Governor’s new budget

In presenting his budget yesterday, Gov. Angus King confronted some of the same conditions he saw when he took office six years ago: There’s a shortfall to make up, agencies will have to be more efficient and legislators must be persuaded to keep new demands at a minimum. Now that the years of surplus apparently are gone, the governor has an obligation to provide a more disciplined budget that is balanced now without imperiling the future and, as important, asserts a clear direction for his administration’s policies.

The King budget balances. It preserves research and development; it makes an acceptable start for K-12 education and an unacceptable conclusion for higher education. It properly keeps the state’s savings account, the Rainy Day Fund, full. It struggles on health care: After gambling away a year on a committee that largely concluded the impossibly rising cost of coverage was a federal problem, the governor can offer little better than the equivalent of brisk walks and a sensible diet to ward off visits to the doctor. It creates some costs to be paid off years from now to protect current badly needed programs. At first glance, it appears to be a fair budget if not an inspired one, a skillful, levelheaded response to the irrational exuberance of the last legislative session.

Where revenues were growing at a double-digit rate just a year or so ago, they are now growing at around 5 percent, and revenue forecasts predict they will stay at that modest 5 percent rate for the next three or four years. As much as they desire to express policy through spending, lawmakers should view this forecast as a guiding principle for the new session. The biggest mistake they could make now is to build a budget that increases future costs beyond this rate of growth and guarantees larger and larger shortfalls in the years to come.

For much of his administration, Gov. King, with the help of unexpectedly large state revenues, has had the difficult pleasure of trying to figure out how best to spend surprise surpluses. In some areas he can claim success; others, like closing the north-south income gap and the resulting population shifts, remain frustratingly present. He can take credit for encouraging some smart investments, like research and development funding both for the university system and private organizations. He agreed to expand Medicaid coverage so that almost all Maine children can get health care. And early in his administration he began removing the budget gimmicks of the last recession – weeding out payroll pushes, the sick tax and the delay in payments to the debt of the state pension fund.

It was something of a surprise, therefore, to see this last item re-emerge in his new proposed budget. The state retirement account accumulated debt over many years and became an issue during the recession of the early 1990s, when the schedule to pay off the debt was extended as far as 35 years. Lawmakers have since pushed the payback time down to where it now stands at 19 years and in the process saved billions of dollars. Gov. King now proposes to reamortize the debt to 22 years, which would provide an additional $17.5 million a year to the budget but would cost Maine $788 million in additional interest payments over the life of the debt. This proposed change, by the way, applies only to unfunded debt and has no effect on benefits. But compare that with some of the sillier ideas last year – cutting the $15 million-a-year snack tax, for instance, which the governor had the good sense to oppose – and it isn’t hard to see how these small cuts add up to big expenses for Maine taxpayers.

On other areas of the budget, the governor simply faced the hard choice of making the numbers balance when the size of the revenue pot was smaller than hoped. He uses $30 million from the tobacco payments to support Maine’s share of Medicaid, which some lawmakers will dislike because they had that money penciled in for other, equally valuable programs. Medicaid costs Maine $420 million a year and its costs, particularly its prescription drug costs, are rising rapidly. Medicaid has increased nationwide, but as recently as a decade ago, Maine’s Medicaid costs were close to the national average; now they are 50 percent higher than the average.

It seems inevitable that as the destination for the tobacco money is debated in the Legislature, lawmakers will also start re-examining the benefits Maine offers under Medicaid and compare them with what is available elsewhere.

On education, the largest single item in the budget, the governor has proposed a 5 percent increase in the first year to General Purpose Aid, and 3 percent in the second. Six percent is the minimum needed for Maine to stay even in its pursuit of state equity in education, through its per-pupil guarantee. If past years are an indication, however, the proposal the governor set for GPA merely is the funding floor; lawmakers will start there and debate how much higher they will go. Republican leaders already have said they would support 6 percent.

Higher education poses more of a problem. After several years of fairly conservative budget requests, UMaine System Chancellor Terry MacTaggart has asked for a 9 percent increase to fund the core programs of the university and pay for decent salaries and rising health care costs of faculty and staff. The governor has proposed 21/2 percent increase, which will require cuts elsewhere in the budget and certainly raise tuition, which already is too high. At the very least, lawmakers should match such a small increase with ample student-aid funding. Chancellor MacTaggart has built plenty of good will in the Legislature; lawmakers are likely to look at the governor’s higher-education budget line and decide it is too low.

That, of course, leaves them with the job of finding the money for the university system – or anything else – and still making the budget balance. Expect to see the start of new programs pushed off for another year or indefinitely. There will be some support for the governor’s reasonable cigarette tax and some of the more wistful lawmakers may even look back at that half-penny (worth $33 million a year) taken off the sales tax and wonder if removing it was worth the exchange for higher tuition at UMaine or less health care for the poor.

These are hard choices now that the years of surplus apparently are gone. Legislators will have to be forward-looking enough to keep Maine from the budget-bomb shelter mentality of the early ’90s yet make sure they don’t do anything this year that will make those choices even harder next time. They will find what the governor found – it’s easier to be a leader when the surpluses are rolling in.