Federal law limits budget trimming

Posted Nov. 18, 2009, at 12 a.m.

AUGUSTA, Maine — State lawmakers grappling with increasing budget shortfalls learned Tuesday that federal law will greatly limit what cuts they can make to Maine’s two largest agencies — Health and Human Services and Education. Combined, the two agencies make up about 80 percent of the state’s general fund budget.

“There are clearly restrictions in different areas of federal laws, both normal federal law and the Recovery Act, that will prevent, or slow us down in making substantial reductions in some of those areas,” Finance Commissioner Ryan Low said. “It is a challenge we are working through right now.”

Under the American Recovery and Investment Act of 2009, the state will lose federal stimulus money if it allows general purpose aid to education funding to fall below 2006 levels. Education Commissioner Susan Gendron said the state has already told local school districts to expect $74 million in cuts over the remainder of the two-year state budget based on a previously projected revenue shortfall of $200 million. The estimated shortfall has since grown to be as high as $400 million.

“We can cut about $15 million more [than the $74 million] and stay within the federal requirements,” she said Tuesday. “Any more than that and we will lose federal funds.”

Gendron said the federal law does allow a state to apply for a waiver to allow for deeper cuts, but she is not sure how the request would be received by federal officials. Low said no decision has been made whether to apply for a waiver, but it is an option being discussed.

“There are other agencies that also have similar restrictions on Recovery Act funds,” Low said. “We are looking at all of that as we work on the supplemental budget.”

Members of the Legislature’s Education Committee are worried about the impact of sharp reductions in state aid on both local schools and local property taxes. They fear reduced state aid will lead to municipalities increasing local taxes.

Gendron told the panel that local school systems have been warned the cut in state aid would be larger than the initial target of $74 million and many have already started to adjust their local budgets.

“We started talking about this last summer,” she said. “We knew there would likely be revenue problems, and we have been working with the superintendents.”

Health and Human Services Commissioner Brenda Harvey told members of the Legislature’s Health and Human Services Committee that her agency is limited by long existing spending requirements to state programs receiving federal funds as well as by the Recovery Act.

“We have been going through all of the programs we provide,” she said, “and we are greatly limited in what we can cut because of the federal requirements.”

Harvey said the areas where the state has the most flexibility to reduce or eliminate programs are those that are totally funded with state dollars. She said any cuts to Medicaid would be difficult with all of the federal requirements.

“The commissioner has laid it out for us pretty well where we could cut and it’s not good,” said Rep. Anne Perry, D-Calais. “It means support services, family planning, homeless shelters, general aid, because those are all state funds.”

She said the financial problems at DHHS are huge. In addition to identifying budget cuts approaching $100 million to help make up for the revenue shortfall, the agency is facing increased use of some of its programs.

Perry said the agency is facing an impossible task. She said when all of the restrictions imposed by federal law and rules are factored in, there are not enough available dollars left to cut to meet the projected budget target.

“If we do have the kind of shortfall they are looking at, we may be looking at $100 million,” she said. “Well, we don’t have that.”

Perry said in addition to federal requirements, the state also has to maintain its obligations under a consent decree governing mental health services.

Low acknowledged the agencies are facing serious problems trying to cut spending and stay within legal limits. He said there are several state governmentwide initiatives under consideration that will help agencies meet their budget goals. For example, he said, the early retirement program has been more successful than expected, and another version of that is being explored.

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