AUGUSTA, Maine — State revenues improved in April, coming in $9.7 million above projections, bringing the year to date surplus to $31.4 million and giving encouragement to members of the Legislature’s Appropriations Committee as they work to reach agreement on a $6.1 billion two-year budget.
“I was a little surprised that the corporate [income tax] is still performing well, even though the recent forecast suggests that corporate profits in the long term, if not in the short term, will be trending downward,” said Finance Commissioner Sawin Millett. “I was also a little surprised the sales tax is still holding up.”
So far this budget year, sales taxes are above estimates by $8.5 million and the corporate income taxes are $6.1 million above estimates. But it is the personal income tax that is driving the overall positive revenue picture, up $4.3 million for April and $26.5 million through the first 10 months of the budget year.
“This is really good news,” Millett said. “The recent revenue forecast had us ending the year with a $12.5 million surplus, and it looks like we are going to beat that.”
The positive revenue report is good news for the Appropriations Committee that is trying to complete work on the two-year $6.1 billion budget. The governor submitted two significant change packages triggering additional public hearings and slowing the work of the panel to reach agreement. The new budget year starts July 1.
“It is very encouraging news,” said Sen. Richard Rosen, R-Bucksport, co-chairman of the committee. “It indicates that the Maine economy is holding through what we see as major pressure from the increase in energy prices.”
He is worried that continued high energy prices could have an impact on sales tax revenue as Mainers react by reducing spending. He hopes it is a sign that the economy is continuing to recover slowly.
“We love to get this kind of good news,” said Rep. Peggy Rotundo, D-Lewiston, the leading Democrat on the panel. “We’re looking at a lot of proposed cuts in this budget that would be very painful.”
She said any additional revenue may help to ease the cuts that have to be made in state programs for “the most vulnerable” and to other safety net programs. She hopes the revenue numbers are an indicator that the state’s economy is recovering from the recession.
Millett said he has checked with staff at Maine Revenue Services and so far in May there have been no indicators that the major revenue sources are behind projections. But, he said, some of the smaller sources are a concern with eight that are “low performing” including the State Lottery.
“The frequency of large jackpots is declining as more and more states get into the multistate games,” he said. “I am more concerned about more erosion in the tobacco line.”
Tobacco taxes have been close to target, but were down 13.5 percent or $1.7 million in April. Millett said another concern is the “catch-all” category, which includes revenues from dozens of sources.
“That line has been struggling and is now down by over $8 million and we only have two months to go,” he said.
Millett and members of the committee are pleased it appears the state will end the year with a significant surplus. Budget law now takes the first $25 million of the surplus for the state reserves, or rainy day fund. He said the size of the state’s reserve funds is a concern of the bond rating firms.
“Both the shrinking size of the reserves since we dipped into them in 2009 and anything we can put back in will be a good sign to them,” Millett said.
The state’s next bond sale is in June and Millett is “cautiously optimistic” the state will get a good rating. How much the state pays for interest greatly depends on the rating set by the firms.
“It is very important that we increase the amount we have in the budget stabilization fund,” Rosen said. “We realize the importance of increasing our reserves to the bond houses.”
Rotundo agreed. She said that even during the recession, the committee put some funds into the reserve account knowing it was the prudent thing to do.