(from Maine Townsman, December 2001)
By MMA State & Federal Relations staff

In 1999, the overview article regarding the second session of the 119th Legislature discussed the issues associated with a state government that had extra money on its hands.  Now, just two years later, the situation is reversed, and the Legislature faces the second in a succession of General Fund shortfalls and budget deficits.   There is no doubt about it.  The upcoming legislative session looks to be difficult, austere and defensive.  Every interest group imaginable will be looking for its piece of the smaller pie.

According to Maine’s seven-member Revenue Forecasting Committee, over the FY 02-03 biennium the General Fund shortfall is projected at $248.6 million.  Just in this current fiscal year (FY 2002), the new-found deficit is estimated at $109 million, with the sales tax accounting for 43% of that deficit and individual and corporate income tax revenue reductions accounting for 28% and 19%, respectively.

Maine’s Constitution requires the state budget to be balanced each year.  That means when the Legislature convenes in January, it will need to address both the $109 million shortfall of FY 2002 (which has only six months left) and the $140 million deficiency in the next fiscal year beginning July 1, 2002.

The tools and resources available to the Legislature to balance the budget include: 1) Maine’s Rainy Day Fund, which is currently holding $100 million; 2) the Maine Technology Investment Fund (a.k.a., the “laptop” fund), which is currently holding $30 million; 3) Maine’s Tobacco Settlement Fund, although the $56 million that fund receives each year is heavily encumbered by the health-support programs it underwrites; 4) more revenue through increases in tax rates or broadening existing tax bases; and 5) reducing state spending.

Municipalities have reasons to be very concerned.  Over the next few months, the state’s contribution to General Purpose Aid for education (GPA) will be monitored closely.  Although it is highly unlikely the $701 million GPA allocation for this current fiscal year will be curtailed, the 2.3% increase in the FY 03 budget (which brings the GPA allocation to $718.3 million) could be at risk.  The rhetoric on the floor of the legislature last spring was that the legislators would come back in 2002 and find more money for the schools next year, beyond the modest 2.3% increase.  Now the only question is whether they will actually find less.

The impacts on revenue sharing will be more immediate.  Prior to the Revenue Forecasting Committee’s re-projections, FY 02 Revenue Sharing payments to municipalities were estimated at $111.6 million, with “Revenue Sharing II” accounting for $6 million of that total.  After the re-projections, the FY 02 Revenue Sharing payments are estimated at $106.6 million, with Revenue Sharing II accounting for just $1 million of that total.  The Revenue Sharing projection in FY 03 is projected at $113.4 million, down from the original $120 million projection.

 Based on these projections, it can be expected that the Legislature will be spending most of its time and attention over the next four months resolving the immediate budget shortfall.  MMA’s efforts over the next several months will be to ensure that the state upholds its financial commitments to local government and doesn’t tap into the property tax to resolve its structural revenue shortfalls. It might be noted that a degree of the revenue shortfall can be traced directly to deficiencies in the tax code that the Legislature has thus far refused to address. MMA will also have to be vigilant to ensure that the Legislature does not solve its deficit by shifting additional responsibilities to communities or step on municipal home rule authority in order to command the achievement of certain ends that the Legislature now cannot afford to achieve otherwise.