🔒State revenues continue to drop

Curtailment invoked to address budget gaps

• Revenues continue to fall
• Sales, corporate income taxes lag

The new Legislature has taken office facing serious financial problems, including a funding gap that could reach $200 million in the current budget year.

“I think that the new Legislature could see a $150 million to $200 million supplemental budget,” said Rep. Patrick Flood, R-Winthrop, the outgoing co-chairman of the appropriations committee.

That budget would make up a revenue shortfall and spending in excess of projections, mostly in the Department of Health and Human Services.

“We have had similar shortfalls in the past and solved them; I think we can solve this problem,” said Rep. Peggy Rotundo, D-Lewiston, who has been the lead Democrat on the appropriations committee for the last two years. “It's not going to be easy, but we can get it done if everybody works together.”

After the first four months of the budget year, state revenues were $26 million below estimates and the Revenue Forecasting Committee has decided that red ink will grow to $35.5 million this budget year.

Finance Commissioner Sawin Millett said after four months, the sales tax and the corporate income tax are not meeting expectations and that the forecasting committee has decided that trend will continue. He has recommended that Gov. Paul LePage use his emergency powers to curtail spending until lawmakers can address the decreased revenue in a budget bill.

That state law allows the governor to “equitably” stop spending for most of the $3.1 billion general fund budget. Debt service and state retirement system payments cannot be curtailed.

Those lower revenue estimates will continue into the new two-year budget that starts next July 1. Expectations are there will be about $128 million fewer tax dollars to fund government programs and services. All of those revenue changes were triggered by the report of the Consensus Economic Forecasting Commission.

Jim Clair, chairman of the commission, said due to nearly 7,000 new jobs in the state from July 2011 to July 2012, the panel is projecting that the economy is growing slightly better in the current budget year than projected. But it does not see any major increase in growth over the next few years.

“We don't see the economy really moving until after all of this uncertainty in Washington is resolved,” said Clair, referencing the “fiscal cliff” before Congress.

Federal budget action could affect the states in different ways. Tax Policy Associate Commissioner Mike Allen, who chairs the Revenue Forecasting Committee, said the variations on what Congress will do make it very difficult to estimate state revenues.

For example, if Congress allows the current tax rates to expire at the end of the year, wealthy taxpayers could shift their higher incomes into this year to take advantage of lower rates, which means more state revenue than expected. Allen said that could help solve the state's revenue problem in the current year but it simply shifts the impact to the two-year budget lawmakers will consider later in the session.

DHHS awash in shortfalls

• MaineCare formula shifts more cost to state
• No ruling on coverage changes

At the final meeting of the 125th Legislature's appropriations committee, Health and Human Services Commissioner Mary Mayhew told lawmakers her agency is facing a need of at least $100 million to pay bills in the current budget year.

“At this point, our expenditures are exceeding our budget,” she said.

In a budget passed earlier this year, the Legislature approved changes that would affect MaineCare (the state's name for Medicaid) coverage for about 36,000 low-income Mainers. It would eliminate coverage for 19 and 20 year olds and tighten income eligibility requirements for low-income parents and would also reduce Medicaid access for seniors who also qualify for Medicare.

Those changes were projected to save $20 million this year. Mayhew said it's possible federal officials will allow some of the changes, but the state had counted on the savings to begin this October.

“We have not heard from the federal government whether they will allow those changes, so we are not saving the money that had been booked in the budget,” she said. “Even if some changes are allowed, we will be short.”

Medicaid is a joint federal-state program and Mayhew said the state's share of the cost of the program has increased significantly even though the overall costs of the program have had a very small increase.

“The state's share, from fiscal year 2011 to fiscal year 2012, is up by 47%,” she said, “even though our overall spending has increased by just six-tenths of a percent.”

A higher match rate under the Recovery Act was phased out this year and, at the same time, the state was expected to increase its share of the costs because Maine's average per capita income was better than the national average. As a result of that formula, Maine went from having the feds pay for 74.73% of Medicaid costs in 2010 at the peak of the recession to 62.5%.

While MaineCare enrollments have remained steady, there is greater use of services. Mayhew said 20% percent of Mainers covered by MaineCare account for 87% of the cost of the program.

“We are analyzing the data to see why this is happening,” she said.

Yep, more red ink

• General assistance likely to need more funds
• Agencies expected to tighten belts

While revenues and Medicaid are driving most of the state's shortfall this budget year, other programs are also experiencing problems, as they do every year. For example, the General Assistance program administered by local municipalities will need additional funds.

General assistance is a state program to provide emergency assistance to those in need. The program cost is split between cities and towns and the state. But, in areas such as Bangor and Portland where the program is used more, the state pays 90% of the program once a certain threshold is reached. Last year the state cost for the program was $11.8 million, far exceeding its budget of $7.4 million.

Lawmakers created a study group, chaired by DHHS Commissioner Mary Mayhew, to find savings for this year and into the future. Mayhew does not think the group will meet its $500,000 savings target.

“There has been progress in reaching that goal, but I am not sure we will get there,” she said.

Mayhew said even if the goal is met, she maintains the program was underfunded in the state budget and there will need to be additional funds appropriated to get through the current budget year.

“We will be asking for additional funds for general assistance,” she said. The shortfall was pegged at $2.3 million last June.

Last year additional budget requests totaled $37 million. Finance Commissioner Sawin Millett said new requests are being reviewed. For example, some state agencies might need additional funds for gasoline or heat. It is expected agency administrators will need to identify savings in one part of their budgets to offset the need for additional spending in another section. Those shifts need legislative approval.

Millett said he expects the supplemental budget will be introduced shortly after the two-year budget in January.