AUGUSTA, Maine — With only a few weeks to go in the budget year, state revenues are up $24.9 million over revised estimates made in April and Finance Commissioner Sawin Millett says that means the state will likely end the year in the black.
“You have to feel pretty good that we will end the year with a surplus,” he said. “But what that means for future months remains to be seen.”
The uncertainty is because a significant part of the anticipated surplus is one-time revenues, including money from a settlement of a national lawsuit, and other revenues may not continue to exceed expectations. For example, in May, estate taxes were bolstered by a large payment and were $5.3 million over projections for the month.
While it is hard to estimate corporate income tax revenue because much of it comes from corporations based out of state, in May it was projected to bring in $1.3 million but brought in $6.9 million.
“The corporate tax continues to do better even with the new forecast that was made,” Millett said. “It continues to do better than we expect.”
But, he said, the two largest sources of state revenue, the sales tax and the individual income tax, show signs of weakness. The sales tax is projected to bring in $973.2 million this year, but is currently only $222,171 above estimates.
“But if you look year over year, we are up $45 million over what was collected a year ago at this time so it is showing some growth,” Millett said.
He said the individual income tax is the largest source of state revenue. By the end of the month, it is projected to bring in $1.445 billion for the year but it is below estimates by $4.6 million going into this month.
“I think the message there is that we have to closely watch the individual income tax line,” Millett said. “We have to see what it does through the summer months and whether we are seeing income growth.”
He said with the individual income tax such a large source, it will have an effect on the size of the revenue surplus. He said he is comfortable that the revenue surplus will be at least the current $24.9 million.
“We also have the unspent balances in accounts that will take a while to compile,” Millett said. He estimated the unspent balances would be between $5 million and $10 million.
Sen. Richard Rosen, R-Bucksport, the co-chairman of the Appropriations Committee, said while it is good news there will be a surplus he continues to worry about the implications for the future with the softness of the individual income tax.
“We are really looking to see some strength in wages and the earned income that is reflected in the individual income tax,” he said. “If we are seeing only tepid improvement there than that is a concern. We have to see some growth in wages from people working to see a real increase in revenues.”
Rosen said he was not surprised at the corporate income tax continuing to exceed estimates just made in April. He said national corporations continue to show significant profits and that is reflected in the tax they pay.
Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the panel, agrees with the importance of the individual income tax because it drives other sources of revenue for the state.
“If people are not working and earning wages, they are not buying as much in stores and paying sales taxes,” she said. “The sales tax line has always been a good indicator of how families in Maine are doing.”
Rotundo said the committee will be closely watching all of the state’s revenue sources, as it continues to struggle to recover from the recession.
Millett said once the surplus is finally computed, that does not mean extra money for the state to spend. He said current budget law allocates where a surplus will go. The governor’s contingency account gets restored and the reserve fund at the Finance Authority of Maine gets $1 million.
The budget law then allocates the next $15 million for a one-time cost of living adjustment for state retirees, and then the next $25 million will go to hospitals for payments they are owed. If there is anything remaining, the money is then allocated to six programs.
“There may not be anything left for those,” Millett said.