Revenue panel raises General Fund forecast

AUGUSTA – A state panel Friday completed a report boosting General Fund revenue projections through mid-2009 by nearly $270 million, substantially broadening budget options for the Baldacci administration and the new Legislature.

Maine’s Revenue Forecasting Committee raised its General Fund projection for the current fiscal year, which is nearly half over, by $86.4 million. The committee also jacked up its General Fund estimates for fiscal 2008 and 2009 by $87.5 million and $93.4 million, respectively.

“The changes to this revenue forecast are primarily driven by continuous gains in nontraditional economic measures such as capital gains, dividend income, and business income,” the panel report said.

“The Revenue Forecasting Committee felt comfortable making these changes to the forecast after taking into consideration the recent modest forecast by the Consensus Economic Forecasting Committee of traditional economic measures such as employment, income growth, and inflation which were not significant factors in the adjustments made by the RFC.”

Revenue forecasts are reviewed periodically.

Members of the Revenue Forecasting Committee include chairman Jerome Gerard, who is acting state tax assessor; James Breece of the University of Maine System; Marc Cyr, an analyst with the Legislature’s Office of Fiscal and Program Review; State Budget Officer Ryan Low; director Grant Pennoyer of the Office of Fiscal and Program Review: and state economist Catherine Reilly.

“For the General Fund, this forecast increases the previous forecast primarily as a result of the recent positive variances in FY06 in the corporate and individual income tax categories,” the panel report said.

“It was the view of the committee that strong income gains among upper-income earners, a continuation of solid corporate profits growth and double-digit stock market gains in 2006 will not only sustain the level of income tax receipts in FY06, but result in modest growth during the upcoming biennium.”

Highway fund estimates, however, were scaled back.

“For the Highway Fund, this forecast decreases FY07 budgeted revenue by $9.6 million and decreases the previous projections for the 2008-2009 biennium by $11.7 million,” the panel report said.

“The downward revisions to fuel taxes are the major driver of the Highway Fund changes. Higher fuel prices have decreased demand for gasoline and diesel fuel.”

Additionally, the panel report said the Fund for a Healthy Maine revenue forecast was revised downward for the 2008-2009 biennium, “primarily based on an assumed continued delay in the receipt of tobacco settlement payments pending the outcome of litigation concerning the Master Settlement Agreement.”

On Oct. 2, Baldacci administration officials said state government was confronted by a potential gap of $570 million between available resources and anticipated demands for the next biennium.

The $570 million difference between resources and demands contrasts with projected gaps of $964 million estimated in 2002 before Baldacci took office and $733 million two years ago.

Administration officials said more than one-third – $202 million – of the $570 million structural gap estimate was attributable to increased state aid to local schools.