It is good news that the administration of Gov. Janet Mills has found ways to plug a $528 million hole in the current state budget without cutting programs or services, for now.
The governor and lawmakers will have a much more difficult time closing the predicted $1.4 billion budget shortfall over the next three years. The loss of revenue is mostly attributed to the ongoing coronavirus pandemic, which has depressed the economy and, hence, tax revenue.
When the new Legislature convenes next year, the budget will be a top priority. Members must keep in mind that there are multiple ways to balance the budget when revenues decline. The typical response is to first consider cutting programs and services. But, increasing revenue — yes, that means raising taxes and fees — must be part of the discussion.
Last month, Mills asked state departments to identify cost reductions of 10 percent for the year ending in June to account for lower state revenues. The request was part of the administration’s plans to curtail spending. The deadline for coming up with the cuts has been extended to Oct. 19 in hopes that federal relief will come from Congress.
Mills has said that she is seeking to avoid job cuts and reductions in state aid for education and safety net programs.
In the meantime, the Department of Financial and Administrative Services has proposed $528 million cost savings in the current budget year.
Kirsten Figueroa, the governor’s budget commissioner, last week proposed taking $130.5 million from unspent appropriations from the previous fiscal year, as well as setting aside $125 million in general fund money in this year’s budget freed up from improved Medicaid matching rates and continued cost mitigation efforts like hiring freezes. Another $70 million is revenue from higher than expected alcohol sales in recent years. And, about $97 million in federal funding under the CARES Act could be used for payroll costs for public health and public safety employees.
The proposal does not pull from Maine’s rainy day fund, which now totals nearly $259 million, but does utilize $106 million in reserve funds set aside by the Legislature earlier this year.
If Gov. Janet Mills accepts the proposal, she could use an executive order to curtail money from the state and highway budgets.
“While every state in the nation is facing significant budget shortfalls caused by the pandemic, our early actions have protected Maine’s fiscal stability in the short term and prevented significant impacts to the services that Maine people rely on,” Mills said in a statement on Sept. 9. “I will closely evaluate Commissioner Figueroa’s recommendations to further stabilize the state’s budget, and I urge Congress to provide additional aid to state and local governments, along with flexibility for funding already awarded, so that we can continue to preserve critical services for Maine people and chart a full economic recovery.”
If these budgetary changes are made, there is still an expected budget gap of more than $800 million in the next two-year budget that must be addressed by the Legislature and governor during the biennial budgeting process that will start early next year.
Revenue increases, along with spending reductions, must be part of that discussion.
New research from the left-leaning Maine Center for Economic Policy shows that lowering taxes doesn’t necessarily spur economic activity.
For example, after the 2008 recession, five states, including Maine, enacted large tax cuts. In four of them, Maine included, job growth trailed the national average after the cuts. Maine’s job growth from 2012 to 2015, was an anemic 1.7 percent, compared to national job growth of 6.3 percent. Growth in personal income also lagged the national rate.
Conversely, tax increases don’t equate to an exodus of business and well-off residents, the report found.
Between 2000 and 2016, more people moved from New Hampshire (which has no income tax) to Maine than vice versa. During the same time period, more New Hampshirites moved to Florida — another no income tax state — than Mainers.
It is too early to know what spending cuts or fee and tax increases may be necessary to balance Maine’s budget. But, the discussion must start with all options on the table, and that includes increasing revenue.