The 5 ‘rules’ of Maine state budgeting

Editor’s note: This is the second of five commentaries addressing tax investment and reform raised in the study “No Place to Hide: Confronting Maine’s Economic Future.”

Do you ever read the latest news concerning the state budget and think that it’s just too complicated to understand? Do you hear our politicians describing $240 million and $1 billion shortfalls, so quickly after all those “budget surpluses” of just a few years ago, and wonder where all the money went?

Although no state official will ever admit to anything like this, there are really just five basic rules for the way our leaders in Augusta think about the budget. Sure, there are formulas and programs and performance measures, but sometimes those are just the pesky details. Start to understand these unwritten rules and you’ll come to know why we’re in the mess we’re in.

Three of the rules apply in the “good” times, when the present state tax structure produces surplus revenue; the other two rules apply in the “bad” times, when the economy slows or recesses.

In the good times:

Count the money frequently and with great fanfare. In this way our policy-makers can get the different interest groups throughout the state excited about “new funding” and “policy initiatives.” As one member of legislative leadership said on the Senate floor a few years back, and I’m paraphrasing, “There is no surplus when there are so many outstanding needs.”

Spend all the money. Ever been in the Appropriations Committee room when that committee is trying to close a budget or decide the “Appropriations Table”? The room is packed with legislators trying to ensure that their bill is funded, members of the administration who might be trying to make sure their departmental budget gets new funding, along with members of various lobbying groups exerting whatever remaining pressure they can to see that “their” projects get funded.

Go back and spend some more. Not satisfied with simply spending the projected revenue, an increasing practice has been to guess what might be unspent at the end of the year and recommit that money to some new program. Or you push the start date of a new item into the future and hope the resources will be there to support it.

In the bad times:

Wait as long as possible.

then

Do as little as possible.

Do these last two rules remind you of anything going on at the State House right now?

In the last 10 years, the state’s General Fund appropriations grew by more than 70 percent. Since 1995, appropriations grew by 62 percent. That was at a time when inflation, at historically low levels, was perhaps half that rate.

The FY 02 and FY 03 supplemental budget enacted by the Legislature and signed by the governor this past spring (before we learned about last month’s $240 million revenue shortfall) already had appropriations outstripping budgeted revenue by approximately $140 million to $160 million each year. The budget could be described as being in balance only because of the monies brought forward from the surplus years. That structural imbalance only worsens in the next two-year budgeting period.

Even after the most recent downward revenue reprojection, General Fund revenue for the period FY 03 through

FY 05 is still estimated to increase at a rate of 3 to 4 percent each year. The problem is that state spending is estimated to increase at an even higher rate.

It is a truism that the halls of the State House are filled with people who want to make Maine the best state in which to live and do business in the country. The problem is that not many can agree on how best to achieve that objective.

As a result we have a boom-or-bust budgeting process. Another set of results is that a number of organizations tell us that our state and local tax burden is the highest in the country and we are 49th in business climate.

State policy-makers can help curb these troubling economic trends by exercising some fiscal discipline. Tying state spending to growth in income, gross state product or some other logical benchmark is a good first step.

The state budget totals more than $10 billion for two years. It spells out, in very concrete terms, how Maine state government intends to spend the taxpayers’ money. It is time to make tough choices in Augusta so that the budget is brought into balance without the use of tax increases or gimmicks, where our policy-makers learn that “getting to yes” often means having to say “no!”

Jim Clair is a vice president in the Waldron Group, a Maine-based, private, management and financing company. From 1984 to 2001 he worked on the nonpartisan staff at the Maine State House, most of those in the Legislative Office of Fiscal and Program Review where he served as the principal fiscal adviser to the Legislature.