Maine lawmakers fear more red ink

Posted Nov. 22, 2009, at 6:45 p.m.

AUGUSTA, Maine — Even with state revenues now forecast to come in nearly $400 million lower than previously expected, members of the Legislature’s Appropriations Committee fear the shortfall could get worse yet.

On Friday the revenue forecasting committee projected state revenues will be about $384 million less over the two-year state budget than they estimated last spring. But legislators are bracing for further accumulation of red ink as they work to adjust the budget.

“I am not confident now about anything to do with the economy,” said Sen. Bill Diamond, D-Windham, co-chairman of the Appropriations Committee. “This is the best guesses of the best minds,” he said of the forecasting committee.

He said the same group had reprojected revenues down last April, only to have May revenues fall $21.2 million below that new projection. He said revenues have not met estimates since then.

“I am not saying they are not trying,” Diamond said, “or doing anything wrong. Nobody has gotten this recession right, at least not yet.”

Rep. Emily Cain, D-Orono, agreed. She said the committee will use the new revenue forecast as “a starting point” as it works on a plan to bring the state budget into balance.

“The governor will propose his plan in December and we will hold hearings on that as soon as we can,” she said. “But we will be multitasking as we review what he is proposing because we know we may have to go further than he proposes if revenues do not hold up.”

Cain said the revenue forecasting group has done the best it can with the data and resources it has to project revenues months into the future. But, she said, lawmakers on the panel realize the group’s best effort may not be good enough.

“This recession has been unpredictable,” she said. “We know revenues could get worse and we have to be ready to handle another revenue problem.”

Rep. Richard Rosen, R-Bucksport, the only GOP senator on the committee, said the budget-writing panel cannot assume there will not be further revenue problems, given the history of this recession. He said the reprojection is what the group will work with until changes are made, likely next spring.

“What I watch is the unemployment and the underemployment figures,” he said. “When the hours of workers increase, when the workweek shifts from part time to full time, when firms begin to start hiring people, that is what I am looking for to see that we have started to have a change in this situation.”

Until that happens, Rosen said, he expects revenues will continue to fail to meet estimates and lawmakers will have to adjust the budget.

During their discussion of the revenue forecast Friday, committee members were clear that the estimates were built on a lot of assumptions that could prove wrong. For example, Mike Allen, research director at Maine Revenue Services, said energy prices are a variable that could greatly affect the forecast.

“From what I have read, there is a real tipping point on energy prices where when you get to $3 a gallon for gasoline, there is an impact on what people do,” he said. “When consumers stop buying, it has a big impact on state revenues.”

Allen said home heating oil is another energy-related cost for homeowners that could affect state revenues as families spend less on everything from big-ticket items such as new TVs to going out to dinner less to pay higher heating bills. The state’s second-largest source of revenue is the sales tax.

As for concerns about the accuracy of the panel’s forecast, committee chairman Jerome Gerard, the acting executive director of Maine Revenue Services, said the group has made its “best effort” given the uncertainty of the national economy that dominates what happens in Maine.

“This is tough,” he said. “Forecasting is a really tough thing to do.”

Some panel members are concerned whether all of the assumptions they have made are correct. Jim Breece, an economics professor at the University of Maine, is worried whether there will be any growth in the second year of the budget, given the mixed signs from the business community.

Allen said the models he uses to predict revenues are based on the economic forecast and are adjusted based on historical data from the IRS on actual tax returns. He said he hopes forecasters have done their best in predicting what revenues will bring to the treasury over the remainder of the budget cycle.

“I think that is the best anybody can say,” he said. “This has been just one big roller coaster ride and it has all been downhill so far. So hopefully, we are done with the downhill portion and we will start up a little bit.”

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