The coronavirus pandemic is paving the way for a state budget crisis that will likely be deeper than any Maine has seen in decades.
From public schools to health care programs to highways to property tax relief, many of the essential services paid for by state government face funding gaps as the virus erodes Maine’s economy and the tax revenues it produces.
That’s the consensus from former governors and others who have helped guide state government through difficult financial times in the past, as lawmakers and Gov. Janet Mills brace themselves for the financial impact of the coronavirus pandemic on state government.
Mills said she will ask two key advisory committees on economic forecasting and state revenues to meet months early, as she and lawmakers begin to lay the groundwork for what will likely be deep cuts in spending on public services.
The Consensus Economic Forecasting Committee will be asked to meet in July while the Legislature’s Revenue Forecasting Committee will meet in August, three months sooner than both panels would normally convene to project revenue figures for the state budget.
“There is no question that the virus is impacting state revenues; the real question ultimately will be by how much?” Mills, a Democrat, said in a written statement.
About a dozen states, including some of Maine’s New England neighbors – Connecticut, Massachusetts and Vermont – have already started to put numbers to expected losses in state revenue, and the figures are staggering.
Vermont is forecasting that state spending will exceed revenue by nearly $200 million in the fiscal year that ends on June 30, said a new report by the Federal Reserve Bank of Boston’s New England Public Policy Center. In Massachusetts, a budget gap could exceed $1 billion for 2020. The picture gets even uglier when states look forward to 2021, with revenue shortfalls expected to really hit home as income tax payments come due for those who lost their jobs in 2020.
Such figures explain why states are pushing so hard for federal assistance. While Congress has provided large sums to help states cover costs related to COVID-19, the legislation did not include funding to help states cover revenue losses. Some Senate Republicans, including Majority Leader Mitch McConnell, R-Ky., have resisted efforts to provide up to $500 billion more to states to help them with anticipated losses.
Sen. Angus King, an independent, is one of a number of former governors in the U.S. Senate who are pushing for more help for states. King said providing flexibility to states will be key, but the current federal law that filters funds to states has limited the use of the money only to expenditures related to the COVID-19 pandemic.
Sen. Susan Collins, R-Maine, said in a statement Friday night that she supports “providing additional federal assistance to states and municipalities that have lost substantial revenue due to COVID-19. To help states respond to the crisis, Congress has already provided $150 billion through the Coronavirus Relief Fund, of which $1.25 billion is for Maine. The decisions on allocations within a state could be left to the Governor.”
Collins added: “I disagree strongly with a provision inserted by Democratic Leader Chuck Schumer that prevents all but the largest U.S. cities from receiving direct money from a separate funding source in the Treasury. Governors need the discretion to distribute resources to municipalities to help ensure that small and rural communities in need receive funding as well, and we need to make sure that funding targets shortfalls related to COVID-19.”
The other members of Maine’s congressional delegation – 1st District Rep. Chellie Pingree and 2nd District Rep Jared Golden, both Democrats – said they both support giving states flexibility in determining how funds are used. While Pingree said she supports more federal aid, Golden said that is something Congress should consider only after giving flexibility on existing funding.
Working through the National Governors Association, Mills has also urged Congress and the Trump administration to provide financial support for states as well as flexibility in how such funding could be used.
“Doing so will allow us to continue our efforts to protect public health and safety and bolster our ability to spearhead an economic recovery,” Mills said.
Maine had 1,015 confirmed cases of coronavirus on Sunday, and 50 people have died of COVID-19, the disease caused by the virus. Nationally, there were 895,766 cases and 50,439 deaths, according to the U.S. Centers for Disease Control and Prevention.
Mills announced her intention to gradually reopen the state’s economy last week but said those decisions would be guided by medicine and science and gave no specific dates for when restrictions would be eased. She also said she had yet to decide if she would extend a stay-at-home order that is set to expire Thursday.
The state’s current two-year budget stands close to $8 billion and was signed by Mills in June 2019. The first year of that budget ends on June 30. And while policymakers believe the state has enough revenue and reserves to cover the current fiscal year, the funding for the next fiscal year remains uncertain. Mills and the Legislature will have to contemplate a supplemental budget or adjust spending based on tax receipts and other sources of revenue that haven’t yet been reported.
About 70 percent of the state’s budget is spent by two departments: Health and Human Services, which accounts for about 30 percent of spending, and K-12 education, which accounts for about 35 percent. Those two sectors of the budget are often the first to see cuts, although state revenue sharing with local governments is also often reduced in tough times. In the past, governors have tried to spread budget cuts as evenly as a possible, while finding ways to create new efficiencies or reduce the services delivered to citizens.
