Maine state revenues down, cuts expected Gov. Baldacci says news is ‘not unexpected’

AUGUSTA – State revenues for this year and for the next two years are being reprojected downward by about $75 million, and Gov. John Baldacci says the change in expected income means cuts in state spending.

“This is challenging news, “Baldacci said, “but it is not unexpected.”

The governor said he has ordered Finance Commissioner Rebecca Wyke to review all planned state expenditures for the rest of this budget year, which ends June 30, to see which ones can be reduced, delayed or eliminated. He said the current budget includes $30 million appropriated to the state budget reserve, which will be tapped “as a last resort” to balance the budget.

The revenues are projected at $34 million below estimates for the rest of this year, down by $21 million in 2008 and by $20 million in 2009.

“We will have a change package for the [Appropriations] committee within two weeks to make up the $41 million,” Baldacci said. “We will be proposing cuts to make that up.”

Rep. Jeremy Fischer, D-Presque Isle, House co-chairman of the Appropriations Committee, said he has no doubt the state will need to dip into reserves because there are only a few months left in the budget year.

“We need to look at places like the Rainy Day Fund and see if there are cuts we can make in that short amount of time, “he said. “This adds urgency to the proposals to make government more efficient, the schools more efficient.”

He said there is time to make the cuts necessary for the next two-year cycle to bring the budget into line with the new revenue projections. Although that will not “be an easy process,” he said, it is achievable.

Sen. Karl Turner, R-Cumberland, said the committee needs to look at the supplemental budget passed in February and reconsider some of the spending approved then. He said the revenue short fall should be cause for a lot of concern to Maine hospitals.

“They got a big slug of cash and that has to be an obvious target,” he said.

Maine hospitals received $20 million in the supplemental budget as a “down payment” on debts the state owes for services provided in past years.

The state already is operating under a partial hiring freeze, and that and freezing agency reserve funds are likely parts of the solution.

Wyke said there are expenditures planned over the four quarters of the budget year that may have to be deferred. She is reviewing those plans to see which items could be deferred to the next budget year and which could be cut.

“Unfortunately, we have had some experience with this earlier,” she said. “Even though the time is short, and that adds to the difficulty, I am confident we can come up with the cuts we need to make for this year.”

Wyke said her greater concern is to make some cuts that can carry through the next two-year budget and ease that problem.

“It’s not going to be easy,” she said.

The reason for the revenue problem is principally the corporate income tax, said Jerome Gerard, acting director of Maine Revenue Services and chairman of the Revenue Forecasting Commission. He said that in early 2006 there was a spike in corporate income tax revenues of 40 percent over projections.

“We should have looked at that as a blip, and not an indication of continued growth,” he said.

Michael Allen, director of economic research at Maine Revenue Services, said while corporate income tax revenues are well below projections, it does not mean there has not been growth in revenues. He said when actual tax revenues and the new projections are averaged over 2005 to 2008, there is an expected growth of 11 percent.

“That shows we are having some solid growth,” he said.

The forecasting panel also expressed concerns over revenue from the taxes on tobacco products, but the committee decided to stay with current projections.

Turner said he is more concerned about further expenditures this year. The state is trying to balance out estimated payments made to Medicaid providers with actual bills after the failure of the accounting computer system for Medicaid.

“The straight-line projections are [that] we are going to be short,” Turner said. “That’s another worry we have on the committee.”

The Appropriations Committee is spending most of the week on bonding proposals, but plans to return to the budget issues next week.

“We have our work cut out for us, “Fischer said.