Faced with a budget shortfall that is significantly larger than expected, lawmakers have difficult choices and a short time to make them. Their decisions should be guided by what will best position the state to weather the prolonged economic downturn — especially when the federal stimulus money has been allocated — without leaving large holes in the state’s social services safety net.
According to the state’s Chief Financial Officer Ryan Low, tax collections are expected to be between $560 million and $590 million below projections for the next two years. The State Revenue Forecasting Committee is scheduled to issue an update this week. About $100 million of the shortfall will be for the remainder of the current fiscal year, which ends June 30.
It is impossible to cut that much money from state spending in such a short time, so some one-time fixes, such as taking money from the state’s Rainy Day Fund, are expected. Beyond this, however, cuts will be necessary.
“You’re not going to be able to raise taxes and you’re not going to be able to cut people off in terms of the safety net,” Gov. John Baldacci said last week. “We’re going to cut, we’re going to consolidate, we’re going to restructure.”
The governor was, in broad terms, talking about the politics of passing a budget in Augusta. Because of the timing, a two-year budget must be approved by two-thirds of lawmakers, giving Republicans an outsized say in budget negotiations.
While Republicans are adamant about not raising taxes, Democrats will be loathe to cut social service funding. Both sides must give ground for a budget to be passed.
Making the process more difficult, some areas are off limits to cutting because of federal government requirements. To receive stimulus money for schools, for example, the state cannot drop below the current level of kindergarten through grade 12 education funding. Likewise, eligibility require-ments for Medicaid funding cannot be tightened.
This leaves lawmakers with the unpopular, but necessary, options of reducing or eliminating services. It also means programs such as the Business Equipment Tax Reimbursement and Homestead Exemption may have to be pared back.
Maine, like the 43 other states facing budget gaps, is fortunate to have federal stimulus money to help bridge the shortfall. But as Sen. Richard Rosen of Bucksport, a Republican member of the Appropriations Committee, cautioned, that money is short-lived.
“The stimulus money ends in 2011, when we will face a clifflike falloff in available funds,” he said. “I would recommend that municipalities, school systems and other institutions that rely on state spending work with us cooperatively to use this stimulus interlude to plan for leaner times ahead.”
At a time of reduced economic activity, the stimulus money is welcome to avert layoffs and cuts that could further weaken the economy. While this is helpful now, the ongoing problem of expenditures exceeding revenues can’t be solved by federal funding.
This is why, although time is short, lawmakers must look for structural changes to the state’s budget, not rely heavily on one-time fixes to close the expected $600 million gap.