AUGUSTA, Maine — The first month of the new budget has surprised state officials and lawmakers as revenues dropped significantly in July, $17.2 million less than projected; stirring worries the economy in Maine has stalled.
“It is a concern,“ said Finance Commissioner Sawin Millett. “Much of that shortfall is in the individual income tax line and we know that withholding receipts were down; we know that estimated payments and quarterly payments for those who file estimated returns were actually up. But the withholding piece is a concern because it reflects lower payrolls or the absence of payroll growth.”
Withholding has been the most stable portion of the income tax revenue throughout the recession and Millett is concerned whether the estimates on a month to month basis are correct.
He said corporate income taxes were also below estimates after months of being above estimates. The corporate tax was projected to bring in over $9.1 million in July but only about $8.6 million was collected. That is 6.2 percent below target and any revenue source more than 5 percent off in a month draws extra scrutiny.
“It is the estimated payments that are off and that may be a timing issue,” Millett said. “We need to watch what happens with August and September to see whether it is timing or the estimates are off.”
With the expected loss of federal funds as the result the federal deficit reduction law, Millett is worried the state could face a “double whammy” of needing to fill a state revenue loss as well as loss of federal funds. That is also a concern of members of the legislature’s budget writing Appropriations Committee.
“I think this may mean a continued period of economic uncertainty,” said Rep. Peggy Rotundo, D-Lewiston, the democrat lead on the panel. “If you look at what is happening internationally, and nationally, that is being reflected in our state’s economy.”
She said she has “grave concerns” that the state and nation is in a period of great uncertainty that will make it very difficult for the legislature to deal with budgets. She has been a committee member throughout the recent recession that saw revenues tumble and the need for several emergency budgets to keep the state books in balance.
“These July numbers certainly put us all on alert to watch these revenue numbers very closely,“ said Sen. Richard Rosen, R-Bucksport, the co-chairman of the committee. ”The question once again is whether this signals a change in trends or is it a one month blip. But even if it is just a one month blip, its size has to be a concern.”
Rosen has also served on the panel through what he described as the “roller coaster” in 2009 when revenues varied widely from month to month and than plummeted. He serves on the special budget-cutting task force that needs to find $25 million in spending reductions just to keep the current budget in balance.
“I haven’t seen anything that would really explain this,” he said, “you can be sure we will be looking for a thorough analysis of this when the committee meets at the end of the month.”
Millett said his staff is carefully watching revenues as they come in this month to see if the income taxes continue to be below projections. He said it is too soon to know what is happening this month.
“Dr. [Michael] Allen did point out that Moody’s had been projecting a national growth rate at 3.5 percent for the second half of 2011 and they just reduced that to 2 percent,” he said. Allen is the research director at Maine Revenue Services.
Millett said he is pleased that sales taxes were a little bit above estimates and the smaller revenue sources were up and down, but pretty close to estimates.
“It certainly is good that the budget surplus at the end of fiscal year 2011 was better than we expected,” he said.
The revenue surplus was $49.2 million for the last budget year, but unspent funds were significantly higher than Millett projected. He has thought they would be in the $3 to $5 million range, but when all the books were reconciled, the total surplus was just over $82 million.
“That has boosted the budget stabilization fund to about $71 million,” he said. “We certainly may need it.”