Revenue problems persist State officials struggle to predict tax returns

AUGUSTA – Maine ended its budget year on June 30 a little more in the red than forecast, but better off than some officials had feared. There are still concerns, however, that the state revenue shortfall could get worse in the new budget year.

Figures released Thursday by state Finance Commissioner Janet Waldron put the deficit at just under $93 million.

“That is a preliminary number, but I think it will be very close to that,” said Waldron. She had forecast a $90 million shortfall, but some state officials had feared the deficit could reach as high as $115 million.

She said unexpected growth in some state revenues offset the lower-than-projected returns from the “big three” moneymakers for the state – the personal income tax, the corporate income tax and the sales tax.

“I continue to be concerned about the [individual] income tax line,” she said. “The withholding continues to be below estimates. It was down $5 million in June.”

Waldron said she “has no doubt” revenues will continue to worsen, but she is not ready to estimate how much worse it will get. She expects the revenue forecasting commission, which next meets in August, will increase the size of the expected shortfall for the next 12-month budget period that began July 1. The shortfall for the fiscal 2003 budget also was initially forecast at about $90 million.

“There are real mixed economic indicators,” Waldron said, pointing out the difficulties of predicting future revenues.

State Economist Laurie LaChance agreed that the indicators can be confusing. She said while there have been job layoffs in parts of the state, there also has been job growth, with Maine’s unemployment rate two points lower than the national rate. Such mixed economic indicators make projecting revenues as much art as science, she said.

“We try to apply as much science as possible, but in the end, it is human judgment,” LaChance said.

She and a group of other economists who review economic trends will meet later this month to analyze the complex factors that seem to be driving the economy in different directions at the same time.

“It is very complex, but we are going to give it our best shot,” she said. The group that predicts revenues will use that economic analysis when its members meet in August.

Senate President Richard Bennett, R-Norway, said he is not surprised at the increase in the size of the state’s budget problem. He said the Legislature needs to start working on ways to cut spending very soon, and stop “avoiding the tough decisions” that need to be made.

“To be frank, I think there are members that do not want to come in to session before the election because they do not want to vote on making cuts,” he said.

Bennett is critical of democratic leadership in the Legislature for not scheduling meetings of the Appropriations Committee and other panels that should meet before a special session. He said the process of making the needed cuts in state spending should be done with public involvement and not “by leaders meeting behind closed doors.”

House Speaker Michael Saxl, D-Portland, and Senate President Pro Tem Michael Michaud, D-East Millinocket, sent a letter July 3 to Bennett and House GOP leader Rep. Joseph Bruno, R-Raymond, seeking a meeting to start budget negotiations.

House Majority Leader Patrick Colwell, D-Gardiner, said Thursday that Democrats are not trying to negotiate the budget in private. He said Bennett is posturing for political gain, and that will not help reach a solution that will garner support of the full Legislature.

“Of course the public will be involved through the committee process,” he said. “We have got to have the posturing stop, and sit down and work this thing out. We are ready. It’s the Republicans that have yet to agree on a date.”

Sen. Mary Cathcart, D-Orono, a member of the Appropriations Committee, said it “makes no sense” to start work on making painful cuts in state spending until after the revenue forecasting commission has completed its work in late August.

“I have not heard anyone say they are not willing to sacrifice their summer to do what needs to be done,” she said. “But we still don’t know the whole scope of the problem.”

But Sen. Peter Mills, R-Cornville, also a member of the budget writing committee, agrees with Bennett that work should begin sooner rather than later.

“But that’s assuming everyone will act like adults,” he said. “I don’t think that is going to happen and I am afraid we will have a lame duck session in November to deal with a problem we should deal with this summer.”