Before the Legislature adjourned in March in response to the COVID-19 pandemic, it took steps to brace for the economic downturn, including reducing a proposed new spending package by $52 million and socking away another $50 million in the state’s budget stabilization, or rainy day, fund.
Mills and her economic and financial advisers have settled on waiting until July so they will have more and better information, including whether and how much financial help Maine might get from the federal government, according to Mills and lawmakers on the Legislature’s budget-writing Appropriations and Financial Affairs Committee.
The revenue shortfall soon to unfold in Maine will be unlike any the state has ever seen, including the Great Recession of 2008 to 2010 and the decline of the economy following the Sept. 11, 2001, terrorist attacks, said King and another former governor, John Baldacci.
Baldacci, a Democrat, was facing a two-year state budget shortfall during the recession of close to $570 million when he proposed a fix that included 12 furlough days for thousands of state workers and spending cuts that ranged from public schools to a program that subsidizes milk prices for dairy farmers.
“State government doesn’t have a printing press” for money, Baldacci said.
Ryan Low, the finance commissioner in Baldacci’s Cabinet, said the pandemic will have a sharper and more immediate impact than the recession years of 2008-2010, when revenues fell incrementally over a period of time.
“This is going to be much deeper and happen sooner rather than be drawn out,” said Low, now the chief financial officer for the University of Maine System and chairman of the Consensus Economic Forecasting Committee, which will help advise the governor.
More than 100,000 Mainers are currently unemployed, roughly triple the number in 2009, when revenues fell short of expenditures by 9 percent, Low noted, the largest gap in 30 years for state government.
He said waiting until July to make forecasts will give the committee three months of solid data to work with.
“It doesn’t make sense if you are just going to talk about what your challenges are without knowing what the numbers look like. We want to make our forecasts based on data and not just assumptions,” Low said.
About 85 percent of the state’s revenue comes from income and sales taxes, two sectors that are going to be dramatically affected by the high levels of unemployment and the shuttering of many public-facing businesses. Summer tourism will likely be severely restricted, compounding the loss of sales tax revenue that is collected on restaurant meals and lodging accommodations.
Also being hit hard is the state’s Highway Fund, which is largely supported by a fuel tax. A decline in travel by recreating Mainers, tourists and working commuters is taking its toll on the fund. Tax receipts for March alone were down $500,000, according to an April 17 report from the state controller.
With high unemployment, consumers will delay buying new or used cars, which will reduce sales tax revenues that go into the state’s General Fund, as well as motor vehicle registration fees that support the Highway Fund.
Mills has vowed to call the Legislature back to a special session as soon as it is safe to do so. But all 186 seats are up for election in November, meaning much of the heavy financial lifting in response to the COVID-19 recession will be left to the next Legislature.
The Appropriations and Financial Affairs Committee, which writes the state budget after the governor submits a proposal, is bracing for the work that lies ahead with the hope that it can start to work on getting the state’s financial house in order in early fall.
Rep. Drew Gattine, D-Westbrook, the House chairman of the committee, said that because surplus revenue came in before the pandemic and lawmakers reduced proposed additional spending in March, “we probably can handle the reduction and revenue we are going to see between now and June 30 of this year.”
After that, though, all bets are off.
Rep. Sawin Millett, R-Waterford, the ranking House Republican on the committee, said he believes the current Legislature should try to solve as much of the budget problem as it can instead of passing it off to the next Legislature in 2021. Under the Maine Constitution, it will have to do so if the budget for fiscal year 2021, which starts on July 1, falls far out of balance before the legislative election in November.
If revenue shortfalls from the pandemic are similar to 2009, when the budget gap was 9 percent, lawmakers will face a major challenge.
“When you are talking about a budget that’s $4 billion or more a year, or approaching $9 billion over the two-year cycle, at 9 percent, you are talking about hundreds of millions of dollars,” Millett said.
Unlike the federal government, states can’t run on a budget deficit, as most – including Maine – have constitutional requirements for balanced budgets.
King, the senator, recalled how the national economy tumbled after the terrorist attack of Sept. 11, 2001.
“The worst phone call I ever got was from my chief of staff, telling me revenues were going to be $75 million short and we had only four months to go in the fiscal year,” he said. “You don’t have many tools; the only real tool is cuts.”
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CORRECTION: This story was updated at 2:38 p.m. on April 27, 2020, to correct the spending percentages for the departments of health and education to reflect a two-year budget.
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