Recession taking bite out of tax collections

Posted March 20, 2009, at 8:56 p.m.

AUGUSTA, Maine — Lower than projected February tax collections show the negative effects of economic recession in Maine are accelerating, the state’s top tax agency analyst said Friday.

The revenue slowdown, while still relatively modest, is expected to get worse and complicate state officials’ efforts to enact a two-year budget and keep it in balance, said Michael Allen, the director of econometric research at Maine Revenue Services.

“It’s about what we expected and should expect” over the coming months, Allen told legislative budget writers.

Allen said there were significant declines in taxable sales and individual income tax withholding, which analysts regard as key indicators of current economic activity.

In a written report this week, Gov. John Baldacci’s budget chief, Ryan Low, said February revenue collections fell $20.5 million short of projections.

A special budget forecasting committee already had lowered state revenue expectations for the year, and pessimism over the state’s financial prospects is growing now that collections are falling short of those lowered estimates.

“It seems we shouldn’t be surprised by anything that happens these days,” Allen said.

Members of the Legislature’s Appropriations Committee are working through Baldacci’s proposed $6.1 billion budget for the coming two-year cycle. Looming over those talks is the prospect of another reduction in revenue estimates that would spawn a new money gap. A new set of formal revenue projections is expected by May 1.

The timeline is uncertain, but it is possible lawmakers will approve a two-year budget package before May, working with revenue estimates already in place. If that happens, Baldacci and the Legislature would have to find a way to close any future deficit.

A monthly revenue report the Baldacci administration released this week shows year-to-date sales tax collections are about $26 million below what budget makers had expected.

“Rising unemployment is taking its toll on state revenues, particularly sales and withholding taxes,” the report said.

The report also says consumer spending on taxable goods and services is falling at a rate not seen since the 1990s and likely will continue until the labor market stabilizes.

Committee members, already familiar with signs of an economic downturn in the state, stopped short of expressing alarm Friday.

“It’s not good, but it’s not surprising, necessarily, either,” said the House chairwoman of the committee, Democratic Rep. Emily Cain of Orono.

Looking toward the future being suggested by Allen’s remarks, Republican Sen. Richard Rosen of Bucksport added, “the slope still looks pretty steep.”

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