The state budget proposal Gov. Paul LePage plans to veto in the coming days — and which more than two-thirds of lawmakers voted into law earlier this month — relies on a bit of ambitious thinking in order to bring the $6.3 billion, two-year spending plan into balance.
One part of the budget charges the newly formed Governor’s Office of Policy and Management with reviewing operations across state government and coming up with $33.75 million in savings over the next two years.
Another section appoints a task force of lawmakers, economists, tax experts and business representatives to comb through Maine’s tax laws and come up with $40 million in additional state revenue by eliminating or reducing a range of tax breaks, credits and exemptions.
The budget outlines contingency plans to keep itself in balance in case the Office of Policy and Management or the tax expenditures task force fall short of their savings goals. But without writing in those targets for savings, the proposal for a new state budget would be out of balance and in violation of Maine’s constitution.
It’s not uncommon to write goals for future savings into Maine’s state budget — a document that’s longer than 700 pages — and order expert groups to find those savings. It’s a tactic that can produce positive outcomes, said Ryan Low, who served as former Gov. John Baldacci’s budget officer and finance commissioner.
“You buy that time to develop different ideas,” said Low, who now works as the University of Maine System’s chief lobbyist. “You bring in some people with various backgrounds. A lot of times, it can produce some good, sound policy.”
But it’s a tactic that isn’t guaranteed to work, sometimes leaving lawmakers with gaps to fill after a budget has become law.
Richard Rosen of Bucksport was tapped by LePage last fall to lead the governor’s newly formed Office of Policy and Management. Rosen had just completed four terms in the Senate, including two years as co-chairman of the Legislature’s budget-writing Appropriations Committee.
If the budget deal that’s awaiting action by LePage becomes law, Rosen’s job will be determining how state government can spend nearly $34 million less over the next two years. While LePage is opposed to the Legislature’s budget package overall, the proposal to have the Office of Policy and Management scour state government for savings originated with the governor.
“It’s a significant goal,” said Rosen.
During the first year of the two-year budget cycle, the policy office will review government structures and operations and come up with $11.25 million in savings that can be implemented without approval from the Legislature. The more significant savings — $22.5 million — would come in the second year, when the office could recommend eliminating some state government programs and up to 100 jobs. Those changes would require legislative sign-off.
“This work will be collaborative, with people in the departments and agencies, looking for their input, their informed ideas and suggestions,” Rosen said. “And our role is to be able to pull those together and hit the dollar amounts and the goals we’ve been assigned.”
Rosen said it’s too early to talk specifics about areas in state government where savings could be found or reductions could be made. After all, he said, a budget needs to be in place before the policy office can officially begin its work.
But the office has a starting point, Rosen said. LePage two years ago ordered his state agency heads to start building their budgets from a “zero base,” prioritizing and justifying all programs, activities and expenditures as if they were starting from zero.
“We’ve been accumulating those reports and trying to use those to help inform us with our work,” Rosen said.
Much of it will move fast. By the end of September, Rosen is expected to deliver his office’s recommendations to the Appropriations Committee. If the Legislature doesn’t ultimately pass enough of those recommendations into law, LePage could order across-the-board, temporary spending cuts to keep the budget balanced.
As Appropriations Committee members earlier this month worked more than 40 hours straight to arrive at a budget deal, they settled on a strategy to prevent at least $40 million in cuts to revenue sharing with towns and cities — a $200 million budget line LePage originally proposed entirely eliminating.
By midsummer, a 13-member task force is expected to start reviewing Maine’s tax expenditures, which include tax exemptions, credits and economic development incentives written into state law. While those incentives are often meant to spur economic development, the state gives up significant tax revenue to fund them. And the tax breaks are seldom evaluated for their effectiveness.
In addition to setting up a way for the state to measure whether each tax break is effective, the task force will come up with a list of tax breaks and exemptions to eliminate or shrink in order to raise about $40 million in additional revenue. But if the Legislature doesn’t enact that list — a task that’s sure to prove politically difficult — the budget would cut the fund the $40 million in added revenue is meant to help: municipal revenue sharing.
That provision in the budget might have pushed a major budget-balancing decision into the future, but it could have been for the better, said Low, Baldacci’s former finance commissioner.
The Appropriations Committee “went through a very exhaustive process,” he said. “Can you imagine somewhere, amid all of that chaos, taking some time to go through the tax expenditures? You pause, you take that time out, then you get a chance to do that in-depth review so you’re not being forced by some kind of arbitrary timeline.”
A tried tactic
If the budget on LePage’s desk becomes law, it’ll be far from the first time a budget has relied on loosely defined savings goals.
In the 1990s, Gov. Angus King’s Productivity Realization Task Force set out to find $45 million in savings and ultimately shrunk the state’s workforce by more than 1,000. The last budget proposed by Baldacci, in 2009, included a savings goal of $10 million. And LePage’s first budget in 2011 charged the Streamline and Prioritize Core Government Services Task Force with finding $25 million in savings from throughout state government and another task force with finding $2.5 million to cut from the budget of Dorothea Dix Psychiatric Center in Bangor.
“I think it can provide a value to the Legislature and the Appropriations Committee,” Rosen said. “It does offer extra time beyond the adjournment date to take a closer examination and, ultimately, it comes back to [the Legislature for approval].”
But it doesn’t always produce the desired savings. In May 2012, a supplemental budget passed by the Legislature to fill a gap in the state’s Medicaid program, MaineCare, appointed a MaineCare Redesign Task Force to find $5.25 million in cuts from the current year’s Medicaid budget and recommend long-term, money-saving MaineCare reforms.
The group fell short of its immediate savings target, coming up with $1.35 million in short-term reductions. But the LePage administration incorporated some of the group’s long-term recommendations into its proposal for a new, two-year budget and predicted it could save more than $22 million in state funds as a result.
The Medicaid redesign group came out with its report in December 2012, about six months before the end of the fiscal year for which savings were needed. The changes required legislative approval. And in Medicaid — the majority of which is funded by the federal government — many savings initiatives require federal approval.
The key, said Low, who served on the Medicaid redesign group, is to leave expert groups enough time to find savings and enough time for their ideas to be implemented. And the savings goals need some definition.
“It needs to be a thoughtful process,” Low said. “It’s not just about, I’ve got a $60 million hole in the budget. Let’s put in a placeholder.”
Matthew Stone is a reporter in the BDN’s State House bureau.