Tapping the money tree: A tale of two budgets and a bond package
It is abundantly clear that there is a stark difference between the LePage and Mills administrations, especially when it comes to spending in state government. The 2020-21 biennial budget proposed by Governor Mills in February totaled $8.041 billion, an 11.33 percent increase from the 2018-19 budget; a substantial expansion over a two year period. In contrast, Governor LePage and the legislature grew spending by 27.03 percent over the eight years he served the state of Maine. It should be noted that the budgets he initially proposed would have spent less money than what was finally appropriated, primarily because he was hamstrung by a divided legislature. For example, Governor LePage proposed a $6.84 billion biennial budget in 2017. After months of negotiations and a government shutdown, final appropriations totaled $7.22 billion – over five percent more than what he initially proposed
In comparing growth in spending between recent gubernatorial administrations, its apparent former Governor Angus King and the legislature during his tenure expanded state government the most in the last two decades, increasing expenditures by 56 percent over his time as chief executive. Governor Baldacci increased overall spending the least during his time in office, though his administration encompassed the Great Recession which resulted in a reduction in state spending after 2008. Based on his 2008-09 budget proposal, spending likely would have increased to well over 25 percent if the Great Recession had not occurred. Nonetheless, Governor Mills has proposed to increase government spending over the next two years by a higher percentage than Governor Baldacci did over his entire time in office.
These comparisons are important because they reflect a disturbing trend in Maine: State government perpetually grows over time due to lofty and oftentimes contradictory legislative and executive branch priorities. Not to mention, each biennial budget is built based on the preceding biennial budget. The 2020-21 biennial budget is still being debated in the Committee on Appropriations and Financial Affairs and many of the negotiations have occurred behind closed doors. However, the committee has had 31 work sessions to hash out all of the details and are coming closer to deal every day. The deadline to reach an agreement without a government shutdown is June 30th, 2019.
Since the release of our analysis of the Mills budget in March, there have been a few changes to the governor’s first biennial budget proposal. Since the governor’s budget dropped in February, lawmakers had been waiting for the May report from the Revenue Forecasting Committee – a tool that updated estimates on how much revenue state government is expected to receive from taxpayers. The May report showed that Maine will receive an additional $66.7 million in 2019 and $20.7 million over the biennium.
Perhaps the most significant change to the budget is the increase to the revenue sharing program. The revenue sharing program was created in 1973 with the stated purpose of relieving the municipal property tax burden levied on Mainers. While alleviating this burden is a noble cause, the program is largely ineffective because it does not require municipalities to lower property taxes. In fact, in the past we’ve highlighted that increases to the revenue sharing program are not correlated with property tax decreases in Maine.
As of June 1, the budget is slated to increase revenue sharing from 2 percent to 3 percent in 2020 and 3.75 percent in 2021. To put this in perspective, the original proposal from Governor Mills’ office would have dedicated $205 million to expand revenue sharing to just 3 percent by the end of the upcoming biennium. If revenue sharing is increased to the newly-proposed levels, approximately $248 million is estimated to be appropriated to revenue sharing by the end of FY 2021.
In addition to changes to the budget, Governor Mills unveiled her “strategic bond package investment proposal” on June 4. The governor’s bond proposal would cost $239 million in total, with $189 million slated to go out to voters in 2019 and $50 million in 2020. According to the governor’s press release, $105 million would be dedicated to rebuilding transportation infrastructure such as roads and bridges, $65 million would “replenish” the Land for Maine’s Future program, $50 million would be used to expand broadband access and $19 million would be used to expand education and training in the trades.
It’s irresponsible for the governor to tackle these “priorities” by taking on new debt, especially considering they could be supported if they were not to be paid for through general obligation bonds. For example, the funds to expand education and training in the trades would be a better investment than spending an additional $126 million on K-12 education over the biennium, as proposed in the governor’s original budget proposal. Likewise, rebuilding Maine’s crumbling infrastructure should be a priority, but it needs to be done responsibly and within our means. The primary concern with bonds is how much the state would spend on future debt service to pay off the funding and interest. For example, the State Treasurer is already slated to spend $92,852,969, which includes over $20.5 million in interest in general fund bonds alone.
Approximately $30 million in bonds would be dedicated to broadband infrastructure, which would go to the ConnectME Authority, a quasi-governmental organization. ConnectME doles out funds to expand broadband throughout the state and primarily receives its funding through an assessment on communications services. Instead of growing the size and scope of government to expand broadband, we would be better off making Maine more attractive to private broadband investment. The main concern about giving ConnectME these funds is that they could be used to establish government-owned networks (GONs) in the state.
When GONs are established, they discourage private entities that offer communications services from entering an area. Private companies typically offer their services to make a profit whereas GONs are subsidized by taxpayers or other government entities and are not always concerned about profits. This results in the government establishing and maintaining a monopoly over broadband networks in the municipalities that deploy them. After municipalities tried to establish GONs in other states, taxpayers were often left to pick up the pieces. A report from the University of Pennsylvania Law School showed that out of 20 municipal fiber projects that reported the results of their broadband operations, 11 had a negative cash flow. Only seven of those municipalities were projected to recover the cost within 60 years or more.
The state of Maine is slated to take in an additional $345 million in revenue over the biennium – more than enough to cover the cost of the bonds, though some of the governor’s other proposed spending would need to be nixed from the budget. But the governor has proposed to spend so much in her budget that her remaining objectives can only be achieved through bonding – there is no other revenue available because she has earmarked it all for other “priorities.”
Alternatively, those funds could have been given back to the taxpayers in the form of a small income tax reduction through a legislative proposal that was killed by Democrats earlier this session. Of course, this would also require the legislature and governor to reduce spending. In other words, there have been several opportunities for the governor and her allies in the legislature to be fiscally responsible and reign in spending. Unfortunately, they have neglected to do so at every step throughout this process.
In sum, the budget cycle is broken in Maine. Each biennial budget spends more than the last, and all of the campaign promises and priorities that cannot fit financially into the budget are put out to the people in the form of bond requests to be paid for at a later date. If we are to reduce spending and keep our financial house in order, legislators should start by spending below the revenue forecast and forego bonding altogether.