Weak business tax receipts cloud budget projections

AUGUSTA – Poorer than expected corporate income tax receipts have state officials puzzled as a special panel’s update on current revenue projections nears its due date.

How the issue is resolved in the short term will have some effect – exactly what remains unclear – on the fate of Gov. John Baldacci’s $6.4 billion biennial budget proposal, which is now the subject of extended legislative hearings.

Corporate income tax receipts were under budget in January by $1.6 million, bringing the 2007 fiscal year shortfall to date to $18.5 million, or 19 percent below estimates, according to the latest report by Commissioner Rebecca Wyke of the Department of Administrative and Financial Services.

Unless corrected, that trend could force a downward revision in estimated revenue by the state’s official forecasting committee, which meets Friday.

A downward revision, in turn, would effectively tilt the Baldacci package out of balance and give legislative budget writers a new hole to fill.

The next report by the Revenue Forecasting Committee is due March 1.

Addressing the corporate income tax in her monthly revenue summary for January, Wyke this week noted the negative variances for the month and for the first seven months of the fiscal year.

She also noted that “fiscal year-to-date revenue was $15.8 million or 16.7 percent under fiscal year 2006.”

Legislative leaders received another advisory that touched on the corporate income tax line Thursday from the Legislature’s Office of Fiscal and Program Review.

“As feared, the negative variance in corporate income tax collections did not recover in January and actually worsened. … Some areas of concern in addition to the corporate income tax are the cigarette tax and income from investments,” the briefing statement said.

Containing no broad-based tax increases, the Baldacci budget package for fiscal years 2008 and 2009 would substantially boost funding for K-12 education while drastically reducing local layers of school system administration.

Additionally, within the Department of Health and Human Services, it would save an estimated $11.5 million through managed care for behavioral health services, $20 million through adjustments in payment rates for services and $42 million by expanding clinical management of MaineCare members, officials said.

The budget plan could also let the state move to a private contractor for processing Medicaid claims.

The package includes a proposed tobacco tax increase that would produce about $66 million a year and bring the tax per-pack of cigarettes in Maine to $3 – the nation’s highest among the states.

Earlier this month, lawmakers overwhelmingly affirmed a unanimous Appropriations Committee deal on a $127 million supplemental budget bill for the current year.

The bulk of the bill earmarks money for health and human services, including funding for hospital payment settlements and Medicaid program shortfalls. The measure, designed to cover unanticipated state government costs through June, passed in the House of Representatives on a vote of 138-5 and was approved 34-0 in the Senate.

One month ago, Maine’s Consensus Economic Forecasting Commission held one of its periodic meetings to tweak its estimates for wage and salary employment growth, personal income growth and consumer price inflation.

Its latest assumptions, reflecting some minor changes, are to be reviewed by the Revenue Forecasting Committee, which makes actual revenue projections for the Highway and General funds.

Lawmakers and the governor rely on those projections in weighing budget plans.

Late last year the panel boosted General Fund revenue projections through mid-2009 by nearly $270 million.