Economist reassures lawmakers Maine sales tax receipts continue upward trend

AUGUSTA – Although Gov. Angus King’s administration continues to grapple with a potential budget shortfall of $180 million, a leading state economist told lawmakers Wednesday that Maine may have turned the corner on the recession.

Meeting with the Legislature’s Appropriations Committee, University of Southern Maine economist Charles Colgan said sales tax receipts continued to trend upward according to April revenue reports while unemployment, at 4 percent, fell below the national average.

“I think that it’s clear that the Maine economy has weathered the recession in fairly good shape,” Colgan said. “In fact, in looking at our expectations with respect to job losses, we do not expect any large problems and in fact we probably have less of a problem with employment than we expected.”

That was good news for King who notified legislative leaders Tuesday that he would like to meet with them on June 19 to explore a tentative timetable for a special legislative session to address the budget shortfall. Tony Sprague, communications director and special assistant to the governor, said Wednesday that King has asked his commissioners and department heads to consider how a 7.3 percent across the board cut would affect their respective operations. The 7.3 percent decrease is about what the governor thinks he would need to achieve the desired amount of savings to balance the budget.

Because the unilateral action by the administration would almost certainly cut deeply into social service programs and local education funds, the governor wants to include the Legislature in the decision-making process. The Legislature is empowered to transfer assets from accounts that are off limits to King, such as the Tobacco Settlement Fund and the Learning Technology Fund.

King said earlier this week that he is considering calling the Legislature into a special or emergency session sometime in late June or early July to close the budget gap that resulted largely from the 2001-2002 decline in the stock market. But on Tuesday, a Republican lawmaker said an easy answer to the budget gap may be within the grasp of decision makers if the Legislature and the governor can muster the collective will.

Rep. Richard A. Nass, R-Acton, cited state figures that pegged authorized and funded positions in state government at 14,724. In contrast, New Hampshire only has 11,131 state positions. At a little more than 1.2 million, Maine’s population is only 3 percent larger than its neighbor, he pointed out.

“Our bureaucracy, on the other hand, is 32 percent larger than the bureaucracy in the Granite State,” Nass said.

Emphasizing that Maine state bureaucracy has actually grown by 826 employees during the last five years, Nass wrote King a letter urging him to identify 3,500 jobs for elimination.

“With an annual salary and benefits package that costs the taxpayers approximately $50,000 per employee, we would save $175 million per year,” Nass said. “The savings would solve our current fiscal crisis and position the state for the upcoming (budget cycle).”

Colgan had to admit Wednesday that swings in narrow economic indicators like the capital gains taxes that triggered Maine’s latest round of budget woes were difficult to predict. Coincidentally, the Revenue Forecasting Committee that Colgan chairs is scheduled to meet on June 19 for a retreat on the budget to provide the Legislature with the best possible information as lawmakers confront the $90 million gap in the budget cycle that begins July 1.

Colgan said Maine’s experience with the recession had been “short and relatively mild” and that the state remained “on track” with the committee’s economic predictions. The economist wanted more information before offering an opinion on personal income growth and employment growth. He told lawmakers not to be too optimistic.

“The down side to a shallow recession is that there is not a lot of recession growth bounce,” he told legislators. “I think that looking ahead at this point, in the absence of other information, the fundamental economic forecast for Maine is a slow, but steady recovery from the recession and a return to a modest expansion of the economy next year. We’re not doing that bad with the economy as a whole. We should be on track for relatively slow, but steady, expansion to the economy. It will not add to your woes in terms of the revenues.”