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December 24, 2012
Capitol Update

State revenues drop further; a fond farewell

Revenues continue to underperform

  • Curtailed spending gains momentum
  • Supplemental budget still in flux

The red ink in state government continued in November, with revenues falling below estimates by $4.4 million. That brings the year-to-date revenue shortfall to $30.4 million. Finance Commissioner Sawin Millett said all three major sources of revenue continued to underperform.

"We saw a continuation of the trend and all were significantly off target," he said. "But, they were somewhat offset by five smaller revenue lines that were above estimates."

The individual income tax was $15.4 million below estimates in November, the corporate tax was $4.5 million under budget and the sales tax was $6 million below projections. The estimates are based on projections made before the Dec. 1 estimate that lowered revenues by $35.5 million in this budget year.

"When we see the December revenues come out in January they will reflect the changes made by the forecasting committee," Millett said.

He said November numbers support the need for the governor's curtailment of spending until lawmakers can pass budget changes in January. State law allows the governor to stop spending "equitably" for most of the $3.1 billion general fund budget.

Rep. Peggy Rotundo, D-Lewiston, the ranking Democrat on the appropriations committee, said the lower revenues underscore the need to curtail spending until the Legislature can act in January to address the shortfall. Sen. Patrick Flood, R-Winthrop, co-chairman of the committee, said the size of the supplemental budget shortfall could reach $200 million.

Another question mark is what will happen in Washington, D.C., as Congress and the president work on addressing the federal budget deficit.

Tax Policy Associate Commissioner Mike Allen, who chairs the Revenue Forecasting Committee, said once Congress acts on the fiscal cliff, the state will have to analyze what the combination of federal tax changes and budget cuts will do to the state.

He said there are also many indirect changes that will affect the state's economy and revenues. For example, the current payroll tax reduction expires Dec. 31. If that is not continued, he said, it will mean less money in everyone's paycheck every week.

Maine apparently is being hurt more by the slow recovery than many other states. According to the National Conference of State Legislatures, most states report that they expect to meet or exceed general fund revenue targets this year. Only Maine, Idaho and New Jersey reported all three tax categories performing below forecasts.

Forbes ranking rankles

  • Quality of life slighted
  • Tax Foundation ranking lauded

For the third consecutive year, Forbes magazine has ranked Maine dead last in its rankings of the best states for business. Several Maine business leaders and Gov. Paul LePage say the ranking does not reflect some improvements that have been made.

"Those types of reports, those studies, are discouraging," said Dana Connors, president of the Maine State Chamber of Commerce. "People tend to focus on the headline that we are the worst place to do business."

Connors said he will not dispute the statistics cited by Forbes, such as high taxes and high energy prices, but said other factors are not given appropriate weight. For example, Forbes ranked Maine 17th for quality of life, a benchmark Connors said is more important than others.

"People want to like where they live and that is something we do have going for us," he said.

While he wasn't surprised by the Forbes rating, LePage said he prefers to look at the improvement in Maine's business tax climate as measured by the Tax Foundation.

"We are moving in the right direction and I am pleased to see it," he said in an interview. "In my mind, it's so far away from where we need to be, it's really symbolic."

LePage said he wants to be in the "middle of the pack" when it comes to the overall tax burden.

The Tax Foundation's State Business Tax Climate Index released a few months ago moved Maine from 37th in the nation to 30th. But, LePage said, overall Maine's tax burden is ninth highest among the states and has to be lowered to compete with what he calls prosperous states. He said the Tax Foundation ranking should improve again next year with the further tax reductions to take effect Jan. 1, 2013.

The index compares all of the states in five tax areas that affect business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property.

Fond farewell

  • What's old is new again
  • Take your message to Augusta

I have written hundreds of columns about issues in Augusta and how they affect Maine companies, large and small. But this column is the most difficult, as it is my last. I move to a new set of challenges as director of a new TV channel from the Maine Public Broadcasting Network providing coverage of legislative debates, hearings and issues facing state government.

Think of it as a CSPAN for Maine, except it is an over-the-air broadcast channel.

Some of the issues I've written about in this column over the years are the same, as are the players.

Comments from the state's economic forecasting commission in 2006, for example, sound a lot like those made weeks ago.

Maine's economy was growing "barely," said commissioners in 2006. There was growth and thousands of jobs were added by employers and the self-employed, but over that same year, thousands of jobs were also lost as plants closed and businesses shut their doors.

The panel spent considerable time looking at the scores of taxes and fees that make up state revenues.

Mike Allen, then the director of research at Maine Revenue Services, said there was a strong correlation between higher energy costs and decreased sales tax revenues. "People had less disposal income," he said, "and we saw that reflected in sales tax receipts. If prices spike again, we will see it have an impact on sales taxes."

Allen, now associate commissioner for tax policy, recently said just about the same thing of current budget woes.

One theme I have often written about is the disconnect between the business community and lawmakers, which impedes the ability to get a business point of view across to lawmakers.

Business owners are often too busy running their businesses to attend hearings and testify, let alone run for a seat in the Legislature. But if they don't, their points of view will not get across to lawmakers.

Paid lobbyists are just not as effective as local business owners in addressing a legislative body. And lobbyists, at least the good ones, will tell their clients that.

Hopefully, the ability to watch debates live or online or when repeated for broadcast will help those in the business community follow what is happening at the capitol.

In my new career, as in my old career, I hope to help Mainers understand our government and how it works.

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