Shortfall to force difficult choices
BUDGET SHORTFALL HERE'S
A QUICK LOOK at the shortfall in the state's $6.3 billion budget for the two years ending June 30, 2009.
THE STATE'S Revenue Forecasting Committee, which predicts how much the state should expect to collect in taxes, concluded last November that previous estimates were overly optimistic by $95.2 million. That's about 1.5 percent of the budget.
ON FEB. 25, the same committee said the hole now looks likely to grow by $94.8 million, increasing the shortfall to $190 million, or about 3 percent of the budget.
ON TOP OF THAT, the federal government plans to scale back payments to the Medicaid insurance program. The new $190 million calculation takes part of that federal cut into account, but not all of it.
THE LEGISLATURE'S fiscal office says the rest of the federal cut is hard to calculate right now, but the best guess is another $21.3 million. If that comes to pass, it will boost the shortfall to $211.3 million, or about 3.3 percent of the budget.
AUGUSTA — Maine's growing budget problems are setting the stage for a debate about whether the state should raise taxes or rely exclusively on spending cuts and withdrawals from the state's saving accounts to keep government in the black.
Minority Republicans in the Legislature oppose increasing taxes, while some Democratic lawmakers say the Legislature may need a three-pronged strategy that would raise taxes, cut spending and dip into savings accounts.
For his part, Democratic Gov. John Baldacci categorically opposed tax increases earlier this year. He said he will not propose any in a new budget plan expected this week.
Baldacci may be softening his opposition to tax increases, however, now that a shortfall originally pegged at $95 million has doubled in size. That could leave the door open for lawmakers to raise taxes without risking an automatic veto from Baldacci.
It is not clear how much support there is for tax increases among Democratic lawmakers, who hold majorities in both the House and Senate. At least two options have been discussed informally, according to interviews with lawmakers: targeted increases in taxes on alcohol and tobacco, and an increase in the 5 percent sales tax.
Raising the general sales tax to 6 percent would pump an estimated $140 million a year into the state's general fund, according to Maine Revenue Services.
Baldacci will propose a new budget-balancing plan this week that would supplement cuts in social services and other spending reductions that he proposed in January.
Back then, it looked as though state revenues would fall $95.2 million short of expectations for the two-year cycle that ends June 30, 2009. Since then, the state's Revenue Forecasting Committee has recalculated the shortfall at $190 million.
Scheduled cuts in federal payments for the federal-state Medicaid insurance program may boost that total, according to the Legislature's fiscal office.
When the shortfall was still estimated at $95 million, Baldacci pledged to veto any budget that raised taxes to compensate for the loss.
Even in the face of what is now a $190 million problem, Baldacci said in his weekly radio address on Saturday that the revised budget he will propose this week "will not include tax increases."
Still, Baldacci has made other statements recently that suggest he may be open to higher taxes that originate in the Legislature.
On Feb. 25, Baldacci said in a prepared statement that Maine "must first have a comprehensive discussion about spending and our priorities as a state" before considering tax increases. He said then that Maine must be "cautious about adding to the burden" faced by Mainers.
"We do not intend to propose any tax increases" to the Legislature, David Farmer, Baldacci's spokesman, said Monday. But he also said it remains to be seen what the Legislature's version of the budget will look like.
The governor's new plan may increase some still-unspecified fees, to avert public-safety cuts that would otherwise have to be made, Farmer said.
Baldacci's latest plan will seek additional spending cuts that would affect virtually every aspect of state government, as well as local schools and Maine's public colleges and universities, Farmer said Monday.
"You're going to see stuff everywhere," Farmer said of the upcoming cuts, including reductions at the departments of Education and Health and Human Services, which together account for most of the state's spending.
That is noteworthy because Baldacci's previously announced social-service cuts, which would affect foster parents, the elderly, mentally ill Mainers and others, have come under attack from affected groups and raised concerns in the Legislature.
That initial plan called for more than $60 million in social-service cuts, according to the Department of Health and Human Services.
"I think folks who try to convince the public this can all be done without pain are doing a disservice to the public," said Sen. Joseph Perry, D-Bangor, who co-chairs the Legislature's Taxation Committee.
"I think the public is looking for a balanced approach" that blends spending cuts, savings withdrawals and new revenue, Perry said.
Republican Sen. Richard Rosen of Bucksport, the assistant Senate minority leader, disagreed.
He said the state has raised taxes and fees repeatedly over the years to balance budgets in the face of recurring shortfalls, so the thing to do now is to shrink government instead of continuing to hit up Mainers for more money.
"From the Republican point of view, increasing taxes is just not going to fix it," Rosen said.
Farmer said Baldacci has not ruled out dipping into the state's savings accounts, which contain close to $160 million, to help balance the budget.
He said that remains on the table because there is not much time left to fix this year's share of the problem.
The first year of the state's two-year budget ends June 30, and $64.6 million of the $190 million shortfall falls into what's left of this fiscal year.
So even if the state crafts a budget by the end of March, that will leave only three months to solve this year's piece of the puzzle.
"That's a daunting task where you really have only one quarter left" in the fiscal year to fill a $64.6 million hole, said Grant Pennoyer, head of the Legislature's fiscal office.
That has prompted the Democratic governor, and even Republican lawmakers, to concede that the state may have to pull money out of savings to help balance the books.
Staff Writer Paul Carrier can be contacted at 622-7511 or at:
William T. Bly, Esq.
Maine OUI Lawyer