Bungee-cord budgeting” was the phrase used by economist Josie LaPlante 10 years ago to describe the volatility of Maine’s taxes. That was during the debacle of the 1991 downturn when the state last fell victim to defects in its tax code. Government closed down for several weeks. Workers demonstrated daily at the State House. Pensions were slashed. School funding was cut. Taxes were raised. Workers were laid off and programs curtailed.

The public reacted by turning leaders out of office in 1994, by rejecting all party nominees for governor and by putting an independent in charge of the Blaine House. As the events of this past year have shown, we have learned little since 1991.

State government still runs on two major taxes: income and sales. Income taxes come from profits and wages. When profits go down, even by a little, tax revenues can drop with surprising suddenness, especially taxes from capital gains.

Sales tax revenues depend heavily on sales of cars and building supplies. When times are rough, no one buys a new car or makes an addition to the house. Homeowners postpone the decision for a better year. When such major purchases are deferred, sales taxes plummet, often more severely than the drop in the economy. When the economy drops by a notch, state taxes can drop comparatively by three times as much.

But when the economy is booming, as it was from 1996 through 2000, the state can be flooded with unbudgeted surpluses. When the money is flowing in, these are the opportunities that must be seized to prepare for down cycles. During the heyday of the late 1990s, a few of us preached from the State House rafters to remember the lessons of 1991.

We thought the choices were obvious:

1. Increase the Rainy Day Fund.

2. Fund capital projects with surpluses instead of borrowed money.

3. Avoid new programs when they cannot be sustained.

4. Reduce taxes in ways to relieve volatility.

What was done in the 1990s: A few steps were taken, but not in sufficient measure. The Rainy Day Fund was raised from near zero to $145 million. We did invest some surplus in capital projects. Unfortunately, many other projects were built with borrowed funds when we should have used remaining surpluses instead. As a result, we are now saddled with new debt that we lack the revenue to pay.

We have cut taxes in every year since 1995 but not in ways that alleviated volatility. When money was plentiful – and even when it wasn’t – we added further exemptions to the sales tax as favors to special interests. It now requires over 80 paragraphs of text just to describe the exemptions in current law. Our sales tax base is one of the narrowest in the nation.

At the same time, we left top income tax brackets at levels that are higher than most other states and we continue to tax capital gains at the same rate as ordinary income. As a result, volatility is worse than ever and venture capitalists are discouraged from investing here.

In early May, just days after adjournment, we learned of the most recent revenue shortfall, this one projected to cost $180 million over the ensuing 14 months. The Legislature must soon meet again to re-write the budget. We will break promises earlier extended, cut programs in mid stream and lay off state and contract workers who had been told earlier that they had jobs to do. We are back to “start and stop” government. Are our memories so short that we cannot remember the lessons of 1991?

Those of us on the Appropriations Committee have worked through many weeks of hearings to re-write the same budget document at least three times in the past 16 months. This summer, we will re-write it a fourth time, all because we must respond to abrupt changes in revenue that can be better controlled.

The lessons are these:

. In good times we should raise at least 10 percent of state annual revenue ($250 million currently) for the Rainy Day Fund on top of a $50 million untouchable working capital reserve.

. We should do less borrowing. Borrowing is inflexible. The state cannot reduce loan payments when cash is limited, and it cannot buy bonds back when times are good because state bonds are non-callable.

. We need to broaden the base of our tax system. We should reduce tax rates and not the number

of payers.

. We should start new programs only if we can sustain them.

. We must reform the property tax to relieve intolerable inequities.

These lessons from 1991 are the same as for 2002. George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” The irony here is that we are not just forgetting the past; we are failing to recall even yesterday’s current events.

Peter Mills is a state senator from Cornville.