Building a state government we can afford

Earlier this year, Maine faced a terrible budget situation. Revenues were predicted to fall $190 million short of projections.

In April, that shortfall shrunk by $45 million, at least temporarily. The temptation is to use that money to restore many of the difficult cuts that were made this year. That’s a bad strategy.

Working together, the Legislature and the Baldacci administration cut spending to balance the budget. In fact, spending in 2009 will actually go down by more than $38 million when compared to 2008.

Then we got our “April Surprise.” Instead of the worst-case scenario we had feared, revenues actually finished a little better than anticipated, about $45 million better.

Whether you think it’s too much or too little, $45 million is real money here in Maine. That’s the amount of the “surplus” the state experienced in revenue coming out of April.

The $45 million surplus is just a little more than a 1 percent variance in a $3.1 billion budget. I would say the economists and state officials who develop our consensus forecast got it right on the nose. Their timely recommendations to slow spending were heeded by both the governor and the Legislature, allowing us to avoid more painful choices, including delaying payments from this year into the next fiscal year.

A slowing national economy and continually rising fuel costs have everyone feeling pinched, and this has a direct impact on the state’s two major revenue streams, the individual income tax and the sales tax. There is no guarantee that further spending revisions won’t be required to ensure a balanced budget next year, but this year’s surplus will be used to help build our reserves and buy down long-term liabilities so that we’ll be better able to handle whatever the future brings.

Just a little more than five years ago, Gov. John Baldacci inherited a $1.2 billion structural gap, a $250 million tax anticipation note and no reserves. With discipline, this administration has been able to reduce the structural gap by two-thirds, eliminate the short-term borrowing and rebuild our reserves to $159 million.

We’ve made the tough decisions to reduce spending by streamlining agency administration and centralizing back office functions for accounting, human resources and technology, eliminating more than 600 state jobs. We’ve also worked to find administrative savings in kindergarten through grade 12 education, health and human services and the corrections system.

We put the first-ever spending cap in place to ensure that the state budget didn’t grow faster than the incomes of our citizens. Last year, our personal income grew by 5.3 percent, while the state budget grew by only 3.5 percent, and virtually all of that budget growth was required due to voter approved legislation to fund 55 percent of kindergarten through grade 12 education.

Difficult choices lay ahead, made worse by uncertain economic times. Maine is not alone. The majority of states are also addressing shortfalls. In a global economy, we are all increasingly susceptible to national economic trends.

Much work has been done to secure Maine’s economy, but more is needed to eliminate the remaining structural gap between our anticipated expenditures and revenues and to set Maine on a path toward sustainable prosperity.

A small piece of good news shouldn’t lull us into thinking we’ve made it past our troubles. A quick check of grocery prices or look at the gas pump tells a different tail. The pressures on the economy and household budgets are only going to grow. We must remain dedicated to building a state government that we can afford.

Rebecca Wyke is commissioner of the Maine Department of Administrative and Financial Services.