Time to dam the flow of state revenue

Posted April 08, 2010, at 9 p.m.

The amount of Maine’s excess fiscal burden accumulated over the past 31-plus years has been virtually ignored in both the campaign for TABOR II and the campaigns of Republican candidates for governor which makes the GOP appear as if it has unwittingly accepted Democratic fiscal policy.

The GOP need not be helpless. There is ample ready evidence of excess spending from data provided annually from official Maine sources.

The fiscal burden, meaning the percent of personal income required to finance state government, increased 45 percent from 1979 to a high in 2006, according to operating funds data from the Office of Fiscal and Program Review. For 31 years, state revenues have risen faster than Maine personal income.

Maine’s fiscal burden and spending, excluding federal funds, increased sharply when income tax rates were raised exorbitantly from 6 percent to 10 percent in 1979. These high tax rates made it possible for state revenue to increase to nearly $1 billion annually above the growth of personal income in recent years. Cumulatively, the excess revenue collected and spent since 1979 was $12.9 billion through fiscal year 2009, averaging $855 million annually during the last six years, and much higher if measured by TABOR standards.

A minimum goal of good government is to avoid increasing the fiscal burden percentage, unlike Maine’s fiscal burden which surged steadily upward.

Maine needs a better measure of excess fiscal burden and spending.

Operating funds figures, which are routinely collected and published annually in the state fiscal review office’s compendium, include all revenue collected by the state (from Maine) including taxes, fees, charges and other revenue. And they are a more meaningful measure of fiscal burden and spending than the revised and mutilated tax burden index prepared by the private Tax Foundation.

This surge in the fiscal burden percentage has damaged Maine’s job and income growth and investment in the private sector and cannot be sustained, as seen by cuts in the fiscal year 2010-11 state subsidy for schools. Moreover, interest in the long-term fiscal burden seems to have waned as evidenced by the fact that support of TABOR II and limiting spending growth to the growth of personal income were both dropped from the 2008 Republican Party platform.

Voters may have the impression that recession declines in state revenue have corrected the excesses of previous years.

That is not the case. Official fiscal review office figures for fiscal year 2009 just released show that state revenues from Maine sources fell $238 million in fiscal year 2009 compared with fiscal year 2008, but were still $582 million, 17.3 percent, above the level needed to keep the fiscal burden and revenue within growth of personal income since 1979.

Although overspending fell from a peak of $1.012 billion in fiscal year 2006 to $582 million in fiscal year 2009, state government is still much too large and the decline not nearly enough to correct overspending of the last 31 years.

Maine needs a new governor willing to reduce spending growth and stop revenues from continuing to rise faster than personal income, which requires major reduction of tax rates and a full program to restore private sector income and job growth.

Hadley E. Smith of Palmyra is a retired development economist.

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