AUGUSTA, Maine — Revenues for the first quarter of the state budget year are nearly $26 million above estimates, with the state collecting about $4 million more than expected in September.
Despite the numbers, there are concerns that some important revenue sources — such as sales taxes — are barely meeting projections as supplemental spending requests mount.
“Both [sales tax] growth rates, what we budgeted and what we are seeing going on out there are very slow,” said Mike Allen, director of research at Maine Revenue Services. “We’re kind of at the bottom, kind of moving along the bottom. The next thing we will look for is a surge out of that bottom, but I don’t think we are anywhere near that quite yet.”
He said sales taxes were slightly below estimates in September, but most of that was due to a mistake in projecting car sales. He said September sales tax revenues reflect sales taxes collected in August and the federal government cash for clunkers program was under way in Augusta 2009, and that boosted car sales.
“We did try to adjust for that, but we obviously didn’t adjust enough,” Allen said. “For the quarter, sales tax revenues are above estimates by $500,000, so that is just about on target.”
A year ago, state revenues were plummeting, with October 2009 revenues down by $26.8 million and projections of red ink as high as $400 million. Allen said revenues from all sources appear to have stabilized with a few below — and most a little above — estimates.
“We are carefully watching what happens month to month,” said Finance Commissioner Ellen Schneiter. “But I would caution everyone not to read too much into month-to-month swings in revenue, but we do have the first quarter and we are above estimates for the quarter.”
She said the state depends on a wide variety of revenue sources, but the sales and income taxes are the largest, accounting for about two-thirds of all state revenues. She says both tax categories appear on target or slightly above for the quarter.
Allen said corporate income taxes continue to come in significantly above projections, up $6.8 million — or 24 percent above estimates — in September. He said with most corporate income taxes coming from large multinational companies, it is very difficult to project revenues. He said the state may have underestimated corporate profits as companies slashed costs during the recession.
“I just looked at one projection that said corporate profits would be up 33 percent this year,” he said. “That’s well above what we projected.”
That is a national study and he said the mix of corporations in Maine may well be different than that in the nation as a whole.
“Things have bottomed out, steadied out,” Schneiter said, “There are some signs of recovery around us.”
But members of the Legislature’s Appropriations Committee are still wary of revenues and revenue projections that have been on a roller coaster for two years. Rep. Emily Cain, D-Orono, is the House co-chair of the panel.
“We are above budget projections that are a billion dollars lower than they were just two years ago,” she said. “When you put it in perspective, we are doing better than we were, but we are not out of it yet.”
Cain said Mainers are still hurting with family members unemployed and most Maine businesses struggling to stay afloat. She said the next Legislature and governor will immediately have to struggle with how to pay to keep state government operating through the end of the budget year with millions in budget requests already submitted.
“It is going to be very challenging and I think we may have to make further cuts,” said Sen. Richard Rosen, R-Bucksport, the GOP senator on the panel. He said overall revenues appear to be just about on target, and that means the current $26 million in revenues above estimates could slip away in the months ahead.
“We are well below the revenue levels of two years ago,” he said. “I don’t see the signs, like businesses hiring people or investing in new equipment, at a level that will see us moving back to where we were anytime soon.”
Rosen said he believes there has been a fundamental change in the way consumers are behaving. He says they are buying what they need, not what they want. He said people also are paying down debt.
Sen. Bill Diamond, D-Windham, said he is not as sure as Rosen is that buying patterns have fundamentally changed, pointing to past recessions where consumer spending has driven the recovery. He said holiday sales this year may be a better measure.
“But I would caution everybody that we are not seeing revenues that are way above projections,” he said. “We could see things swing again before they turn for the best.”