AUGUSTA, Maine — The good news is the state started the new budget year with a surplus of at least $50 million.
But the bad news quickly followed as Gov. John Baldacci signed an executive order Thursday limiting state hiring and spending because congressional inaction triggered a process to curtail $100 million in state spending.
The order places a hiring freeze on vacant positions and limits overtime, travel and other expenses. The order allows for emergency exceptions.
Legislative leaders are worried that Congress will not act before Oct. 1 when state budget law requires the governor to curtail state spending. Some are worried whether Congress will provide any additional aid to the states.
Maine, like most other states, assumed an extension of two Medicaid provisions in the Recovery Act for an additional six months. The budget impact in Maine of the two provisions not being extended is $100 million over the new budget year.
“I hope that Congress does come through because the impact of these cuts will be unthinkable,” Senate President Elizabeth “Libby” Mitchell said. “I hope this does not become another political football in Washington.”
She and House Speaker Hannah Pingree, D-North Haven, agreed with Baldacci that a special session of this Legislature cannot be ruled out.
“We need to see what happens with revenues for the next two months,” Baldacci said. “We will have to look at everything in September.”
Sen. Kevin Raye, R-Perry, the GOP Senate floor leader agreed that everyone wants to avoid a special session just weeks before an election, but it may be needed.
“I am taking a wait and see approach,” he said. “We need to see what Congress does and what the revenues do before we can say whether one is needed.”
The leaders have been part of the budget negotiations over the last two years that cut scores of state programs and are very worried what another $100 million in cuts in this new budget year will look like.
“No one will like what these cuts will look like,” Pingree said.
Ellen Schneiter, who was sworn in Thursday as Acting Finance Commissioner, said the curtailment order budget cut targets will go out next week to all state agencies and outside agencies — like the University of Maine System — that receive state grants. She said no spending area will be spared except for constitutional obliga-tions.
“We can’t and won’t be cutting debt service, for example,” she said.
Lawmakers hope that some of the state’s surplus can be redirected to help fill any budget hole created if Congress does not approve additional Medicaid funds.
If Schneiter’s first day on the job weren’t eventful enough, she also must contend with a $7 million mistake in the state budget that gives a second appropriation from the surplus for purchase of some of the rails of the Montreal, Maine & Atlantic Railway in northern Maine.
“That was a drafting mistake in the waning hours of the session,” said Schneiter. “There clearly was no intent for DOT (Department of Transportation) to get another $7 million. There is no drop dead date for the transfer of that money; it just has to be transferred by the end of the fiscal year so the Legislature can shift that money before it is transferred.”
She said it is likely the governor will recommend that be done in any supplemental budget proposal he makes later this year. She said while the budget law allocates the surplus for various purposes, the Legislature can take the money back.
Legislative leaders first learned of the budget mistake at Wednesday’s meeting of the Legislative Council, made up of the 10 elected leaders of both parties.
“That was the first I had heard of it,” Mitchell said. “Hopefully we can correct that without having to come back in session.”
In addition to the $7 million for rail, $5.6 million is set aside in a budget reserve, $350,000 is used to replenish the governor’s contingency account and $1 million is allocated the state’s loan insurance reserve.
What is left after those allocations is distributed by a formula that requires 35 percent to the Budget Stabilization Fund, commonly called the rainy day fund. There is 20 percent set aside for the retirement allowance fund and 20 percent for the General Fund operating reserve.
A fund used by the retiree health program gets 15 percent of the surplus and a fund for capital construction and improvements gets the final 10 percent.
The surplus is composed of both revenues in excess of estimates and unexpended balances. It will be several weeks before size of the surplus is finally determined.
The Associated Press contributed to this report.