Baldacci seeks to set aside windfall State to get $116M in federal support

AUGUSTA – Responding to congressional enactment of a big tax cut package Friday, Gov. John Baldacci said he would like to see a major portion of an estimated state windfall of $116 million set aside as an emergency reserve rather than committed to specific uses.

State officials said an initial analysis suggested that Maine stands to receive an increase of $65.6 million in Medicaid funding and $50 million in so-called flexible funds that can be used for any general government purpose or unfunded federal mandate.

The money for Maine would come from a measure designed to provide $330 billion in new tax cuts and which also includes $20 billion in aid for states.

“The inclusion of $20 billion in emergency state fiscal relief and the $116 million allotment for Maine is much needed,” Baldacci said in a statement.

“While the Medicaid funds will be used to help that system, my inclination at this time is to set aside the flexible funds for the rainy day fund, as we still have to tackle the $400 million structural gap that Maine faces in fiscal year ’06. These monies will allow Maine to continue to provide the essential and necessary services for our citizens,” Baldacci said.

Maine’s U.S. Senators offered mixed reviews of the legislation.

Sen. Susan Collins hailed the bill’s inclusion of money for state relief, saying it will help Maine avert cuts to its Medicaid program.

Sen. Olympia Snowe, who voted against the measure, said it would not be enough to stimulate the economy and called the package a “trillion-dollar tax cut masquerading as $350 billion.”

Baldacci, in spelling out his preference for how to handle Maine’s share of state aid, praised Collins for her advocacy.

“The people of Maine should especially appreciate the efforts of Sen. Susan Collins, whose amendment to the Jobs and Growth Tax Relief package made this possible,” he said.

Maine lawmakers are currently considering a Baldacci proposal for covering a remaining gap in the next two-year state budget pegged at $48 million.

Friday’s enactment of the federal tax cut package was not entirely helpful for state budget-balancers.

Baldacci administration officials said a very preliminary assessment of potential state revenue losses associated with the federal tax cut provisions suggested that Maine could lose about $37.5 million over the biennium.

The congressional package, supported by President Bush, stands to benefit married couples and families with children, most workers, businesses, people who sell property and stockholders who receive dividends.

Baldacci administration officials said marriage penalty relief provisions could reduce state revenue by $22 million in fiscal 2004 and by $9.5 million in fiscal 2005.

Additionally, small business write-offs could cost the state an estimated $3 million in each year of the biennium.