-Winthrop, the House co-chairman of the panel, said the two largest sources of revenue, the sales tax and the personal income tax, are both above projections after being revised by forecasters in November. “The word that comes to my mind is ‘stability,’” he said. “We are looking at fairly stable revenues over several months now and that certainly is encouraging.”
There is concern among panel members about whether the sales tax will continue to show strength as energy prices rise. Millett said the lottery revenue line could also be affected by the increased cost of energy, since a lot of lottery ticket sales are dependent on discretionary income. Lottery revenues are down $2 million so far this budget year.
Plan to split DHHS draws debate
- LePage eyes separate health, welfare agencies
- Agency undergoing review
Gov. Paul LePage said in his campaign that he wanted to transform state government into an organization that’s more effective, efficient and less costly. His proposals, including a plan to break up the state’s largest agency, are starting to take shape.
The first is a commission created in the proposed state budget that would find $25 million in savings over the rest of this year, with proposals going to the January session of the Legislature. But LePage is also taking aim the Department of Health and Human Services, which he proposes splitting into two Cabinet-level departments, one focused on health issues and the second on welfare.
The governor says he is not ready to propose the move during this session, but he has had discussions with DHHS Commissioner Mary Mayhew about starting the process to draft legislation for lawmakers to consider next year.
Mayhew said the agency is undergoing a comprehensive review of all programs. While discussions over splitting DHHS into two separate agencies are in the early stages, Gov. LePage has made his goals very clear, she said. “The governor wants to insure that our limited resources are being used as effectively and efficiently as possible,” Mayhew said.
Sen. Richard Rosen, R- Bucksport, co-chair of the Legislature’s appropriations committee, served on the Health and Human Services Committee when the merger of the former Department of Mental Health and the Department of Health and Human Services was implemented six years ago. He said it will be a complex process to create two new departments of state government.
Sen. Margaret Craven, D-Lewiston, who serves on the Health and Human Services Committee, said she will keep an open mind, but she is astounded that the governor is even looking at breaking up the agency. “The bulk of our dollars are spent on hospitals, nursing homes, people with disabilities and people that get mental health services,” Craven said. “And, I don’t know, you know, he’s on a witch hunt for dollars that he thinks we’ve been spending inappropriately, and, you know, more power to him, maybe he’ll find a witch someplace.”
Budget hearings continue all month and work sessions on the spending plan are expected to take most, if not all, of April.
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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