The Maine State House in Augusta is seen in this May 6, 2020, file photo. Credit: Natalie Williams / BDN

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AUGUSTA, Maine — The coronavirus is driving a projected Maine state revenue shortfall of $1.4 billion over the next three years with more than a half-billion hit by mid-2021, a state forecasting panel reported Wednesday.

The committee’s projections are rosier than some early projections, including one from Moody’s Analytics pegging potential losses as high as $1.2 billion by next June. But they still present a steep challenge for lawmakers, and some members of the Legislature’s budget committee say the outyears of the projection are a bigger cause for concern than this year’s shortfall.

The shortfall could mean serious reductions in government services. General Fund spending on major drivers — including Medicaid, personal services, higher education and aid for local schools — decreased $161 million from fiscal year 2009 to 2011 and did not rebound to pre-recession levels until 2012, according to documents from the Office of Fiscal Review.

The drivers of the general fund shortfall have long been known: Sales and use tax revenue is expected to be down $230 million by the end of the 2021 fiscal year next June, a 6 percent decrease caused by dips in demand and associated economic restrictions from Gov. Janet Mills as a way to slow the spread of the coronavirus.

Those drops are expected to trickle down to revenue sharing for municipalities, knocking it down by $20 million. That will put additional strain on cities and towns experiencing financial hardship and desperate for aid from Congress, which looks unlikely in the next round of federal relief.

Income tax receipts are projected to be down $260 million. Revenues influenced by wealth assets, such as investment incomes and the estate tax, are also expected to take a dive as the stock market remains volatile

The total cost of the pandemic is still a moving target, but Mills told Maine’s delegation that it could take $3.2 billion to cover revenue shortfalls and provisions to combat the virus last week. 

Sen. Cathy Breen, D-Falmouth, the co-chair of the Legislature’s budget panel, said the $524 million for this year is likely to be partially offset by a $106 million surplus. The state has a $258 million rainy day fund it can draw from, too. 

What happens over the following two years is hard to say, because “at that point, our reserves will be tapped out,” she said. Breen said there is still uncertainty around in budget forecasting, highlighting the importance of another revenue revision expected in the late fall.

Rep. Sawin Millett, R-Waterford, a former budget commissioner who also sits on the committee, agreed, saying the slow economic recovery projected by Maine’s economic forecasting committee earlier this month will pose a much bigger program than the immediate shortfall.

He said the Legislature will be in a tough position if it tries to navigate this year’s shortfall in the middle of the current fiscal year in addition to working on the biennium budget.  

“We’re in a difficult spot and the longer you wait, the more difficult it becomes,” he said.

How bad the fallout is in later years will be largely influenced by the course of the pandemic. The state’s economic forecasting commission predicted recovery will be slow — and that was assuming no more large outbreaks occurred and further aid from Congress.

It may not be enough to bring both parties to the table. Republicans have insisted they are only interested in working on bills this session that pertain to the budget and the coronavirus. Democrats have pushed for lawmakers to “finish the job,” with leadership advising lawmakers to stay away from bills that have high-dollar costs. Mills could call lawmakers back, too.

If she plans to do so, Mills is not telling. In a Wednesday statement, she said she has made no decisions about another supplemental budget and that she will review revenue reports and look for cost reductions while conferring with legislative leaders about “next steps.”

The state’s Highway Fund was revised down by $30 million for next year, largely driven by a projected $28 million drop in gas tax revenues. That is on top of a $232 million shortfall the Department of Transportation said it was facing prior to the pandemic. The worst year is expected to be felt next year, with the shortfall decreasing by roughly half in 2022 and 2023.

Funding the state’s capital roads and bridges projects was a high-profile discussion last session, largely focused on a desire to decrease reliance on bonding and largely partisan debates around increasing general fund contributions and raising the gas tax to increase revenue. 

A commission convened by Mills recommended increasing the funding, but punted on a long-term fix, an action that could put the decision in the hands of the next Legislature as a special session remains elusive.

The pandemic is expected to also take a toll on the Fund for a Healthy Maine, a fund reserved for health promotion purposes largely fueled by money from the tobacco settlements and casino revenues. The latter has been dragged down as casinos closed during the pandemic and have slowly begun to reopen.