Understanding Governor Mills’ jobs and recovery plan
In early March, President Biden signed into law the American Rescue Plan Act (ARPA), a $1.9 trillion spending bill to provide additional funds to state and local governments to recover from the pandemic and the year-long economic slump that came largely from government-ordered shutdowns of the economy and society.
Marking nearly $6 trillion spent by DC—double the annual federal budget—in just a little over a year, the Biden administration is again positioning for another $2 trillion or more in spending for a host of projects vaguely related to infrastructure.
Maine just received its ARPA funds, with almost a half billion dollars going to towns, cities, and counties, but also more than a billion dollars going to the state government. Governor Mills, who continues to unilaterally run state government under 15-months-and-counting emergency rule, is signaling where she’d like to spend that portion. By a simple majority vote, she and her legislative allies get to spend this federal money as they see fit.
In late March, the Maine Legislature passed the so-called “Back-To-Basics” biennial budget to fund the next two fiscal years, beginning this July 1. That was done on a single-party, majority vote and required no consensus-building with the minority party, a departure from recent legislative norms.
In their rationale for pursuing this rushed, opaque budget process, state leaders emphasized the need for local governments to pass their own budgets in the coming months. Because of this, they said, quibbling over a state budget that needs two-thirds support would inflict unnecessary instability on local processes. Rep. Sawin Millett of Waterford, in an interview on WVOM a few days before the vote, shredded this argument to pieces.
When the “Back-to-Basics” majority budget passed, state leaders had not yet seen the Revenue Forecasting Committee’s (RFC) April report. Now, we know that Maine’s budget has much more revenue coming in than was expected last summer. Instead of the nearly one billion dollar biennial shortfall estimated last August, the state is now projected to have $940 million more than anticipated over the next two years.
Politically, it makes sense why Mills and allies chose to jam through the legislature the next biennial budget on a bare-majority vote. They knew that if they waited until April, the higher revenue forecast would show that a majority budget wouldn’t be necessary. By passing the biennial budget early and waiting until the rosy revenue report, there would be at least one more opportunity to pass another big spending bill as a supplemental budget as the extra revenues appear. The state and localities would have some ARPA funds by then, and the overall fiscal situation would look much better.
But, good politics is not necessarily good policy.
Mills recently unveiled a $1.13 billion spending proposal dubbed the “Maine Jobs and Recovery Plan” to direct the state-portion of Maine’s ARPA disbursement. The proposal dovetails with her administration’s 10-year economic plan, crafted before the pandemic.
Mills’ plan is little more than superfluous spending, hundreds of millions more in federal tax dollars that will not, on its own, bring Maine out of the economic slump initiated by pandemic shutdowns. It will, however, be a convenient talking point for the governor and her allies. She will likely say that it was her spending plan which enabled the state to climb out of the economic hole caused by her draconian lockdown last spring. It is a deft political strategy, succeeding in spending as much as possible.
A large part of the governor’s spending plan centers around workforce training and business development, accounting for about a quarter-billion dollars. Targeted grants for firms in select industries (fishing, farming, forestry, biotech, food processing, etc.), universities and start-ups, in addition to employer health insurance subsidies, are all potential vehicles for delivering these funds.
Questions remain whether state-run, targeted incentives are helpful for an economy, especially one dealing with inflation at a 12-year-high. Researchers from the University of Ohio and the OECD published in the journal Economic Development Quarterly last year their findings that these sorts of policies “crowd out other economic activity, potentially reducing long-term growth.” They also note that targeted tax and subsidy “incentives have a statistically significant, negative relationship with start-up rates” which is a problem, because with fewer businesses overall, workers’ job mobility is limited.
Another study of how incentives affect states’ fiscal health, published in February 2020, looked at data from 32 states between 1990 and 2015. They found that “after controlling for the governmental, political, economic, and demographic characteristics of states, incentives draw resources away from states” and “negatively affect the overall fiscal health of states.”
Alas, this sort of policy remains the prevailing fiscal strategy for the governor, while Maine’s tax and regulatory structure remains one of the most restrictive in the country, especially among rural states. While states may not use ARPA money to lower taxes or to delay tax increases, the additional revenue recently uncovered by the RFC can be used to deliver direct tax relief to Maine families and businesses.
It is important to note that the same prohibition does not exist for localities. These jurisdictions may use their ARPA funds to reduce their residents’ tax burden. Nearly half-a-billion dollars went to Maine’s towns, counties, and cities. Before your town raises property taxes this year (as some have already proposed), check to see how much they are getting from DC and ask yourself: Why is my town demanding even more from me as a local taxpayer? When coupled with the governor’s supplemental budget proposal, which includes additional state funding for education and increased revenue sharing, local property tax increases become even more difficult to rationalize.
It will take much more than government grants and loan guarantees in the short-term to get the type of large-scale, in-migration of workers and entrepreneurs that Maine needs to drive real growth. We could help unleash the Maine economy by putting some of these funds toward substantial tax relief combined with cutting anti-competitive occupational and business regulations.
Incentivize towns and cities to pursue more flexible zoning policies to help increase housing supply and stabilize that pain point for many Mainers, both urban and rural. Rollback onerous mandates on child care providers to help attract more affordable options in the marketplace, for the benefit of working parents.
While the governor insists on misallocating millions of federal tax dollars in her plan, there are some positive aspects. Under the header of “Regulatory Reform,” a single $8 million item exists: to “increase licensing efficiency” by “launching an online licensing system for environmental and other state licenses.” There is much to learn about this initiative, but it sounds like a commitment to making the licensing process a little less painful for skilled workers and business owners. This may be a good start, though it appears narrow in scope and could be made better if paired with a full review of Maine’s occupational licensing regimes, similar to what was offered by Rep. John Andrews in his bill, LD 835.
Mills also wants to put more money into the state’s rainy day fund, unemployment trust fund, and state auditor’s office to ensure funds are spent in accordance with federal guidance. It is absolutely imperative that these funds are spent not only within the bounds of Treasury guidance, but spent wisely. Taxpayers must be vigilant to the constant threat of profligacy on the state and local levels. ARPA funds are one-time funds and should be dealt with as such, not to create new or expand current programs which require funding for years to come.
Eventually, the economy was going to bounce back. The question is how long will it take and how well can Maine bounce back compared to the rest of nation? The only thing holding us back from a record summer season continues to be Mills’ post-scientific clinging to long-debunked mandates which have sapped the average Mainer of their livelihood, with little discernible difference in the spread of COVID-19.
While recent rollbacks of restrictions are welcome, Mills still remains behind her regional peers in New Hampshire, Connecticut, Rhode Island, and Massachusetts, who are allowing residents and visitors to better prepare for a more normal summer season. Maine should immediately do the same.