MAKING THE CUT

Gov. John Baldacci last week presented legislators with $11 million in budget cuts, a relatively tiny percentage of the state budget but an important exercise in budget trimming. Two questions for legislators are whether the cuts are real – as opposed, for example, to merely ending phantom jobs – and whether they can be sustained.

The challenge for Maine is not merely to lower its tax burden – taxes paid as a percentage of wages – but to lower it relative to other states and make spending cuts so that a lower tax burden remains low. Maine is ever more connected to the national economy, helping Maine in many ways, including by improving pay here. But that also means that as the economy slows nationally, Maine rides along with other states and has a hard time improving its ranking.

While the budget goal of a $10 million savings was fairly modest, the much larger goal is to find ways Maine can cut spending so that it is not making one-time cuts in expectation of ongoing savings. This problem is not as easy to avoid as it appears. For instance, increasing cigarette taxes can close a budget shortfall caused by, say, additional school funding. But the higher tax depresses cigarette consumption long term, even as school costs continue to rise, creating a new shortfall. Similarly, trying to pay for federal tax conformity, which would cost around $30 million in FY ’09, means a shortfall of $15 million in 2010, when conformity would cost $15 million.

On this, the governor’s office seems to have done a thorough and fair job – the cuts are real cuts, painfully so sometimes when they also forgo millions in Medicaid dollars. And the reductions are backed by actual position cuts. Lawmakers may wonder about some of the reasons given for the cuts, however. For instance, Health and Human Services is booking $1.4 million in savings by reducing the expected number of children in congregate care. That’s achievable, the agency says, because of “declining numbers of youth in the state.” Surely DHHS knew about the declining numbers last winter when the budget was being formed.

One positive sign for this state: Since 2000 its general-fund spending increases have been among the lowest nationally. A recent study from the Center on Budget and Policy Priorities found that Maine’s general-fund spending, as a percentage of personal income, has fallen from 7.2 percent in 2000 to 6.8 percent in its 2008 budget. Those percentages ranked Maine ninth highest in 2000 and 12th highest today. The numbers, which do not count expenditure changes outside the general fund, are not great, but they are slowly headed in a more sustainable direction.

As state revenue growth slows nationwide, Maine would do well to ask not just whether the state has cut spending but how it can continue to direct dollars where they will do the most good while continuing to apply pressure on spending to move the state out of the ranks of the high tax states.