AMY FRIED

Costly cuts

Posted May 22, 2012, at 8:59 p.m.
Last modified May 23, 2012, at 8:14 p.m.

Cuts can be costly. As the saying goes, one can be pennywise and pound foolish.

Whether maintaining a home or managing a business, sometimes frugality backfires, leading to more spending and costs down the road.

Maine’s supplementary budget and a new approach on taxes will be quite costly.

At the end of last week, just as Gov. LePage issued his own report card for his first five hundred days in office, Moody’s credit rating service’s assessment was far less positive. Moody’s decision to change its bond outlook from stable to negative raised cautions. If the rating is changed, Maine people would pay more for the money the state borrows to fix its roads and fund bonds for conservation or research and development.

Bonding is the way governments are able to make large investments that ultimately pay off for citizens. Better roads reduce wear and tear on vehicles, saving individuals’ the need to replace tires or fix the front end. Bonds enhance development in the long term, creating opportunities and improving human capital. This is true whether a business or nonprofit organization offers goods or services, caters to tourists or sells to Mainers or overseas, or focuses on research or people’s fundamental needs. In the short term, bonds create construction and other jobs.

Moody’s noted that cuts to DHHS will have negative effects on the economy, saying, “While the health care jobs have been an economic driver over the course of the recent recession, the state’s efforts to reduce spending on social services, especially Medicaid, may reduce future growth prospects for that sector.”

Cutting DHHS hurts Maine’s economy at a time when the state’s job growth is remarkably weak.

The country as a whole has had 26 months straight of private sector job growth — 4.2 million altogether and 1 million in the last six months — a shift from the job record of the former president. (During George W. Bush’s administration, private sector jobs shrank an average of 6,700 a month.)

But in Maine, as the Maine Center for Economic Policy reports, the ”rate of job growth — in the public sector, private sector, or total, has trailed all but a handful of states. … From January 2011 to April 2012, Maine ranks 45th in private sector job growth and 46th in total job growth.”

With this weak employment record, it does not make sense to undermine one bright spot, especially as Maine’s population is aging and needs care. Although most jobs affected by DHHS cuts involve taking care of patients, they include support staff with high school degrees and highly educated trainers and researchers. And these job losses hurt local businesses.

Besides noting the budget’s weakness for sustaining health care commitments, Moody’s pointed to the state’s lack of budget reserves. It’s not surprising that, in hard times and with a weak job market in the state, the state doesn’t have much in the way of reserves. But last year’s tax policy and LD 849, now awaiting Gov. LePage’s signature, were structured to create future budget gaps. They are a set up for claims Maine can’t afford what we used to afford and for low reserves.

As Gov. LePage’s Finance Commissioner Sawin Milllett noted, LD 849 allows “one-time savings, to trigger ongoing permanent reduction in revenue,” shifting revenue and expenditures out of balance. Such tax policies are ticking budget time bombs, not only moving Maine away from what all the credit rating organizations consider to be healthy practices, but also harming Maine citizens.

Besides putting a brake on Maine’s economy and undermining the state’s creditworthiness, cuts hurt thousands, undermining public health clinics and leading to cost shifting.

Without a doubt, health care costs must be contained. But this can be done more smartly, by catching problems early, monitoring people with chronic needs whose illnesses can be controlled, and investing in systems and public health services that prevent hugely expensive, repeated hospital stays.

Looking to Maine’s future, a 2012 report by the Maine Chamber of Commerce and the Maine Development Foundation said “investment in Maine children is real economic development,” yet the state slashed HeadStart, a program that gives kids real opportunity to succeed.

Such cuts are truly costly.

Amy Fried is a professor of political science at the University of Maine. You can follow her on Twitter at ASFried and at her blog, www.pollways.com.

CORRECTION:

An earlier version of this column contained an error. It stated that from January 2011 to April 2012, Maine ranked 44th in private sector job growth and 45th in total job growth. Maine actually ranks 46th in total job growth and 45th in private sector job growth over the period.

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