Budget battle gets a boost Personal income tax revenues top estimates

AUGUSTA – Number crunchers for the King administration were preparing to change the governor’s $272 million supplemental budget Thursday after revenue estimates appeared to be tracking much higher than anyone in state government had imagined.

Any substantial increase in revenue projections will have a dramatic impact on the Legislature’s ongoing budget discussions on proposed program cuts and tax increases.

The numbers presented Thursday were so good that members of the Revenue Forecasting Committee found them hard to believe. After meeting for most of the day, the committee members decided to adjourn for a week after they concluded that personal income growth levels projected last month by the Consensus Economic Forecasting Committee were a bit too optimistic.

Two weeks ago, economists on the economic forecasting panel estimated personal income growth in Maine would increase by 5.5 percent in 2001 and 5 percent in 2002. When run through economic projection models by Maine Revenue Services, those assumptions produced an estimated revenue increase that was $139.5 million higher than the revenue forecasting committee predicted last November.

Laurie LaChance, state economist and chair of the Revenue Forecasting Commission, said larger-than-expected increases in automobile sales, building supply sales and personal income tax collections were the major forces driving the revenue increases. Although all of the members of the committee thought Thursday’s projections were too high, LaChance said she expects new personal income growth projections of 5 percent for 2001 and 4.6 percent for 2002 will produce a revised revenue increase of between $70 million and $80 million.

That’s considerably less than the figure initially offered Thursday but significantly more than LaChance’s prediction two weeks ago when she pegged the revenue increase for the balance of the current two-year budget cycle at $50 million. Regardless of the final figure, the news of increased revenues was welcomed by many in the State House whose constituents would have been affected by many of the governor’s proposed budget cuts.

Although declining to discuss the developments in detail, Gov. Angus S. King said Thursday that no one in state government should be eyeing the new revenues as “found money.” He expects the Legislature’s Appropriations Committee to follow the course he laid out for them when he submitted his budget instructions in January. Along with the proposed budget cuts, King included a list of programs that should be restored if revenues surfaced.

Leading the list for funding restoration are Medicaid cuts under the Department of Human Services, the Department of Behavioral and Developmental Services, tax code changes and as much as $100 million that could be returned to the Maine Rainy Day Fund.

“He wrote those priorities into the original document,” said Sen. Jill Goldthwait, a Bar Harbor independent who co-chairs the Appropriations Committee. “But that was anticipating a rather smaller number than what we’re going to get. So I’m sure his [new budget proposal] will reveal even more of his priorities. So we’ll look at it and see where we agree and where we disagree.”

The prospect of waiting another full week for a final revenue projection was mildly discouraging to some lawmakers who had been waiting to see whether programs they were trying to save from the budget ax might actually be spared. Some members of the Appropriations Committee expressed minor frustrations over not having a definite number to work with, but Goldthwait said she believed much still could be accomplished next week. House Speaker Michael V. Saxl, D-Portland, said although lawmakers didn’t get a figure they could nail down Thursday, it was more important to let the process complete itself.

“The people of Maine and the Appropriations Committee in particular are more than happy to wait a day or a week in order to be able to preserve a program like health insurance for the low income that impacts 22,000 people,” he said. “It’s worth the wait to get the right number.”

The revenue forecasting committee also had concerns about the projections for future auto sales.

LaChance said the six members of her committee remained mystified by auto sales, which posted a 22 percent increase in the last quarter of 2001 when compared to 2000. Hefty rebates and zero financing plans offered in the aftermath of the Sept. 11 terrorist attacks were attributed as major factors that spurred the spike in sales.

But the concern committee members have is that fewer people will need to buy cars in 2002 because they already were enticed into buying them in 2001.

“It’s amazing that these big-ticket items moved in a period of downturn,” LaChance said. “How that continues just defies logic. It’s a struggle for us because the model wants to say that car sales will continue at 8 or 9 percent growth. My personal feeling is that we have pulled sales from 2002 into the last quarter of 2001. What we’ll see in the next six months is some form of a dip.”