The estimated cost of maintaining state services for the next two years is $125 million more than the number legislators have been working from, bringing the total General Fund revenue hole to $965 million.
The higher number was one of several developments described in the monthly newsletter of the Legislature’s Office of Fiscal and Program Review that together could erode Maine’s precarious financial position even further.
The $125 million upward adjustment of the budget shortage is due to the inclusion of unfunded future retiree healthcare costs and a predicted increase in people depending on MaineCare, the state’s Medicaid system.
Grant Pennoyer, director of the Office of Fiscal and Program Review, who writes the “Fiscal News” newsletter, said national data that the state depends on predicts a rise in Medicaid enrollments in the next two years.
“This has to do with national forecasts,” Pennoyer said. “There’s no reason to think Maine is going to behave significantly different than other states.”
As for future retiree healthcare costs, Pennoyer said his office’s analysis is different than the state Budget Office’s numbers because it includes the full cost of unfunded liabilities in the system. Pennoyer expects an additional $40 to $50 million will have to be budgeted in each of the next two years toward the unfunded liability.
On the revenue side, a recent analysis by the state Consensus Economic Forecasting Commission and Revenue Forecasting Committee revealed that lagging employment rates and decimated capital gains in the past year will combine to erode revenue from corporate and individual income taxes, two categories that have held strong as other general fund revenue streams decreased. The full impact of lower income tax receipts won’t be known until after the April 15 tax filing deadline.
“The income taxes are beginning to show signs of weakness,” reads the newsletter. “The assumed 50 percent decline (in 2008 capital gains earnings) in the current revenue forecast may not be pessimistic enough, based on qualitative responses from some tax practitioners.”
The Consensus Economic Forecasting Commission and Revenue Forecasting Committee are due to provide new economic and revenue forecasts by April 1 and May 1, respectively.
“The economic forecast is very likely to go down,” Pennoyer said. “Each of the national forecasts have been more pessimistic with each release. In October when they were doing this, they knew there was going to be a very slow quarter, but this is certainly much worse than they anticipated. The question is how much it will go down and how much of that will affect revenues.”
Asked whether the worsening situation will affect the current fiscal year, which has already been subject to a $140 million reduction in budgeted spending, Pennoyer said strong income tax projections have saved the situation so far, but that may change.
Revenue to the general fund was $4.4 million over budget at the end of January because of a surplus in the income tax lines.
In the highway fund, which supports most of the Dept. of Transportation and is funded with federal dollars, the revenue picture isn’t much better. As of the end of January, the highway fund’s revenues were $6.9 million under budget for the fiscal year to date. This is attributed to lower collections of fuel taxes as well as inspection and registration fees.
A deep structural gap was also predicted for the highway fund, but more than $162 million in federal stimulus dollars for transportation projects will help blunt some of the impact.
(Statehouse News Service)
