AUGUSTA, Maine — Unlike some of her counterparts, Gov. Janet Mills has been able to avoid draining Maine’s rainy day fund or making large cuts during the coronavirus pandemic, but those steps may be on the table next year with other drawers being emptied.
The pandemic has had a large effect on Maine’s budget, causing a steep drop in sales taxes and other revenue sources and as forecasters estimate a $1.4 billion shortall through 2023. That will likely mean the surplus revenue that stocks Maine’s rainy day fund will also dry up over a long period, which is putting a political premium on preserving the fund in Augusta.
That fund — which currently sits at $258 million — is seen as a backstop for when a sudden economic event means the state cannot pay its bills. The size has been used as a measuring stick for how fiscally prudent a government is by politicians and credit rating agencies.
At least 15 states have reached for their rainy day funds to pay for revenue shortfalls and coronavirus-related expenses during the pandemic, according to the National Conference of State Legislatures. Maine created a new reserve fund to pay for virus costs, although it is relatively small at $11 million and has not been touched, according to the state’s budget office.
Last week, New Jersey approved borrowing $4.5 billion to patch its revenue shortfall. It is the first state to go into debt to cover expenses during the pandemic, the New York Times reported. The state has one of the weakest rainy day funds in the country, only able to support four days of state funding in 2019 to Maine’s 30 days, according to the Pew Charitable Trusts.
It looks like Maine will be able to avoid drastic measures this year, with Mills adopting a plan to cover this year’s $528 million general fund revenue shortfall through a combination of federal stimulus money, cost savings and leftover money from last year. Another $70 million from a reserve fund stocked by overperforming liquor contracts and $130 million in efficiencies must to be approved by the Legislature next year.
Budget experts generally say it makes sense to hold onto the rainy day fund when the full scope of the pandemic financial fallout has yet to be realized, while fiscal hawks argue that cuts should come before raiding the fund because the state can only pull back so much money.
Richard Rosen, a former Republican state senator who served as budget commissioner under Gov. Paul LePage, said the Mills administration “had other tools that they could lean on, which makes sense.”
“The balance in the rainy day fund is only available one time,” Rosen said. “Once you use it, it’s gone, and it takes a long time to build it back up again.”
Maine has been there before. The fund was drained of 85 percent of its revenues in 2009 during the last recession under Gov. John Baldacci. It was rebuilt to $272.8 million under LePage, who made steep cuts to social and public health services during his tenure and often did not fill positions in state government that were mandated by the Legislature.
State economic experts recommended in 2018 the fund be at 18 percent of the general fund revenues to weather a moderate recession. Maine was at 12.1 percent of spending in 2019, just below the national average, according to Pew.
Last year, the Mills administration used the fund to pay off the $72.1 million debt to the federal government from a LePage-era lawsuit with the federal government over the decertification of Riverview Psychiatric Center, including $65 million set aside in the fund in 2017 for that purpose. It currently stands at $258 million after Maine added to it last year and this year.
Republicans slammed Mills for her use of the fund, though it is only slightly lower now than it was at its peak under LePage. Some have also criticized her use of the liquor contract money, which makes enough to cover debt service and supply matching funds for some drinking and wastewater projects. If used, the $77 million fund will be nearly depleted.
Julie Rabinowitz, a former LePage spokesperson who now fills that role with Maine People Before Politics, a political group aligned with the ex-governor, said a better strategy would be to utilize that money to support government services rather than relying on them in tough times.
She also advocated the state cut spending to bring the state budget back in line with LePage-era levels. That would largely eliminate the shortfall as the future of the pandemic remains uncertain and Congress is deadlocked on a new stimulus package.
“There’s no guarantee there will be more federal aid,” she said. “It’s ironic that the state government is only really able to weather the next year without budget cuts because of LePage.”
This tack would also endanger programs. LePage, for example, took other shortcuts to savings that included not funding Medicaid expansion, which voters passed in 2017 but lingered in a court battle until the end of his tenure. That item alone made up $146 million of an $800 million spending increase over the baseline in Mills’ two-year budget proposal in 2019.
Hard choices will come as soon as next year. Lawmakers will debate a new budget proposal and debate cuts and tax increases. Mills, like many governors, maintained during a Monday press call with labor leaders that the federal government needs to provide more aid to prevent cuts to services and state reserves.
“I’m not going to drain the rainy day fund because Congress doesn’t have the chutzpah to step up to the plate and do what is necessary over the long term,” she said.
Correction: An earlier version of this report misattributed information from the Pew Charitable Trusts.