November 12, 2024
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King downplays May revenue shortfall

AUGUSTA – Attempting to put the best possible spin on the latest development in the state’s budget situation, Gov. Angus S. King said Friday that a $37 million shortfall in anticipated state revenues for May was definitely a cause for “concern.”

Like other states, Maine revenues experienced a dramatic drop in capital gains income due to the poor performance of the stock market during the last year. The King administration was in the process of drawing up a plan to confront a $90 million shortfall for the fiscal year ending June 30 as well as an anticipated $90 million deficit in the budget cycle that begins July 1 when it received the new revenue figures for May.

Janet Waldron, commissioner of the Department of Financial and Administrative Services, said May’s figures were down about 16 percent from projected estimates, leaving the state with a budget gap of nearly $94 million. Because revenues for June, the last month of the current fiscal year, have yet to be received, the exact scope of the shortfall remains unknown.

Waldron said the $37 million shortfall for May was attributed both to lower-than-budgeted-for final individual income tax payments and higher-than-expected refunds. The income tax line also reflected an $11.5 million shortfall in withholding, indicating that either fewer people were working or Mainers were earning less than budget writers anticipated for May.

King said the administration had yet to identify which factors were driving the decline in withholding. He said his staff had checked with the state’s largest employers and there had been no significant layoffs during May and that unemployment in Maine remained at a low 4 percent. He considered whether seasonal employers might have put off hiring summer staff in May because of the rainy weather and the presumption of a slow start to the tourist season.

“But that would be just speculation,” he said.

Although sales tax revenues remained on track, Waldron and her staff were clearly distressed over the questions posed by the $11.5 million gap in withholding and their inability to provide the governor with answers.

“At this time, we are unable to identify the cause of the shortfall in withholding and continue to analyze payments comparing year over year withholding data to determine the source of this shortfall,” she said in her letter to the governor.

King told reporters it was “too soon to say” that the state’s economy was worsening.

“What I would say is that it is certainly of concern,” he said. “Other indicators like the sales tax and unemployment rate are good. The summer season looks very strong according to someone I talked with yesterday in the tourism industry. But it would be silly for me to say that this is not something of concern to us.”

The news comes at a particularly bad time for King who plans to meet Wednesday with legislative leaders to discuss his solutions for plugging what originally had been perceived as a $180 million deficit in the state’s two-year budget. The governor plans to close the current gap with a transfer from the state’s Rainy Day Fund that would nearly deplete the account. King envisioned a mix of program cuts and hiring freezes to stem the $90 million shortfall in the budget cycle that begins July 1.

Now everything from the deferment of tax cuts under a tax indexing plan to bring the state into conformity with the federal government to possible scale backs in aid to local education could be on the table. All the administration can do, King said, is watch as June revenue figures continue to trickle in.

“You’ve got to play the hand that’s dealt you; it’s all relative to what the reality is at the time,” he said. “And this is an uncertain time.”

Because King’s ability to unilaterally address budget shortfalls is limited, he said last month it was likely he would call a special session of the Legislature after July 1 to seek lawmakers’ assistance in solving the budget deficit. The Legislature has the authority to transfer money from certain accounts that are off limits to King, such as proceeds from the tobacco settlement suit and money in the learning technology, or laptop computer, fund.

Now, because more time will be needed to determine whether the state’s revenue declines are aberrations or indicative of a worsening long-term trend, King said a special session might not be called until August or later.

“I don’t know when it’s going to be,” King concluded when pressed by reporters.


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