Income, job rate forecast adjusted Prediction portends Maine revenue drop

AUGUSTA – An advisory panel that counsels state government trimmed forecasts for growth in employment and personal income Tuesday, potentially setting the stage for a reduction in actual revenue estimates by a second panel later this month.

A downward revision of revenue estimates would pressure lawmakers and Gov. Angus King’s administration to cut spending or find other sources of money.

King already has undertaken some short-term measures, including a hiring freeze. Lawmakers are preparing for a hunt for ways to offset reduced tax collections after the full Legislature reconvenes in January.

Some discussions are under way with the legislative caucuses.

The Appropriations Committee, which meets regularly throughout the year, is scheduled to discuss the state financial picture today.

The Consensus Economic Forecast Commission began its update Tuesday by scaling up its personal income estimate for 2001 by one-half of 1 percentage point, from 4.5 percent to 5 percent.

The latter change reflected unforeseen economic strength through the first half of the year, analysts said.

But looking toward 2002, the advisory commission dropped its forecasts sharply.

An employment growth estimate originally set at 1.3 percent for next year was rolled back to minus 0.7 percent. Personal income growth for next year, initially pegged at 5 percent, was lowered to 3 percent.

Analysts said a 1 percentage point reduction in personal income growth could translate into lost sales and income tax of $50 million.

The advisory commission on Tuesday projected some rebound in both employment and personal income growth for 2003.

That could result from what panelist Charles Colgan of the Muskie Institute of Public Affairs at the University of Southern Maine described as “a relatively mild and a relatively short recession.”

The economic downturn facing Maine now, he said, is “more like the early 1980s recession” than a deeper slump a decade ago.

The separate revenue forecasting committee that fixes revenue projections is due to issue its new report by Dec. 1.

Some observers believe Maine state government is better positioned to weather a recession now than it was in the 1990s. One factor they point to is a state Rainy Day Fund that amassed more than $140 million.

“At least we’re prepared,” said Rep. Sharon Libby Jones, a Greenville Democrat who sat in on the commission meeting and who serves on the Appropriations Committee. “Last time we weren’t prepared.”

Maine’s General Fund tax collections dropped under budget by $33.8 million through the first quarter of the fiscal year, according to officials.