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November 26, 2012
Capitol Update

Capitol Update: Power shift in Augusta

Economic forecast mixed

  • February forecast too pessimistic
  • Uncertainty underscored by Washington

The November 2012 report of the Consensus Economic Forecasting Commission says that Maine's economy continues to grow slowly and that the panel was too pessimistic about the economy in its last report issued in February.

"In the short run, we feel that we may have been just a little too pessimistic," said Jim Clair, chairman of the commission and the CEO at Goold Health Systems. "When we met in late October and got the updated actual data, we saw that wage and salary employment was somewhat better than we thought and that personal income was better than we thought."

He said the panel adjusted the forecast to reflect actual numbers and that nearly 7,000 new jobs had been added from July 2011 to July 2012. While the result reflects an economy growing slightly better than projected, the panel does not see any major increase in growth over the next few years.

"We don't see the economy really moving until after all of this uncertainty in Washington is resolved," said Clair.

In its report, the panel assumed there would be a solution to the so-called fiscal cliff facing the nation. Starting in January, taxes would increase to the levels they were before being reduced nearly a decade ago.

In addition, the assumption is payroll taxes go back to their pre-recession levels and extended unemployment benefits end. In addition, across-the-board budget cuts take effect under the sequestration process that Congress and President Obama agreed to force action on the growing budget deficit.

Last summer, a preliminary study by Maine Revenue Services indicated the impact of the tax increases would be $1.4 billion in higher taxes for Mainers in 2013.

Clair said the panel will meet to evaluate the impact to Maine following congressional action on fiscal issues.

"We know the tremendous pressure this will put on the governor and Legislature as they prepare budgets this session," he said.

Gov. Paul LePage is developing a two-year state budget and a supplemental budget to fund government through the remainder of the budget year that ends July 1. Both are expected to be submitted in January.

"We are still running the projections from the forecasting commission through our computer models, so I can't tell you what it means for revenues," said Mike Allen, associate commissioner for tax policy. He said new modeling software is taking longer to crunch the numbers than he expected.

He said the revenue forecasting committee will have to estimate how many upper-income taxpayers will shift revenue to this calendar year to avoid higher tax rates in 2013, which could be "significant." The revenue forecast is due Dec. 1.

Businesses worried about Democratic control

  • Concern about rollbacks expressed
  • Fears unfounded, say Dems

Many in the business community are worried that business friendly legislation passed by the Republican-controlled Legislature will be undone now that Democrats rule. Democratic leadership says there's no need to worry.

"There is a concern out there, I hear it," said Chris Hall, vice president of the Portland Regional Chamber of Commerce. But he said repeal of legislation like regulatory reform or tax cuts will be hard to do.

"The governor still has the veto power and I don't see him changing his mind on these issues of importance to the business community," he said.

Dana Connors, president of the Maine State Chamber of Commerce, agreed and said he does not think the Democrats will seek to repeal many of those measures.

"Regulatory reform was a bipartisan effort," he said. "I don't think you will see the Democrats seeking to undo something they were a part of creating."

David Clough, state director of the National Federation of Independent Businesses, said there is widespread concern that Democrats will pass legislation driving up the cost of doing business.

"There is talk of paid family leave and paid sick leave and bumping the minimum wage to $10 an hour and an increase in unemployment benefits," he said.

Sen. Justin Alfond, D-Portland, the Democrat nominee for Senate president and a small business owner, said his party will help create jobs and that current policies are not generating enough economic growth.

Newly elected Senate majority leader Seth Goodall, D-Richmond, said people should not give in to preconceived notions. He worked on the regulatory reforms that were passed and said both parties deserve credit for reducing the regulatory burden on business.

"Regulatory reform is a good example of what we hope to accomplish going forward this session in making a better business climate and encouraging growth," he said. "There is much common ground."

Rep. Seth Berry, D-Bowdoinham, the newly elected House majority leader, agreed with the Senate leaders, but said there are areas of disagreement with the Republicans such as insurance law changes and tax cuts.

"It should be very clear ... that Democrats want taxes that are fair to the middle class and right now they are not," he said. "We will look at making the tax code fairer."

Rep. Ken Fredette, R-Newport, the newly elected House minority leader, said the concerns raised by those in the business community are legitimate. But he said the bipartisan work on the budgets last session shows the parties can work together.

Unemployment fraud targeted

  • More efforts to identify cheats
  • Feds say greater concern is errors

Labor Commissioner Jeanne Paquette said the recent convictions of two Mainers for fraudulently receiving unemployment insurance payments are part of a major effort to go after unemployment fraud.

"Obtaining benefits under false pretenses is a crime," she said. "It takes money away from people who are genuinely in need and burdens employers through increased unemployment taxes."

Paquette said it is a priority of the LePage administration to strengthen the unemployment system by reducing fraud.

John P. Allen of Cumberland County and Leonard Nadeau of York County were convicted of theft by deception for fraudulently receiving unemployment insurance payments and must pay back the benefits they received along with penalties and interest. Paquette said several other cases are working their way through the criminal justice system.

Maine ranks among the lowest in the nation for actual unemployment fraud. The U.S. Department of Labor lists the fraud rate in Maine at just 1.37%.

For people claiming benefits, fraud usually involves someone misrepresenting information to qualify for unemployment benefits. On the employer side, fraud includes intentional misclassification of employees as independent contractors; misreporting worker wages to avoid tax payments; and manipulating rates to obtain a lower tax rate than a business' unemployment experience would otherwise allow.

A far bigger problem in Maine, according to the federal DOL is the errors in the system. Over the last three years the errors have been in excess of 15% of all cases, totaling over $29 million in 2012. Errors include both over payments and under payments and are not fraud but mistakes by both applicants and DOL staff.

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