Mainers may be tempted to say ‘the sky is falling’

In the story Chicken Little, an acorn falls on the chicken’s head and leads him to declare: “The sky is falling.” With the convergence of a $700 billion bailout in the works at the federal level, unemployment rising and a Maine winter fast approaching with $4-a-gallon heating oil, one is tempted to say just that: “The sky is falling.” Maine’s next two-year budget might just be another acorn waiting to fall on Chicken Little’s head.

According to the Center on Budget and Policy Priorities, Maine is estimated to have a $124 million budget gap in its fiscal year 2009 budget. That represents a shortfall of 4.1 percent of the General Fund. Massachusetts is expected to have a shortfall of $1.2 billion, Vermont $83 million and New Hampshire $200 million. Given these shortfalls, the issue of the next biennial budget in Maine will be hotly debated.

First, this will be John Baldacci’s last proposed budget as governor. Gov. Baldacci’s budget proposal should not seek to push problems two years out to the next chief executive of our state. In fact, this presents an opportunity for our governor.

However, we should check a few facts.

Maine’s sales and use tax collections actually fell from 2004 to 2005 by 2.3 percent or nearly $21 million. The collections on individual income taxes fell 1.2 percent from 2005 to 2006. The rate of growth of corporate income taxes collection in 2006 was 38.4 percent and fell to 6.1 percent in 2007. Finally, the effect of the recently enacted cigarette tax can be seen in the growth in its tax revenues from $96 million in 2005 to $164 million in 2007.

The governor will present a budget based on revenue projections by the State Revenue Forecasting Committee. In its March 2008 report it stated, “Some of the core components of the economic forecast underlying this revenue forecast may not have captured recent events, leaving a greater potential for downside risks when the forecast is revised again…” In English, that means “How much worse it might get we really don’t know.”

Now before the governor presents his budget, let’s briefly talk about the federal budget. Our nation is fighting two wars. We, the taxpayers, just bought two mortgage megagiants, Fannie Mae and Freddie Mac, costing about $80 billion. We also own an insurance company called AIG. Now, we grapple with a nearly trillion dollar bailout of bad mortgages throughout the country. In the past, the state has been able to reasonably believe that it would receive sufficient assistance from the Feds on such things as Medicaid payments, road paving and block grants. Don’t look for that to happen anytime soon now.

The story of Chicken Little has different ending depending on how you want to tell the story. One version says that Foxy Loxy befriended Chicken Little and ate the chicken and all her friends. Another version ends when Chicken Little become courageous enough to see the truth that the “sky is not falling.”

Which version of the story will Gov. Baldacci give us when he presents his budget in a few short months? Will revenue forecasts be overly optimistic so passing the budget will be easier? Will the governor propose substantive reductions in spending to match less tax revenues? Or will the governor propose more new taxes to increase revenues?

I hope our governor is simply realistic. Times are tough. Revenue estimates will have to be revised downward. Budgets should be cut, including education and the Department of Health and Human Services, the two largest components of the state budget.

We cannot look to Washington for leadership, we must look to Augusta. Politics matter. Elections matter. Voting matters. I believe Gov. Baldacci will be courageous in proposing a realistic budget that will affect every person in our state.

You also have a part in this, you must vote on Election Day – and remember, be courageous.

Kenneth W. Fredette is a Newport attorney, graduate of the Muskie School of Public Service and a graduate student at Harvard’s Kennedy School of Government.