Municipal officials have been seeing inclement weather since the state’s Rainy Day Fund grew from $5 million at the beginning of Gov. Angus King’s first term to a peak of around $140 million in 2000. The response from Augusta, however, was always the same: The rain in Maine was strictly a local pain, and no relief would be forthcoming. The pain now, however, is certainly statewide, in the form of a mid-budget $250 million shortfall, and the release of a substantial portion of the fund is likely and desirable.

The question for lawmakers is whether they will recognize the problem and use the fund as it was intended, or pretend that an over-simple cut – say, chop every department by whatever percent produces enough savings on paper – is the answer. How they respond will help determine how quickly and how well Maine grows out of what is predicted to be a short recession.

Gov. King this week laid out a reasonable approach to closing the budget gap. Broadly, he proposes to allow $15 million in emergency supplemental spending (out of $73 million requested), cut $150 million from state government, use $90 million from the Rainy Day Fund and defer $25 million on tax cuts passed but not put in effect. His plan for the budget, to take the state through June 2003, is hardly the final word.

Legislators properly will look closely at the cuts and the new spending in the departments, particularly at the reimbursement rates proposed under Medicaid, the plan to delay re-indexing income-tax brackets, the budget at the University of Maine as it faces steeply higher health insurance costs and contract renegotiations, the 2.3-percent increase in General Purpose Aid to Education, a hiring freeze throughout state departments that could result in cuts of 600 positions and the hundred other areas used to close the gap. Conformity with federal tax changes, a big issue with House Republicans, amounts to about $17 million over the budget; Gov. King has accounted for about $9.5 million of that, with a proposal to meet the other $7.5 million in 2003. The GOP is unlikely to want to wait that long.

Two variables will make legislators’ jobs more complicated. If Congress passes a stimulus package that includes permanent tax cuts – a real possibility if they pass anything at all – Maine and all other states would fall further behind as they align state tax policy with federal policy. The gap could be increased as much as $30 million or so. Lawmakers will also need patience. The next state revenue forecast is due in early February, when Maine will get a much better sense of what revenues will look like through the spring. The Legislature cannot wait until February to begin its work, but it certainly can put off any final decisions until then and it should.

Good news or bad in that forecast, how-ever, lawmakers will need to draw down the Rainy Day Fund and Maine should feel lucky that it is there to draw on. Forty states report some level of budget problems; at least 15 have made budget cuts or frozen spending since September.

Two years ago, the Center on Budget and Policy Priorities studied how well each state was prepared for a recession in 2001 of the sort experienced in the early 1990s. The center looked particularly at state reserves, such as Rainy Day accounts, and at the exuberance with which states were cutting taxes. Its initial study found eight states – Delaware, Indiana, Iowa, Maine, Massachusetts, Michigan, Minnesota and North Dakota – could weather a recession with the help of its reserves. A follow-up study a year later found that major tax cuts in five of those states, not including Maine, put them in danger should a recession hit.

The February forecast may make some of the anticipated budget cutting unnecessary. If it doesn’t, the Rainy Day Fund was created to cover the sort of mid-budget, recession-driven shortfall that now plagues the state’s budget. Far better to use it to cover a temporary shortfall than cut programs that Maine would need to recreate once the recession passes.