SAVINGS DURING RAINY DAYS

In an extended interview in the Maine Sunday Telegram recently Gov. Angus King offered his views on the successes and failures of his administration, now about to close up shop after eight years, and provided some advice for the next governor, John Baldacci. Given Maine’s dismal budget outlook, there is plenty to be done. The retiring governor touched on one of particular importance.

During his tenure, Gov. King twice proposed a means for taking a specific percentage of tax revenue and putting it aside before spending on anything else. Banking a little savings is a common strategy for families – or used to be anyway, the personal savings rate nationally looks a lot like the Maine budget these days. But the principle is sound enough – budget revenues cycle up and down over the years; keeping a budget in line with affordability means saving a little from the up times to help cover costs during down times.

Gov. King said in the interview, “One of the things we tried the first two budgets was to get a budget stabilization mechanism that would have largely prevented what we’re facing now. We would have budgeted and spent a lower percentage of the revenues and put 2 percent aside every year into a (savings) fund, which right now would be about $500 million or $600 million, which would make the current (budget shortfall) problem infinitely easier to solve.”

One of the reasons it would have been infinitely easier is that the total Maine budget could not have been as high with enforced savings so the gap between expected revenue and expected costs would have been smaller. But the reason that Maine has no stabilization fund is equally obvious: Demands by lawmakers for new programs or new tax cuts always – always – eventually exceed the revenue projected for the next year and the Legislature’s Appropriation’s Committee has the job of paring back proposals to meet those projections. That’s why during huge budgetary increases during the second half of the 1990s, billions of dollars that weren’t there before, the state’s Rainy Day Fund rose by a comparatively small $140 million, and the governor had to lean on legislators to get even that much.

Establishing a mandatory savings plan for the state will be even more difficult in the next couple of years, when lawmakers will be scaling back their ideas rather than expanding them to meet the next couple of budgets. But beginning of such savings during these difficult times makes sense because the political support exists for it now in a way that it would not during times of increasing revenue. The next governor could start small, saving even $500,000 a year to begin and expand the rate as revenues grew. More than setting aside money now, Augusta needs to get in the habit of thinking about the long-term fluctuations of the budget.

Gov.-elect Baldacci would find support from at least one Republican. Rep. Peter Mills earlier this year outlined a plan to keep Maine’s budget on a steadier path. His plan would do the following: Raise the Rainy Day fund to 10 percent of state annual revenues, which would equal $250 million currently, and add an untouchable $50 million capital reserve. Do less borrowing because debt payment is inflexible. Cut taxes but broaden the base so that it is less reactive to small economic changes. Cut property taxes “to relieve intolerable inequities.”

The proposals from the governor and Rep. Mills are part of the many lessons known but not heeded during the last few years. The time to pass them may not be when the money is available but when their value is most easily recognized.