AUGUSTA, Maine — Preliminary reports for September indicate state revenues failed to meet estimates for the third month in a row, triggering Gov. John Baldacci’s budget cuts in his own office and the start of the emergency budget curtailment process.
“The cumulative total is still behind of the three months year to date” in fiscal year 2009, Baldacci said in an interview. “We had to start the process to get ready for the storm. It is going to get worse before it gets better.”
In a statement Friday, the governor said revenues were down about $6 million for the first two months of the budget year. In an interview he acknowledged he had received a preliminary revenue report that showed more red ink in September.
“They are preliminary. Maine Revenue Services has not done its analysis,” said Finance Commissioner Ryan Low. But he said he did not expect any major changes in the numbers from the state controller based on revenues recorded by the controller’s office computerized accounting system.
A memo containing the September figures indicated revenues were below estimates by $3.8 million for the month, bringing the red ink for the first three months of the budget year to about $9.8 million.
The summary indicated the individual income tax, the largest single source of state revenue, was above estimates by $9.5 million in September, nearly wiping out the deficit in that tax line for the first two months of the year.
Maine Revenue Services had cautioned that some of the earlier red ink for the income tax was the result of a timing issue on collections and that the payments under the property tax circuit breaker program and the business equipment tax reimbursement program were above estimates. The analysis of those items will be given to lawmakers later this week.
Several other tax revenues were below expectations. The sales tax, the second largest source of state revenues, was under budget by $2.3 million in September, and the corporate income tax was down $9.7 million during the month, nearly 24 percent below estimates.
Smaller revenue sources were mixed. Estate taxes and tobacco taxes were down while lottery revenues and insurance company taxes were doing better than projected.
Baldacci said the revenues were not the only factor in his decision to start the process to immediately reduce spending to get through the current budget year, which ends next June.
“Given the turbulence in the economy I am hearing about from my Council of Economic Advisers, I thought it was prudent we take immediate steps,” he said.
Baldacci said his advisers, mostly prominent business leaders, said the credit problems nationally are affecting companies in Maine and that state revenues will suffer from fewer consumer purchases and from a lack of business growth.
“What I am starting to do today is to make sure we keep the budget in balance through next June,” he said. “We can’t wait to start the process when the Legislature comes back.”
Last month, Baldacci ordered all state agencies and departments to make contingency plans for a 10 percent reduction in their budgets for fiscal 2010-11, which will start July 1, 2009. He said not all plans would be acceptable to him, let alone to lawmakers, but with revenues certain to be less than expected in the next two years, there will have to be cuts.
The curtailment order that the governor is having Low prepare is the second within a year. Last December, Baldacci ordered $38 million in spending reductions with the bulk of the cuts applying to human services and education programs.
“We are already consulting with the Attorney General’s Office” on the cuts, Baldacci said.
The governor’s emergency budget authority does not require across-the-board cuts, but does require they are “equitable,” and the legal interpretation of that word has been a matter of contention for decades.
Legislative leaders are not surprised at revenues failing to meet estimates or the governor’s decision to start the process of curtailing spending this year. House Minority Leader Josh Tardy, R-Newport, said lawmakers will face tough budget decisions and that the governor was right to move to cut spending sooner rather than later.
“I hope that better times are coming, but I think we have to brace ourselves for even another downturn in revenues,” he said. “I think we know, on both sides of the aisle, that we have tough decisions coming.”
Senate Majority Leader Elizabeth Mitchell, D-Vassalboro, said the economic downturn and the immediate budget cuts do not relieve lawmakers of the more fundamental budget changes they will have to make in the January session for the next two-year budget.
“There comes a point where you can’t continue to ask the same people to do more with all the budget cuts,” she said. “We have to look at what is important, what has to be done. So yes, we have to look at eliminating programs, not just cutting them.”
The state economic forecasting commission meets this month and its report will be used by the revenue forecasting commission next month to reproject state revenues. Revenues were last reprojected downward in June.