AUGUSTA – Only six months into the current two-year budget, the governor plans to drain most of Maine’s contingency accounts to offset an estimated $272 million in reduced revenues and increased costs.

The state’s Rainy Day Fund, currently pegged at more than $100 million, will take a $98.3 million hit under the administration’s proposal.

“Nobody in the state of Maine has been more committed to the Rainy Day Fund as a prudent piece of budgeting policy than me,” Gov. Angus King said. “We saved that money for a rainy day in case of a downturn in the economy – which is exactly what’s happened. Nobody is more reluctant to take money from the Rainy Day Fund than me. On the other hand not using the Rainy Day Fund involves some real choices.”

Speaking with reporters Tuesday morning, the governor emphasized that his supplemental budget plan contains no new taxes and does not make any cuts in funding for local schools, also known as General Purpose Aid or GPA.

“I can’t see any way to solve this problem without the Rainy Day Fund unless we go into GPA,” King said.

By freezing or reducing the growth of many programs at levels established in fiscal year 2002, King reasoned that at least the same number of people currently receiving state services would continue to do so when the fiscal year 2003 begins on July 1, 2002. Administration staffers, however, were not completely certain that all of the supplemental budget’s goals could be realized without some cuts in current programs.

Democrats in the House and Senate were particularly upset with a proposed $15 million cut to the Fund for a Healthy Maine that derives its money from the state’s settlement of lawsuits against the tobacco industry. House Speaker Michael V. Saxl, D-Portland, said the Healthy Maine program was responsible for reducing the number of teen smokers in the state by 36 percent, providing prescription drugs to the elderly, offering child care to the poor, and supplying health insurance to children. He was determined Tuesday to find a way to restore the funding.

“These programs all have a real impact on people’s lives,” Saxl said. “Mostly they make good budget sense. Government exists primarily to meet the needs of people that can’t provide for themselves: the elderly, children, the mentally ill and mentally retarded. I absolutely set as our litmus [test] the needs of that population.”

Almost as soon as the current $5.3 billion budget was approved last year, the King administration began to suspect that robust revenue projections might fall short. By the end of the year it was clear that income derived from sales and income taxes would be down by about $248 million through June 2003. On top of those declines, the governor discovered the state needed to come up with another $6 million to make the state tax system conform with new changes in the federal tax system. The proposed supplemental budget also provides for $18.1 million of the $69.5 million in emergency spending requests submitted by various state departments and agencies.

The King administration closed the $272 million budget gap by identifying:

. $153.2 million in lapsed department balances, program reductions or delays, and reprojected spending needs including a reduction through attrition of more than 300 state employees over the budget cycle;

. $98.3 million to be transferred from the Rainy Day Fund leaving an adjusted balance of $8.8 million;

. $9 million by initiating and delaying changes to the state tax system;

. $8.5 million through a more aggressive effort to collect unpaid state taxes;

. $3.2 million, achieved largely through new revenues by applying the state real estate transfer tax to private corporations.

In addition to leaving GPA alone, the supplemental budget avoids making any cuts to higher education or teacher retirement accounts. The administration also makes no changes to tax relief programs such as the Homestead Exemption Program, the Circuit Breaker Program for renters, or the BETR program for business equipment purchases.

Cuts to state programs account for about $67.2 million of the $153.2 million identified under the lapsed balance category of the supplemental budget. More than a third of the $67.2 million in cuts was made to programs in the Bureau of Behavioral and Developmental Services and in the Department of Human Services. A statewide hiring freeze and reductions in state spending imposed in December accounted for 42 percent of the figure. Cuts to other areas included a $1 million reduction in the amount of money dedicated to research and development under the University of Maine’s Maine Economic Improvement Fund.

King’s Learning Technology Fund or laptop computer account was up to $53 million a year ago. Last June, $23 million was drawn off that account by the Legislature to balance the budget. Under the supplemental budget package, King transferred another $5 million, leaving the account with a $25 million balance. The governor said he thought that would still be enough to fully fund the contract to buy laptops from Apple Computer.

While most of the governor’s press conference focused on budget cuts, he also said there is reason to believe that the last revenue forecasts may have been overly pessimistic and that revenues could be re-projected upward in the coming months. King said the last forecast assumed $109 million in revenue reductions from July 1, 2001, through June 30, 2002.

“As of the end of December, we actually were down $23 million,” he said. “So there is going to have to be a very severe downturn over the next six months to meet the $109 million downward projection.”

To address the possibility of a rosier economic outlook, King’s supplemental budget also included a priority list of programs that should have funding restored when revenues start rolling in. Leading the list are Medicaid reimbursements, funding for the Bureau of Behavioral and Developmental Services, money for tax code changes, and savings to replenish the Maine Rainy Day Fund.

“That will be a discussion with the Legislature, but that’s the proposal that we’re putting forward,” King said. “We’re planning for the worst and hoping for the best.”

Democratic leaders like Saxl and Sens. Beverly Daggett of Augusta and Sharon A. Treat of Gardiner were glad King had not made any reductions to GPA, but they remained concerned over Medicaid cuts and the loss of money under the Healthy Maine Fund. Republican leader and Senate President Rick Bennett of Norway wanted to wait until he could view the actual budget document before commenting in detail. Bennett and House Republican leaders said they also were pleased GPA remained untouched under the King proposal, but were disappointed with the plan’s failure to make changes to the tax code.

The budget proposal will be forwarded to the Legislature’s Appropriations Committee for review on Jan. 22, the same day King is scheduled to give his State of the State address.