Growth vs. Gimmicks Part VII: Securing sustainable growth and future prosperity
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. This is the seventh and final part of the series.
When New Hampshire legalized sports betting at the end of 2019 following a landmark Supreme Court ruling, nearly a dozen localities opted to allow it. According to Legal Sports Report, as of February 17, 2021, nearly $300 million had been spent on online sports gambling through DraftKings, which has an exclusive contract with the state. For that exclusivity, New Hampshire retains 50% of gross gaming revenue spent on the service. So far, state coffers have brought in more than $11 million from that agreement. Official estimates, which already appear to be too conservative, suggest that it will bring in $13.5 million in taxes by 2023.
There are Mainers who would participate in and profit from this sector of the economy but for Governor Mills’ decision to veto enabling legislation in January 2020. They will instead drive across the border to New Hampshire to bet on sports, either at a retail location or on their smartphone. Maine could have welcomed millions in economic growth and state tax revenue from allowing sports betting in 2020, ideally, through an open market of sports betting platforms. Especially during difficult and uncertain economic times, state leaders should not leave a potential industry (and its subsequent tax revenue) on the table.
This analysis does not dive into the intricacies of the $232 million projected shortfall in Highway Fund, distinct from the more than $400 million General Fund biennial shortfall. Broadly, Maine lawmakers should ensure maintenance of critical infrastructure—roads, bridges, and ferries—before spending millions on “investments” in wasteful and anti-competitive energy and broadband projects.
Maine Representative Rich Cebra of Naples sponsored LD 43 in the 129th Legislature, which proposed to dedicate all sales tax revenue from sales of motor vehicles and goods related to motor vehicles to the Highway Fund for road and bridge maintenance. Over the last two fiscal years, including a brief period of depressed sales in March and April 2020, the Office of Tax Policy reports nearly $11 billion of taxable sales from “all transportation related retail outlets.” These sales brought in more than $500 million to the General Fund over the previous biennium. Dedicating less than half of these funds, or just the sales tax revenue from vehicle sales, could cover the entire Highway Fund shortfall.
Currently, the Maine state government is projected to face a nearly $400 million deficit over the next biennium. The good news is that this shortfall is less than half of what was initially projected in August 2020. There are other reasons to be hopeful that the economic costs of the pandemic-related shutdowns will not hinder long-term growth, but Maine has been facing impending, interrelated economic crises for decades: an aging labor force and an unfriendly overall business climate.
The proposals outlined here should be used to construct various pathways for legislators and the governor to achieve a balanced budget and a growing economy, not only for the next two years, but for the next two decades. Maine’s current economic situation is a precarious one, and the systemic issues previously mentioned will not simply fade away. These problems will only get worse the longer Maine lawmakers continue to delay bold action to provide a competitive economic environment, for business owners, workers, and potential entrepreneurs alike.
Instead of taking a long-term approach to crafting the state budget, Governor Mills is merely covering the next two years of costs with no guarantee that the levies will hold for the future. Her budget proposal largely relies on accounting gimmicks to maintain an elevated level of spending, driven in part by previous statutory commitments, but also by the baseline of her first budget. Two years ago, the governor grew real spending by 5% from the previous two years, even though the state’s population grew less than 1% over that time.
Over the last 10 years, real spending on Maine’s General Fund has grown more than 20%, while the population has grown by only 1.66%. Public spending should, at the very least, be tempered by population growth. Maine people deserve the most that their government can give them at the lowest cost, especially in difficult economic times.
Today, inflation-adjusted General Fund spending per Maine resident is $3,108, the highest on record. The last time it was closest to today’s height was in 2000, when the U.S. and Maine economies were experiencing the zenith of the 1990s boom. In the last three years of that decade, national GDP grew more than 4% annually. Needless to say, the vast uncertainty of the early 2020s presents a very different economic situation from the windfall of the late 1990s. If Maine lawmakers kept real spending on pace with population since 2010, per capita spending would only be $2,626. Taxpayers would have spent 18% less—$550 million—on the General Fund in the current fiscal year alone.
Legislators should look to the findings in this report to make the hard choices that will put Maine on a path to real prosperity. The time is now to rein in ever-expansive government and plan for a future of sustainable growth and prosperity.