Growth vs. Gimmicks Part III: Finding budget solutions
Long-term Growth vs. Short-term Gimmicks is a seven part series examining the impact of the COVID-19 pandemic on Maine’s economy, the corresponding effects on the state’s biennial budget, and reforms lawmakers should pursue to achieve real budget savings. Check back tomorrow for Part IV.
PROJECTING FISCAL YEARS 2022-23
Negotiations between Governor Mills and the members of the 130th Legislature will determine how the state will cover a projected two-year budget shortfall of just under $400 million. This represents the most recent projections of state forecasters at the CEFC and Revenue Forecasting Committee (RFC) for the upcoming biennium, spanning fiscal years 2022 and 2023 (FY22/23).
Projections have trended better than expected. Current shortfall numbers are less than half of those in the RFC’s August report, which projected Maine’s General Fund would be down more than $500 million in FY21 and more than $800 million over the FY22/23 biennium. With this positive news, there are more paths for lawmakers to achieve a balanced budget over the next biennium. Overall, the FY22/23 budget should look to revitalize Maine’s labor force and business environment, while balancing the needs of the most vulnerable.
The following is presented as a slate of options for lawmakers to meet this goal; a menu of policy choices to either reduce current spending or expand the economy to drive state tax revenue growth.
In September 2020, Governor Mills’ issued a curtailment order to cover $222 million of the $422 million General Fund shortfall projected for FY21, ending June 30, 2021. Part of the order allowed the state to save $125 million through adjusted federal Medicaid reimbursement rates, frozen vacant positions, delayed technology updates, and foregone travel. Mills’ latest proposal for the upcoming FY22/23 biennial budget, released in January, continues these various cost-saving measures where applicable, but the administration’s creative accounting leaves more questions than it answers.
While Governor Mills insists that her budget proposal contains “no drama,” a deeper examination shows the administration is putting off implementing the reforms necessary to recover from the worst economic recession since 2008. Mills has signaled to taxpayers that she will do everything to maintain (and if possible, raise) current levels of government spending, when she should be making the hard choices necessary to fix Maine’s structural economic issues.
For example, Part P of the Mills administration’s budget proposal raises the staff attrition rate from 1.6% to 5%, assuming that more than triple the number of state employees will voluntarily retire or leave the state workforce than expected. Is this accurate accounting, or simply wishful thinking? If too few state workers retire over the next two years, this line alone could bust open a nearly $30 million hole in the budget, requiring substantial cuts to programs or staff in other areas. This calculation does not take into account long-term costs of retaining a larger public workforce than the state can afford, stressing the state’s pension system and bond rating. Governor Mills and her budget officers would be wise to make these sorts of decisions now rather than hope that they don’t become a problem in the future.
The numbers of state and local government workers in Maine has decreased more than 11% over 2020, with local governments taking triple the losses of the state workforce. While this is a significant reduction overall, lawmakers should not see these as losses, but instead factor them in as a cost of an economic downturn. Ensuring long-term stability in the budget and pension system is critical. Maine state budgeters should look for other serious, structural changes that will position Maine’s economy to grow quickly out of the current malaise.
When attempting to right-size the state government after a year of vast economic uncertainty, the most significant cost-saving measures will not be found in one-time accounting fixes, but rather the state’s largest agencies like the Department of Health and Human Services (DHHS), which oversees MaineCare, Maine’s Medicaid program. Other policy reforms are also necessary after a harrowing year. Some may directly result in budget savings, but all carry the potential to facilitate economic growth instead of government growth.
Ultimately, state leaders cannot expect to spend their way out of this slump. They must look for potentially unconventional solutions to fortify Maine’s economic resilience and adaptability in the wake of 2020. The key to this strategy is the understanding that reforms to reduce economic barriers to prosperity will ultimately help the least-advantaged in society.
Maine people should be confident that the state will not impose itself onto the daily efforts of workers and business owners attempting to serve their communities and earn a living. To this end, the restrictions that have besieged the Maine economy, implemented unilaterally by the governor and without legislative input, should be lifted post haste. People deserve trust and a presumption of liberty from their leaders.
Check back tomorrow for Part III, which focuses on reforming welfare and Maine’s Medicaid program to realize significant budget savings.