Real reform needed to address Maine’s struggling economy
As gasoline and heating oil prices hit historical highs nationally amid four-decade inflation and warnings of stagflation, people all over the world are feeling the pinch of an economy on a sugar crash, especially in the United States. Fed by a continuous stream of cash, printed out of debt, and spent just as quickly by the federal government, the American economy is like a small child in the late evening on Halloween: restless, yet exhausted.
Mainers have experienced additional economic woes over the last few months, facing gas prices higher than the national average. As of June 9, AAA reported that the average price in Maine for a gallon of regular gasoline cost $5.038, above the national average of $4.970. The highest prices are found in Aroostook, Androscoggin, and Franklin counties, each with an average of more than $5.07 per gallon. Cumberland county is not far behind at $5.058.
Taking into account 28 different factors, including entrepreneurial activity, state fiscal health, jobs, exports, and GDP growth, the financial literacy website WalletHub ranked Maine 44 out of 51 jurisdictions for economic health. The report, 2022’s Best & Worst State Economies, developed by four economics professors, placed Maine in a similar position as other recent economic rankings.
Maine also took the 44th spot (out of 50) in the 15th edition of ALEC’s Rich States, Poor States, an economic index made up of 15 factors like tax burden, labor laws, and state workforce. Maine came in dead-last for property tax burden as a percentage of personal income in that report.
Although Mainers widely consider our neighbor, New Hampshire, to have higher property taxes, Rich States, Poor States shows Maine’s property tax to be $56.02 per $1,000 of personal income, while New Hampshire records $51.81. Granted, both states have relatively high property taxes—ranking 48th and 50th, respectively—but the idea that New Hampshire has no income or sales tax because its residents are crushed by local property taxes compared to Mainers is a misnomer.
Being the eighth worst economy in the nation cannot be the best Maine can do. Even amid a rebounding tourism sector coming into the summer of 2022, the industry and the state’s full economic recovery is still stifled by a lack of workers.
Using data from the federal Bureau of Labor Statistics, the State Policy Network looked at each state’s jobs figures (as of this April) compared to February 2020, just before the massive government-ordered shutdowns hit. Maine sat at the 15th spot in pandemic-era job growth, just 800 seasonally-adjusted nonfarm payroll jobs shy of February 2020 levels. According to Maine Department of Labor (MDOL) data, total employment is 3.5% lower than February 2020, or nearly 24,000 jobs.
Maine’s employment to population ratio has lagged behind the nation since September 2020 following the worst of the coronavirus-lockdown economic slump. Then, both the national and Maine employment rates were about equal, around 56.5%. But since then, Maine’s employment scene has largely stagnated, with the employment to population ratio growing only one-half of a percentage point to 57.1%, while the national rate climbed to 60%.
The SPN Jobs Report shows that only 14 states have met or exceeded their pre-pandemic jobs figures, with states such as Utah, Idaho, Texas, Florida, and North Carolina making the greatest progress so far in percentage terms. In April, The Wall Street Journal published their annual report on the most vibrant job markets in the nation, with similar findings. Austin, Texas, Nashville, Tennessee, Raleigh, North Carolina, Salt Lake City, Utah, and Jacksonville, Florida topped the list as the best cities for workers. These markets are all located in states ranked among the best in the ALEC report, largely due to their low regulatory burdens and low tax rates.
As more Americans take up remote employment, workers across the nation are looking around for their next home base. A hot housing market nationally has driven many to sell while the market is at its likely peak, according to Mark Zandi, chief economist at Moody’s, who predicts a 0% overall price increase over the next 12 months.
The looming stress on Maine’s housing market is evident in the Moody’s index from March 2022, estimating that the greater Portland market is 23% overvalued, Lewiston-Auburn is 17% overvalued, and Bangor 12% overvalued.
A topic on many minds, the Bangor Daily News reported that a recent FlexJobs list of the best states for remote work ranked Maine 4th-best in the country, and 2nd in New England to get a remote job.
Madeleine Hill, president of Maine Association of Realtors pointed to “Maine’s quality of life and the emergence of teleworking” as the driving forces behind the state’s hot real estate market, and the likely growing popularity of the state as a remote working destination.
This vision of Maine as a remote employee’s dream can be fulfilled, but only if the housing market can grow to accommodate the extra residents, and if those prospective movers see the state as their best financial move. But, this brings up an important question: why wouldn’t New Hampshire look more attractive to prospective New Englanders? If you’re willing to deal with the cold winters, why would you overlook Maine’s persistently high income and sales tax rates, even compared to Massachusetts (to say nothing of New Hampshire), which has no income tax and a narrowly-used sales tax?
Only time will tell, but the story for each state will be written in part due to its economic vitality. There is no shortcut for a healthy economy, and in the United States, cross-border differences are real factors. As noted in Rich States, Poor States, “generally speaking, states that spend less—especially on income transfer programs—and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states that tax and spend more.”
Over time, the growing crop of prospective investors like homebuyers and entrepreneurs will react to the ability to make a livable income: wages minus cost of living.
Those states which have been able to cultivate a healthy labor market and vibrant business climate, while keeping living costs low, will attract the most financial and human capital and drive the greatest growth. It’s time for leaders in Maine to learn this lesson and chart a better economic future, before we are beat-out by our neighbors.