New estimates may ease budget pressure

AUGUSTA – It is state government’s version of instant replay.

Two months ago, fiscal experts found the state’s economic outlook seriously deteriorating. In recent weeks, Gov. Angus King has suggested things may not look so bad. What’s changed?

“What’s changed, I think, is that the numbers are tracking ahead of expectations,” says Sen. Jill Goldthwait, the Bar Harbor independent who is a co-chairman of the Legislature’s Appropriations Committee. “We’re ahead of where we thought we were going to be with most of our revenue numbers.”

It was just weeks ago, on Nov. 30, that the state panel that budget writers depend on to set revenue projections lowered its estimates for the current two-year cycle by nearly $250 million.

The Revenue Forecasting Committee’s reprojection, which applies to a biennial General Fund base of more than $5 billion, reflected pessimism about collections of Maine’s sales tax, individual income tax, corporate tax and estate tax.

The downward reprojection followed a negative analysis of key factors by a separate advisory panel that establishes economic assumptions to guide the revenue forecasters.

That advisory group, known as the Consensus Economic Forecasting Commission, lowered its 2002 estimate of employment growth in Maine from positive 1.3 percent to negative 0.7 percent and dropped its estimate of personal income growth from 5 percent to 3 percent.

One effect of the subsequent Revenue Forecasting Committee reprojection was to force King administration officials to put forth proposed adjustments for the state’s current budget. Questions arose almost right away.

On Jan. 8, King unveiled a tentative plan to adjust state spending to cover the resulting $248.6 million revenue shortfall. While doing so, he said a new look at expected revenue levels for the Revenue Forecasting Committee’s March 1 update might send estimates up again.

Such an upward reprojection, of whatever magnitude, could ease pressures on King and the Legislature to reduce program spending or delay scheduled tax cuts.

King said he believed there was “a reasonable likelihood” an upward reprojection would be justified.

On what is the governor’s optimism based?

King noted at the Jan. 8 budget unveiling that last fall’s downward revenue forecast assumed a loss of $109 million in the current fiscal year, which runs through June 30.

But through the Dec. 31 halfway point of fiscal 2002, King said, undercollections totaled only $23 million, suggesting the revenue shortfall might not be as bad as predicted.

More recently in its latest monthly revenue report, the administration cited a consensus of businesses surveyed by the Federal Reserve that anticipated a national economic recovery beginning sometime during the first half of 2002.

The same administration report also suggested that the holiday season in Maine had been better than expected.

The administration says less than $30 million in additional revenue would be enough to avoid what the governor regards as the most unpleasant cuts or delays in his budget-balancing package.

The administration’s priority list of desirable restorations includes more than $5 million in payments to hospitals, more than $4 million in payments to nursing homes and $1 million in payments to doctors.

Another candidate for restoration would be a $6.7 million delay in changes to the state’s individual income tax brackets.

For lawmakers, there may be other priorities.

House Minority Leader Joe Bruno, R-Raymond, for instance, said last week that $25 million King is counting on to finance his computer-for-students initiative is still up in the air.

“In the face of the cuts the Legislature is going to have to consider in health care and other essential programs, you had better believe that the laptop fund is on the table,” Bruno said.

Meanwhile, the Democratic House chairman of the Appropriations Committee, Rep. Randall Berry of Livermore, said he believed proposals for cutbacks in mental health spending, for example, would have to be weighed against “some of the tax breaks that we’ve done.”

That view might imperil another King touchstone – the Business Equipment Tax Reimbursement program through which the state reimburses companies for local taxes on new equipment.

The next two-tiered review of revenue estimates is slated to get under way this week. Goldthwait said early signals from that process, involving both the Consensus Economic Forecasting Commission and Economic Forecasting Committee, could slow the Appropriations Committee’s work on King’s tentative budget-balancing package.