A computer programming error at Maine Revenue Services caused about $22 million in tax revenues to be double-counted over a two-year period, a problem that the state’s finance chief recommends covering with an anticipated influx of federal economic stimulus cash.
Ryan Low, commissioner of the Dept. of Administrative and Financial Services, told the Appropriations Committee Wednesday that the problem is tied to the implementation of the I-File program, which allows taxpayers to file service provider, sales and use, and income taxes online. A transposition of numbers in implementing the program led to service provider taxes being counted in two categories.
“I apologize that you have to deal with this issue now,” Low said. “No one was double taxed. We’ve corrected the program and coding going forward.”
The double counting began on June 29, 2006, resulting in overstated revenues of $2.9 million in fiscal year 2007, $8.2 million in 2008, and $11 million in the current year.
Low said 2009 revenues, which as of the end of December were $6.7 million above previous projections, including the $11 million mistake, will cover part of the problem. The remaining $11 million for the previous years needs to be addressed, he told the committee.
After consulting with Gov. John Baldacci, Low recommended using funds from an economic stimulus package, which is predicted to bring Maine “well north of $150 million” in new Medicaid funding, Low said. The timing and exact amounts in the package are under debate in Congress.
Low said he and Baldacci considered using some of the state’s cash reserves to correct the problem, but opted to leave that money alone in case revenues continue to erode in the next two years. That erosion of funds have lawmakers scrambling to cut spending by more than $140 million between now and June 30 and more than $800 million in the following two years.
“The alternative to these two proposals was to make further reductions across state government to pay for this error,” Low said.
Appropriations Committee member Rep. Patrick Flood (R-Winthrop) asked Low whether counting on funding that’s yet to be approved by Congress would set a dangerous precedent and whether using Medicaid funding to cover an error in another department is appropriate.
“I just wonder if that’s audit-worthy from federal standards and if we’re going to be facing a take-back,” Flood said.
“I don’t think we have those audit concerns,” said Low, adding that counting on future funding is not a new concept. In the $6.1 billion 2010-11 biennial budget proposal pending before the Legislature, Gov. Baldacci included a $98 million placeholder for federal stimulus cash.
Low said aggressive steps are being taken to avoid similar mistakes in the future, including enhanced oversight and collaboration between Maine Revenue Services, the state controller and information technology professionals when changes are made to the state’s tax-collecting functions. The controller’s office, which discovered the $22 million error in December, has asked an accounting firm called Deloitte – which has worked extensively with the state – to review the state’s response to the error and its plan going forward.
“The governor thought it was very important for someone else to take a look,” Low said. “The situation calls for that.”
(Statehouse News Service)