Establishing a state budget when tax revenue is pinched by a slow economy poses a painful choice. Do you risk dampening the economy further with a tax hike, or cut state spending to the bone?
As Gov. John Baldacci said in January, there are no easy answers. The administration and the Legislature have the responsibility to budget wisely on behalf of the state’s economy. Public officials must also weigh the economic, organizational and personal consequences of curtailing state employment and programs.
At the start of this year, state government was facing a $438 million revenue gap. The good news is that the state’s financial position has improved since then, and Baldacci this week proposed restoring $78.7 million in cuts he originally sought.
This eases the problem, but it still seems unwise for the governor to rule out a tax increase. Holding taxes in check should be a top government priority ”“ but one tempered by circumstances.
As the governor pointed out in his State of the State address, these are hard times. State revenues have fallen by $1.1 billion, unemployment is high and people are uncertain and anxious.
Besides this list of troubles, consider that many poor, ill and the disabled people have fewer places to turn for help. Maine’s spending has dropped steadily over the last four years, leaving little more that can be cut. Tight budgets often mean that aid money can’t be used efficiently, and that federal matching funds will inevitably decline.
If programs are cut, perhaps families and charities will pick up the slack. But those familiar with social service programs believe cutbacks will also mean more Mainers will end up at hospitals, shelters and jails. With less money available for nurses, occupational therapists and homemakers, more elderly people will reluctantly leave their homes for nursing homes.
Meanwhile, the state’s budget crisis is being keenly felt by local government. Many schools are accepting the unwelcome need for layoffs, loss of programs and large classes. Cities and towns lost millions of dollars in school and municipal aid last year and are projected to lose millions more. Despite efforts to hold the line, many towns will likely have to raise property taxes to continue basic services.
One more important consequence of budget cuts is the reductions in employment and purchasing they entail. As the Maine Center for Economic Policy and others have argued, every dollar cut from a state or municipal budget is a dollar lost to our economy. Holding the line on taxes may not be the best strategy for economic recovery.
In the 1990s, temporary sales and income tax increases helped balance state budgets, without apparent damage to the economy. It’s not a course anyone wants to take, but it should be among the options the Legislature considers.
— Questions? Comments? Contact Managing Editor Nick Cowenhoven at nickc@journaltribune.com.
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