October receipts to the state’s general fund are $26.8 million lower than projected and led by declines in income and sales tax revenue.
Commissioner of the Dept. of Administrative and Financial Services Ryan Low wishes the budget shortfall could be limited to October’s losses; however, he’s planning a $400 million shortfall for the current state budget.
To place the projected shortfall in perspective, the budget line for state employees is almost exactly $400 million per year, Low said. In other words, adding furlough days for state employees will not be enough to balance the state’s two-year budget.
“Four of the last six months have each been $20 million down from forecasts,” Low said of revenue to the state coffers. “Turn that number out over a year and it’s significant.”
Low said Gov. John Baldacci is preparing an emergency curtailment order and that the Governor’s Office has been meeting with agency heads to prepare a supplemental budget for the past month.
“It’s clear we are going to have to look at substantial service reductions,” Low said. “If this was the first year and the first phase you’d have trouble coming up with proposals to balance a $400 million shortfall.”
Prior to the release of the October revenue figures, the state was facing a $69 million revenue shortfall after the first four months of the budget year.
“The curtailment serves two purposes. It stops some spending and makes sure we at least have a down payment toward the shortfall,” Low said. “The biggest thing is that it gives the school districts a sense of the curtailment and budget cuts to follow.
The Dept. of Education, which accounts for 50 percent of the state budget, is likely to experience the greatest cuts in the supplemental budget. The cuts have been anticipated for the past several months and superintendents across the state have been asking for as much notice as possible.
“Schools recognized there would be a budget reduction months ago and knew that it would not be possible to leave 50 percent of the budget untouched,” he said.
The state has made budget cuts since 2007 and a general fund budget of $3 billion, Low said. “There’s not a lot of low-hanging fruit out there.”
The Governor’s Office has statutory authority to order curtailments in spending and will also recommend budget cuts in its supplemental budget.
Revenue projections are set by the State of Maine Revenue Forecasting Committee, comprised of Jerome Gerard, chair, Acting State Tax Assessor; James Breece, University of Maine System; Marc Cyr, principal analyst, Office of Fiscal and Program Review; Grant Pennoyer, director, Office of Fiscal and Program Review; Catherine Reilly, state economist; and, Ellen Jane Schneiter, state budget officer.
The committee will meet Fri., Nov. 20 and will make adjustments, Low said, adding his office estimates revenue losses between $300 and $400 million.
“We plan for the worst and it almost always ends up being the worst,” Low said.
“To be fair to the forecasting committee, it’s the same thing we are seeing in every state,” Low said. “They are going through the same challenges that we are.”
Drops in income tax revenue has eroded Maine’s budget steadily, he said, and have been followed by successive months of lower sales tax revenue. In fact, eight of the 10 revenue streams were significantly below projections by the Revenue Forecasting Committee.
“A couple of years ago we were planning a 2010-11 general fund budget near the $3.4 billion mark,” Low said. “Now we are looking at $2.6 billion.”
“We have limited statutory authority to make reductions without the legislature,” Low said. “We will be taking advantage of that in the next few weeks.”
Governor Baldacci’s Office ordered curtailments in November 2008 as well.
“The curtailment is a crude, blunt instrument that allows us to freeze spending on the part of agencies,” Low said.
The finer work will come in planning the supplemental budget, something the commissioner has planned for several weeks.
“The Governor will submit a budget to bring us back into balance by the second week of December,” Low said. “We assigned agencies a couple million in targets and curtailment is a small piece of the $400 million shortfall.”
Low is meeting with department and agency heads will end Nov. 20 and a supplemental budget should be ready for review by Dec. 14, he said.