May 22, 2018
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State revenues slip in June, surplus reduced

Robert F. Bukaty | AP
Robert F. Bukaty | AP
Finance Commissioner Sawin Millett
By Mal Leary, Capitol News Service

AUGUSTA, Maine — State revenues dipped $4.8 million below estimates in June, reducing the revenue surplus for the budget year that ended June 30 to a little more than $20 million. The total surplus will not be computed until next month, but there will not be enough to meet the $40 million in allocations lawmakers had hoped.

“We were hopeful after a good May that June would continue that trend and we would get a better bounce in June,” said Finance Commissioner Sawin Millett. Instead, he said, the state will have a small surplus, probably less than $30 million out of expected yearly revenue of just under $3 billion.

He said the timing of a one-time payment from settlement of a multistate lawsuit affected the revenues, as did the allocation of the state investment tax credit between companies that file corporate tax returns and owners that pay their business tax through their individual tax return.

“We may have underestimated the impact on the Maine investment tax credit tied to the federal bonus depreciation on the individual income tax,” Mike Allen, associate commissioner for tax policy, wrote in a memo to Millett. He suggested that could be changed in the current budget year to better reflect taxpayers’ use of the tax credit.

Millett said he will continue to closely watch the individual income tax and the sales tax as the two largest sources of revenue. He said both indicate the state is still feeling the impact of the recession and lingering consumer concerns.

“We are not seeing the strong growth in employment that we had hoped to see; it’s pretty flat,” he said. “On the sales tax side, I think there is a decline in consumer confidence and some uncertainty about the future. People don’t seem to be making, outside of the auto line, big purchase investments.”

June sales tax receipts reflect sales in May, and the auto and transportation sector was up 9.4 percent over May 2011. Both lodging and restaurant sales were up; lodging, 8.5 percent over May 2011 and restaurant sales, 6.3 percent.

“But general merchandise was barely up, just one tenth of a percent,” Millett said.

He said the overall surplus is the revenue surplus plus any unspent balances. Those figures will be computed next month. He said unspent balances usually are between $5 million and $10 million.

The 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 before any other allocations.

The budget law then allocates the next $15 million for a one-time cost-of-living adjustment for state retirees, and the next $25 million will go to hospitals for payments they are owed. It is clear the hospitals will not get the full $25 million.

“I am glad that we will be able to meet our obligations to our retirees and that their COLA’s will be covered,” said Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the Legislature’s Appropriations Committee. “It’s disappointing that there is not more of a surplus to help our local hospitals.”

She said the up-and-down revenues over the last year clearly indicate that most Mainers are having a difficult time recovering from the recession, and that they are being cautious in their spending. She said it is clear employers also are taking a cautious approach in expanding and hiring more workers.

Sen. Richard Rosen, R-Bucksport, co-chairman of the Appropriations Committee, said it is clear the state is recovering very slowly from the recession. He shared Rotundo’s concern that the surplus will not be large enough to provide the $25 million the panel had hoped would go to paying down the debt owed hospitals.

“We did change the payment system in this budget so that hospitals are being paid for services on an ongoing basis,” he said. “This does mean the new Legislature will have to deal with a larger problem.”

Steve Michaud, president of the Maine Hospital Association, said the change in the payment system was a “huge” improvement for hospitals. But, he said, the hospitals are facing debt of about $460 million from past years.

“The $25 million would have leveraged another $50 million in federal funds and it would have been a good down payment,” he said.

Michaud said hospitals realize the state cannot afford to pay all of the back debt in one payment, but he said there needs to be a plan to pay off the debt to the hospitals so they can avoid layoffs from the cash flow problems many are facing.

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