Changing projections may doom state budget

Posted March 02, 2009, at 7:58 p.m.

AUGUSTA, Maine — As legislative budget writers head into a final week of presentations by state agency and department heads, an updated staff analysis says Maine tax collections are likely to weaken even more.

That probably means that budgeting decisions agreed to this spring will need to be reconsidered — perhaps very soon after they are made.

The state’s Consensus Economic Forecasting Commission, a panel of experts from outside government that reports on key economic indicators, meets again at the end of this month. Their estimates are expected to be even gloomier than they were in the fall.

“Most national forecasts, which are the basis of the forecasts for the individual states, have become much more pessimistic and will likely drive down the Maine economic forecasts for employment and personal income,” says the latest monthly report from the Legislature’s fiscal affairs staff.

A second state panel that includes gubernatorial and legislative analysts actually sets revenue estimates.

At a recent informal joint session of the two panels, participants said that from December 2007 to December 2008, 15,000 jobs were lost in Maine, according to the February newsletter of the Office of Fiscal and Program Review. Most of the job losses came in the final quarter of 2008.

At the same meeting, some of the experts suggested that Maine employment would decline by an additional 15,000 and that the federal stimulus package might reverse no more than half of those job losses.

As to personal income, the newsletter cited Wall Street woes and noted that a survey of tax practitioners has indicated that a 50 percent drop in net capital gains realizations assumed in the current state forecast “may not be pessimistic enough.”

More solid information on such a trend isn’t expected until after the April 15 income tax filing deadline.

But new, lower revenue projections are anticipated by May 1. How the administration of Gov. John Baldacci and lawmakers on the joint House and Senate Appropriations Committee choose to deal with that looming shadow remains to be seen.

On Jan. 9, Baldacci proposed a two-year General Fund spending package of $6.1 billion that the administration said was $100 million to $200 million lower than two years ago. Lawmakers could settle on the details of how to rewrite and enact the governor’s plan by mid-April, only to face a new gap after new revenue projections come in May 1.

Senate President Elizabeth Mitchell, D-Vassalboro, said Monday it would be better to act on what is known right now than to wait.

“I think we need to close it as quickly as possible, even though we know bad news may be coming,” Mitchell said. “If we have to go back in and amend it, I think it would be the better part of wisdom.”

Mitchell said making necessary changes after May 1 would likely not require wholesale revisions.

“We can always go back,” she said Monday. “It’s just such a moving target.”

The legislative fiscal affairs staff has pegged a gap between General Fund spending demands and anticipated revenue for the two-year cycle beginning July 1 at $965 million. That’s higher than a Baldacci administration estimate because of higher growth assumptions for Medicaid-MaineCare and a bigger estimate of funding for retired employee health insurance, the legislative staff newsletter says.

Federal aid should help overall, but by how much is still uncertain, say legislative analysts.

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