Commission: State budget problems ahead

Posted March 31, 2009, at 9:51 p.m.

AUGUSTA, Maine — Members of the Legislature’s Appropriations Committee got bad news Tuesday as the state Economic Forecasting Commission reported the recession will further reduce state revenues over the next two years, but the revised estimates won’t be available until May 1.

“We know we will have less revenue than when we started work on the budget,” said Rep. Emily Cain, D-Orono, co-chair of the committee. “We are going to have to take the mind-set that we will have less money, and we need to do things that will structurally change government to lower costs.”

University of Southern Maine economics professor Charles Colgan, chairman of the forecasting group, said the state would continue to have a net loss of jobs over the next two years.

Last fall he projected a loss of 18,000 jobs in the recession.

“All of what I foresaw in the fall happening between Jan. ’08 and June of 2010, all of that will likely have been completed this month,” he said.

Colgan warned of job losses beyond his original projections, saying the state is likely halfway through the “down cycle” on jobs. Layoffs and increased unemployment throughout the state will continue, he said.

It is “not a pretty picture” over the next two years, he said, but it does appear the recession will not last as long as some had projected.

Colgan also said the forecast does not figure in the potential job growth from the stimulus funds or the impact from state bond investments voters might approve.

“It does appear New England will benefit a little more on a per capita basis than the rest of the country,” he said. “We know there will be a benefit, but the stimulus money will not offset the recession. It will slow the impact and set us up for the recovery.”

Colgan said several of the bond proposals lawmakers are considering could affect the economy by putting Mainers to work and generating economic activity.

“We couldn’t speculate on what will be passed here and what the voters will approve,” he said. “But, it could have a significant impact in helping the recovery.”

Mike Allen, research director for Maine Revenue Services, said while it is clear state revenues will be less over the two-year budget, developing new estimates is not an easy process.

“Where do we think this loss in wages and salaries is coming from, and is it spreading across the income distribution or is it coming from the top end?” he asked. “A lot of that is going to be a judgment call.”

Allen said the Revenue Forecasting Committee will not only review the major revenue lines, such as the sales and income taxes, but all of the lesser taxes and fees and fine revenues that are part of the state’s general fund.

Even though Appropriations Committee members understand the complexity of the revenue forecasting process, they are frustrated as they work to write the state budget for the next two years knowing there will be less revenue.

“We have to move forward and take the first step knowing we may have to look at this again two or three or more times as revenues go down,” Cain said. “There are cities and towns and school districts and state agencies that are waiting for the budget. We have to move forward the best we can and we will over the next several weeks.”

The committee is not only facing a significant and as-yet unquantified revenue downturn. Legislative policy committees have rejected about $9 million in cuts in the proposed budget.

Appropriations Committee members are concerned they must work on crafting a state budget without even an estimate of how much the state will lose in revenues over the next two years.

“I have heard two phrases: significant and very substantial, and I am wondering if there is anyway anyone can put Webster to work and apply a little math to either of those phrases,” said Rep. Sawin Millett, R-Waterford, the lead GOP member of the panel. “I don’t think I am going to get an answer.”

He didn’t. The revenue forecasting group meets April 28 with its report to the legislature due May 1.

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