Caution urged as revenue levels rise

AUGUSTA – State analysts who try to peg future tax revenue levels for use by Maine’s governor and legislators in crafting a budget are dressing up their latest forecast with red flags of caution.

For the time being, Democrats and Republicans on the Appropriations Committee say that kind of go-slow approach suits them just fine.

“I just hope that people aren’t thinking of any new spending,” House Chairman Joseph Brannigan, D-Portland, said this week.

A standard-setting panel of fiscal experts has boosted revenue estimates for Maine’s state government for this year and next, but says one key indicator has been a drag.

Sales tax collections are off, and the new forecast scales back projections on that line by $30.5 million for the current fiscal year and by $22.6 million for the year that will begin next July 1.

Nonetheless, the state Revenue Forecasting Committee’s Dec. 1 update raises the overall General Fund revenue estimate for the current biennium, which runs through June 2007, by $164.4 million.

Pushing the projection upward are more optimistic expectations of individual income tax collections and corporate income tax receipts.

Uncertainty clouds the individual income line, however, prompting jitters among some lawmakers and analysts who recall past experiences with revenue climbs and dips.

“The significant reprojection of General Fund revenue for this biennium is a reflection of a national and state economy that is providing average income growth to low- and middle-income households and robust income growth to upper-income households,” acting State Tax Assessor Jerome Gerard told the Legislature’s Appropriations Committee on Wednesday.

The problem, he said, is that moderate employment growth and salary increases for low- and middle-income households are being offset by high energy costs.

“At the same time, the economy is producing significant growth in dividend, capital gains and business income, all of which primarily benefit upper-income households,” said Gerard, who is chairman of the forecasting panel, in a prepared presentation.

The problem for forecasters is accounting for capital gains.

“Recognizing the fact that capital gains here in Maine and throughout the country ultimately declined significantly in 2001, the committee has tried to build into the current forecast a correction to the recent run-up in estimated capital gains,” he added.

But Gerard warned that when it comes to the timing of a correction, “any assumption we make is sure to be wrong.”

The forecasting panel has pledged to watch closely for signs of any revenue slowdown.

“Having said all this, the committee would like me to convey to the [Baldacci] administration and the Legislature that capital gains income is highly discretionary and therefore volatile,” Gerard said.

“Combined with a very uncertain global economic and geopolitical environment there is a risk that individual income tax revenues can plummet quickly and deeply as they did in April 2002.”

As Director Michael Allen of the state tax department’s division of econometric research put it at the same Appropriations Committee session: “You can’t forecast a terrorist attack. You can’t forecast a devastating hurricane.”

Looking toward the new legislative session that opens in January, Gov. John Baldacci and state lawmakers face numerous choices on spending – within the Department of Health and Human Services, for example – or saving – possibly in a budget stabilization fund.

Already the governor and House and Senate leaders have agreed on one priority: an appropriation of $5 million for fuel assistance for the needy.

Republican Rep. Sawin Millett, R-Waterford, sought to emphasize for his Appropriations Committee colleagues on Wednesday the here today, gone tomorrow nature of some revenue bookings, such as estate tax gains.