State to seek $100M in spending cuts

Posted June 29, 2010, at 11:12 p.m.

AUGUSTA, Maine — When the new budget year starts Thursday, the first order of business will be to start the process of cutting $100 million in state spending because Congress has failed to extend extra Medicaid funding to the states.

“The provision in the budget requires we start the process,” Finance Commissioner Ryan Low said Tuesday. “It is clear now that Congress will not act in time to avoid starting the curtailment process.”

Low said the state budget assumed an extension of two Medicaid provisions, and Congress has not acted on either. He said the budget hit of the two provisions totals $100 million over the coming budget year.

“The governor believes we need to plan to curtail all of that amount and that will be in the instructions that are sent to all state agencies,” he said.

The curtailment law essentially limits the governor’s authority to cutting across the board, with limited ability to target spending reductions. But Gov. John Baldacci said he wants other ideas that may go in an emergency budget package for lawmakers in December, when the new Legislature convenes.

“We’re thinking we may not have to call them in [to special session],” Baldacci said. “We are thinking that even if Congress does not act — does not approve an extension — we will have enough revenues, and with what we can curtail for spending, we can have a bill ready when the new Legislature comes in to do the rest.”

Baldacci said he is determined to make sure the new governor does not have to deal with the issue. He said the new chief executive would have enough financial problems from the expected budget gap for the next two-year budget.

But the governor said he would call this Legislature back in a special session this fall as a last option if state revenues fail to meet estimates over the next few months and Congress does not extend aid.

Lawmakers do not like the idea of a special session in the middle of an election, but agree that is the fallback position if revenues fail to meet estimates and Congress fails to act.

“There are a lot of moving parts here,” said Sen. Bill Diamond, D-Windham, co-chair of the finance committee. “A hundred million dollars is serious money but we don’t know if we might get part of that money, or all of it or all of it over a longer period of time.”

Rep. Emily Cain, D-Orono, the House co-chair of the committee, agreed. She said the panel put in the curtailment provision in the budget because Congress had not yet acted when lawmakers ended the second regular session, and there was bipartisan concern they might not act on the Medicaid state aid plan in a timely manner.

“The curtailment process is a blunt instrument, there is no other way to describe it,” she said. “The biggest impact of a curtailment will be on education and human services, and it will be terrible.”

The panel did receive some good news. State revenues will end the current year with a surplus of more than $50 million, with June revenues expected to be about on target.

Mike Allen of Maine Revenue Services said some of the revenue booked in May should have been booked in June so it will not produce a significant revenue surplus, if at all.

Panel members questioned him on his revenue projections for the next six months.

“The data seems to be mixed,” he said. “It was obviously a very severe recession and the recovery probably is not going to be a very smooth one.”

Allen said Maine’s economy is greatly affected by both national factors and international trends. He said there are many factors that could affect state revenues in the next few months that could result in reduced revenues or additional revenues.

Rep. Sawin Millett, R-Waterford, the leading GOP member on the panel, is worried that the economy will falter, and state revenues will not meet estimates in the months ahead and will create additional financial problems for the state.

Millett, a former finance commissioner, said the curtailment process is a stopgap.

“Whatever Gov. Baldacci comes up with for a package will eventually have to be blessed by the Legislature because of the limits on what can be done by curtailment,” he said.

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