Last year, Maine was the only state in New England to see a reduction in an important measure of the economy, the gross domestic product, which measures overall activity and not just one sector of the economy.
"It is the primary measure of economic growth for each state," said Mike Allen, the associate commissioner for the Department of Administrative and Financial Services. Allen is an economist who serves on the state's revenue forecasting committee. "This report shows that the state contracted in 2011."
Maine's economy shrunk by 0.4% while the national economy grew by 1.5% and New England grew by 1.8% according to the Bureau of Economic Analysis in the U.S. Department of Commerce, which issues an annual GDP report.
Allen said it appears the reason for the decrease was the final closure of the Brunswick Naval Air Station and the loss of government jobs. A study done by the State Planning Office estimated the closing would result in a loss of 2,700 military jobs and another 700 civilian jobs.
Allen said the GDP drop will have an impact on projecting state revenues in the fall. He said the forecasting commission will start with a lower base on which to project tax collections.
University of Southern Maine economics professor Charles Colgan also believes the slight decrease in the state's GDP is the result of the base closing. He said in 2010 the state saw some growth even as the base was reducing its work force, but in 2011 the private-sector growth did not offset government job losses at the base.
Colgan said the factor that put Maine into the negative column was the base closing, and no other state in New England had a base closing last year. He said Maine saw an increase in its GDP in 2010, despite job losses at the base because there was some private-sector growth to offset them.
Allen said with the revised numbers released by the BEA, it appears Maine was hit hard by the recession early, and started a slow recovery in 2010. He said it appears without the BNAS impact, the economy would have continued its slow growth in 2011.
With the budget year about to end, state revenues are up $24.9 million over revised estimates made in April and Finance Commissioner Sawin Millett says that means the state will likely end the year with a modest surplus.
"You have to feel pretty good that we will end the year with a surplus," he said. "But what that means for future months remains to be seen."
A significant part of the revenue surplus is one-time revenues, including money from a legal settlement and other anomalies. For example, May estate taxes were bolstered by a large payment that resulted in revenues of $5.3 million over projections for the month.
"The corporate tax continues to do better even with the new forecast that was made," Millett said. "It continues to do better than we expect."
But, he said, the two largest sources of state revenue — the sales tax and the individual income tax — show signs of weakness. The sales tax is projected to bring in $973.2 million this year, just $222,171 above estimates.
"But if you look year over year, we are up $45 million over what was collected a year ago at this time so it is showing some growth," Millett said.
He said the individual income tax is the largest source of state revenue. By the end of the month, it is projected to bring in $1.445 billion for the year, but it is below estimates by $4.6 million going into June.
"I think the message there is that we have to closely watch the individual income tax line," Millett said. "We have to see what it does through the summer months and whether we are seeing income growth."
Sen. Richard Rosen, R-Bucksport, the co-chairman of the appropriations committee, said a surplus is good, but he worries about the softness of the individual income tax.
"We are really looking to see some strength in wages and the earned income that is reflected in the individual income tax," he said. "If we are seeing only tepid improvement there, that is a concern."
Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the panel, agrees with the importance of the individual income tax because it drives other sources of revenue for the state.
"If people are not working and earning wages, they are not buying as much in stores and paying sales taxes," she said.
Maine, like many other states, is not taking full advantage of the Public Assistance Reporting Information System, shortened to PARIS, operated by the federal government to find fraud in a wide array of programs.
The voluntary program generates reams of possible cases of fraud and Maine, like many states, does not have the staff to sift through the data and determine the validity of the information, although the state is adding more investigators.
"We get reports quarterly, and there is an awful lot of information that has to be reviewed," said Scott Fitts, director of the Fraud, Investigation and Recovery Unit at the Department of Health and Human Services. He said there are several federal lists of individuals who may be receiving food stamps, Medicaid or other safety net programs in more than one state.
Fitts said the system works on the basis of Social Security numbers and other federal data related to Medicaid, food stamps, welfare benefits, child care benefits and workers compensation that can be accessed quarterly.
"We have to scrub all that data," he said, "and we just can't get through all of it and there are a lot of mistakes, like wrong Social Security numbers or names and often what looks [fraudulent] is not when we check it out."
Fitts said there are only nine investigators for Maine and they are responsible for all fraud investigations, including tips to the fraud hotline, not just leads provided by PARIS. He said in the most recent quarterly match there were thousands of possible cases from PARIS.
He said many leads simply are not fraud, such as when a person moves and applies for benefits in another state while still being listed on Maine's rolls.
Fitts said the Legislature recently added eight investigators and two support staff positions at a cost of $675,000 a year.
Sen. Earle McCormick, R-West Gardiner, co-chairman of the Health and Human Services Committee, sponsored the measure for Gov. Paul LePage. He said he hopes the additional resources will help the state evaluate the scale of the problem.