Proposal to close state's $538M revenue shortfall includes call for more federal support

Photo / Maureen Milliken Gov. Janet Mills is reviewing a proposal to close the state's $538 million revenue gap caused by the COVID-19 pandemic.

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By Maureen Milliken

A three-part proposal that aims to balance the state budget, addressing a pandemic-related $538 million revenue shortfall, was submitted to Gov. Janet Mills Wednesday by the Department of Administrative and Financial Services.

Among other things, the proposal submitted by DAFS Commissioner Kirsten Figueroa calls for $255.6 million in departmental "cost savings and efficiencies" that would avoid deep program cuts and layoffs in the state government "for now."

But state officials and economy experts said that more federal help is needed if the state is to stay afloat and thrive in the future.

Mills said that the state's early actions protected its fiscal stability in the short term and "prevented significant impacts to the services that Maine people rely on."

She said that she will review Figueroa's proposal to further stabilize the state’s budget. "And I urge Congress to provide additional aid to state and local governments, along with flexibility for funding already awarded, so that we can continue to preserve critical services for Maine people and chart a full economic recovery.”

The Revenue Forecasting Committee in July projected the $528 million revenue shortfall for the biennial ending June 30, 2021. In March, Mills and the Legislature crafted a supplemental budget and related legislation that reserved more than $106 million.

The remaining $422 million shortfall was to come from 10% in cost state government cost reductions. Mills also directed the DAFS to find solutions that would minimize the impact on critical programs and state government personnel.

Figueroa has recommended:

Using $96.7 million in federal funding from the CARES Act Coronavirus Relief Funds for authorized public health and safety costs;
Transferring approximately $70 million in liquor sales tax receipts, which have been higher than expected;
Adopting approximately $255.6 million in departmental cost savings and efficiencies, crafted after discussions with state government heads.

In her letter to mills, Figueroa notes that the plan doesn't advance any proposal that would have a significant negative effect on vital programs or state personnel, avoids layoffs and dipping into General Purpose Aid used for education, protects the safety net infrastructure and keeps Maine's Budget Stabilization Fund (Rainy Day Fund) intact.

“This proposal identifies funds to meet the revenue shortfall, as we know it today, without deep cuts to important programs or layoffs," Figueroa said. "We will closely monitor monthly revenues, look to our next revenue forecast scheduled for early December and consider the next round of relief currently being discussed at the federal level, and adjust as needed."

Department efficiencies

Figueroa said that approximately $125 million of the departmental efficiencies can be applied to the current fiscal year. The efficiencies include replacement money from CARES Act-improved Medicaid federal reimbursement rates; federal grants awarded for departmental functions; managing expenses through hiring freezes for vacant positions; delayed technology updates; reduced spending on existing or future contracts; and canceling conferences, projects and related travel.

The remaining $130 million in departmental efficiencies would be through transferring appropriations from FY20 that haven't been spent because of pandemic-related frugality measures undertaken in March at Mills' direction, including the same style of freezes, delays and cancellations.

Figueroa's proposal also said there can be savings in initiatives funded by the Highway Fund that would address an estimated $40 million shortfall projected by the Revenue Forecasting Committee.

Mills can set aside $221.8 million from the General Fund and $23 million from the Highway Fund by way of curtailment, a mechanism Maine governors can use to balance upended budgets when the Legislature is adjourned, Figeuroa said. She said that the previous four governors have used curtailments.

CARES Act changes, liquor sales

Updated guidance from the U.S. Treasury on CARES Act money allows governments to presume that payroll costs for public health and public safety employees are payments for services substantially dedicated to mitigating or responding to the COVID-19 public health emergency, and therefore may be paid with that money.

Figueroa said that using $96.7 million from the federal money for that purpose will help offset the deficit.

Liquor sales, too, are higher than had been estimated, making $50 million in revenue from prior balances, and another $20 million projected for FY 2021.

More federal help needed

Figueroa, like Mills, said that more federal help is needed.

“The challenge of identifying these solutions, for only the final months of FY21 and with these significant federal contributions, made it exceedingly clear that without additional federal help anticipated revenue reductions in FY22 and FY23 may be dramatic enough to require programmatic reductions," Figueroa said.

Garrett Martin, executive director of the Maine Center for Economic Policy, said that the proposal "is a good attempt to bridge the revenue gap in the current budget," but also agreed federal help is needed.

“Maine needs additional revenue to protect jobs and fuel the recovery by keeping money flowing to families, communities, and our economy," he said. "MECEP urges Congress to pass a robust, bipartisan relief package that includes additional funding to make state and local budgets whole. Maine policymakers must also be prepared to raise revenues, such as by closing tax loopholes and raising taxes on the wealthiest households and corporations, if Congress fails to deliver.”