AUGUSTA – The state revenue forecasting committee is warning there could be more red ink in the months ahead. Meanwhile, members of the Legislature’s Appropriations Committee say revenues are only part of the budget problem facing the state. Another is increased costs.

“A further deepening of the credit crunch or a spike in energy prices will likely push a weak economy into recession,” Jerome Gerard, chairman of the revenue forecasting group, said recently. “It is not unreasonable to expect further adjustments will be required to reflect changes in an extremely dynamic economic and geopolitical environment.”

Gerard said that while a few revenue sources might be re-projected upward, most are at risk of going down, including the largest sources of state revenue, the sales and income taxes.

“I don’t think the risk is on the upside,” he said. “I think the risk is on the downside.”

Finance Commissioner Rebecca Wyke said one reason her agency set budget cut targets totaling $156 million is the need to craft a supplemental budget that provides the savings to offset the decreased revenues and increased costs in some areas of state spending.

Health and Human Services Commissioner Brenda Harvey recently outlined one of the “problem” areas dating back to the final years of Gov. Angus King’s administration. After a lengthy audit, the inspector general for the federal Department of Health and Human Services found that Maine improperly used Medicaid funding for targeted case management in 2002 and 2003, and wants the state to pay back $29.8 million.

“We will be appealing this,” Harvey said. “We believe we were not in error.”

Because of the appeal, which could take a couple of years, lawmakers likely will not have to find funds in the current budget to pay that money back. But rules will take effect this coming spring that explicitly prohibit the way Maine and some other states have been using Medicaid funds for managing cases. The rule change will cost the state $7 million in the current two-year budget.

Another cost that has grown faster than budgeted is the provision for court-appointed lawyers. State Court Administrator Ted Glessner recently told lawmakers the courts have requested another $1 million for the account which is used principally to provide the defense of poor Mainers charged with crimes.

“It’s an across-the-board increase that we are seeing as far as the criminal cases,” he said. “We are seeing it. The prosecutors are talking to us about it; it is simply what is happening.”

Lawmakers approved a little more than $12 million for all of the indigent defense costs for the current year.

There is also a “push-back” from some agencies at the targets set by Wyke. University of Maine System and Community College System officials are warning that if they are forced to meet their budget targets, it will mean tuition increases. The target for the university system is a $13 million reduction over the two-year budget and $3.3 million for the community colleges.

Wyke said there will have to be some “budget adjustments” to deal with the increasing cost of energy. She said that like individuals, the state has to deal with higher fuel and electricity prices.

Sen. Peggy Rotundo, D-Lewiston, co-chairman of the panel, said she expects agencies will have to “shift funds” to meet unexpected needs such as high energy costs.

“We have faced greater challenges than these in the past,” she said. “We have to balance the budget, and we will do that even though it will be very difficult.”

She said she expects Gov. John Baldacci’s supplemental budget will be “a work in progress,” as similar budgets have been in the past. She said that if revenues were re-projected downward again, more cuts would have to be found to balance the budget.

Sen. Karl Turner, R-Cumberland, a leading GOP member of the panel, said recently he expects the revenue shortfall in the current budget will grow to at least $100 million and agreed that funds will have to be shifted as problems surface.

“The Legislature is between the rock and the hard place,” he said. “It’s time to deal with reality.”

Turner said the reality to him is that the state is already “taxed-out” and can’t raise taxes to balance the budget. He said fees are just taxes by another name and that the state needs to reduce spending to live within existing tax levels.

“Everything will have to be on the table, including a lot of things I don’t like,” he said.

Baldacci is expected to release his supplemental budget at the time of his State of the State address to the Legislature in early January.