Earlier this month, the Maine Revenue Forecasting Committee (RFC) released its May 2025 report—and while headlines might celebrate a modest bump in this year’s revenue projections, a closer look reveals something far more troubling: Maine’s fiscal foundation is cracking under the weight of unsustainable commitments and uncertain assumptions.

Despite the somewhat rosy outlook for FY25—thanks mainly to capital gains windfalls and estate tax surprises—long-term projections show consistent erosion in core revenues, particularly from corporate income taxes and consumer spending. At the same time, Highway Fund and Medicaid revenues are shrinking, even as lawmakers expand the size and scope of state government. If that sounds like a recipe for fiscal instability, that’s because it is.

A Sugar High Masks Structural Decay

The RFC bumped up the FY25 General Fund forecast by $24.4 million. But dig deeper and the picture darkens: The 2026–27 biennium forecast is now $23.3 million lower than what was projected just five months ago, with even deeper declines expected by FY29.

Maine’s projected revenue growth turns negative in FY26, with a -1.2% decline, which is concerning due to the continual growth in state government spending. As policymakers congratulated themselves on short-term surpluses in recent years, they made the mistake of enacting long-term commitments with evaporating dollars.

Corporate Income Tax Collapse

Perhaps the most revealing figure in the May forecast: Corporate income tax revenue has now been revised downwards by $77 million in FY25 alone, with another nearly $190 million through FY29. After several years of overpayments, Maine businesses are pulling back—and who can blame them? When incoming federal trade wars make the going tough, businesses will want to retreat to safer pro-business states, including our neighbor, New Hampshire.

Add to this the growing cost of refundable tax credits, including the poorly structured Dirigo Tax Credit, and you have a business tax system that’s both unstable and opaque. While Governor Mills and legislative leaders tout their support for economic development, Maine’s tax policy drives uncertainty and deters long-term investment.

Sales Tax Weakness Signals Consumer Caution

The sales and use tax forecast has also been revised downward through FY29. The culprit? Maine households are saving more and spending less, especially on big-ticket durable goods like vehicles and appliances, which drive the bulk of sales tax receipts. Combine that with inflationary pressures and tariff instability, and the state’s consumer-driven revenue base is looking increasingly shaky. 

Shrinking Support for Core Services

While spending grows elsewhere, two critical areas are taking hits: infrastructure and healthcare.

  • The Highway Fund forecast is down $1.6 million in FY25, with long-term stagnation expected through FY29. This is in part due to declining revenue from fuel taxes.
  • Medicaid/MaineCare revenue has been cut by $5 million per year through FY27, reflecting hospital closures and reduced tax receipts from nursing facilities. Yet lawmakers proposed several bills this session to expand Medicaid, including coverage of Ozempic under MaineCare (LD 480), another to turn it into a universal healthcare system (LD 1269), and even broaden certain MaineCare coverage to noncitizens (LD 842). Maine should be shrinking MaineCare spending, but legislators are considering new ways to expand the program instead.
Betting on Trump to Give Out More Money

Most concerning of all is the state’s reliance on federal funds—a lifeline that looks increasingly frayed. The RFC warns of “federal fiscal austerity,” with ripple effects that could devastate programs propped up by Washington. Add in mounting geopolitical tensions and the real risk of reduced Canadian tourism, and it becomes clear: Maine’s budget is dangerously exposed, especially with a federal administration steadfastly committed to taking money from projects with which it ideologically disagrees. 

Time for Real Reform

Maine’s fiscal house may not be underwater yet, but the water level is rising. A prudent government would use this moment to right-size its commitments, trim structural spending, and rebuild a more reliable revenue base grounded in economic growth, not speculation.

Yet policymakers seem content to ride the highs and ignore the lows, hoping next year’s numbers will help them out.

Instead, lawmakers should fix our growing revenue shortfall by:

  • Implementing stricter limits on baseline spending growth
  • Conducting a top-to-bottom audit of Maine’s Department of Education and Department of Health and Human Services, the state’s two biggest spenders
  • Returning excess revenue to the public through reduced taxes, to encourage market growth and reduce costs of living
  • Reducing Maine’s reliance on more transitive taxes, such as estate or corporate taxes.

Maine needs to budget based on reality, not hope for economic upturn. The May forecast makes it clear: the time for fiscal reform is now.