AUGUSTA – Maine’s subsidy program for dairy farmers is successful, according to lawmakers and state officials, keeping many farms operating.

It may, however, be too successful. The cost of the subsidy program is running three times above projections and could lead to significant changes in the law next session.

“We have had a large increase in the support program because of fuel, mostly, the cost of energy,” Stan Millay, Maine Milk Commission executive director, said last week. “That has cost the program a lot of money; it’s running, since last May, a million, just a little over a million [dollars] a month.”

That is dramatically higher than the subsidy program had been costing the state treasury. Millay said in all of 2005, the total cost of the program was $616,000.

The program requires the milk commission to adjust the subsidy based on the cost of milk production with no cap on its cost, and that is worrying lawmakers and state budget officials.

“This fiscal year we have sent out so far about $4.8 million worth of subsidies,” Finance Commissioner Becky Wyke said on Friday. “The current revenue projections [on the milk handling tax] is $1.3 million, and Maine Revenue Services, that handles the milk handling fee, is now estimating that it will bring in $1.7 million in fiscal 2007.”

She said that estimated increase in revenue will be considered when the state revenue forecasting commission meets to review all state revenue projections. Wyke acknowledged even if the increase in projections is approved, that will be well short of the costs of the program, which will continue to be paid under the current law.

“We are concerned about it, and we are watching it,” Gov. John Baldacci said Friday. “We want to meet with the agriculture committee, we want to meet with the industry and figure out what are the right kind of strategies.”

Wyke said the program appears to be “unique” in state government with no cap on how much the subsidy payments can increase. As production costs go up, so does the subsidy.

Because of restrictions in federal law, the milk handling tax cannot be directly tied to the subsidy program, even though when the program was implemented it was expected the tax revenue would roughly equal the subsidy.

“When I was in Washington for eight years on the ag [agriculture] committee, we tried to keep the New England compact going,” Baldacci said. “This is sort of our version of that. We know it’s going to require some additional dollars, but how much, we don’t know.”

State Sen. John Nutting, D-Leeds, is the co-chairman of the Legislature’s Agriculture, Conservation and Forestry Committee and a farmer.

He does not believe the program will continue to be as expensive as in recent months because of two major reasons: a drought in western states that now is resulting in higher prices for milk; and an apparent stabilization in energy costs.

“Frankly, the price of milk dropped much lower than was expected,” he said. “And then there was the big increase in energy costs, and that all had a part to play in all of this.”

Nutting said that in recent weeks, milk prices have been increasing as the drought in western states has resulted in less milk production and the loss of cows that will mean less production in the future”I don’t think we are going to see the subsidies stay at these levels,” he said, “but we are still going to have to take a hard look at this program.”

Millay said the subsidy program has been successful in its major goal of keeping dairy farms operating. He said several farmers have indicated the subsidy payments this year have been the difference between continued operation and closing the farm.

“Any dairy farmer you want to talk to will tell you that it has been the difference for them,” he said. “If you look at it as trying to preserve farm land, it has been doing that very well.”