Some sort of tax increase appears to be in Maine’s future now that officials say education aid – at least for the upcoming school year – is off the table as one of the cuts that will be made to replace $250 million in borrowing in the state’s budget.
Education Commissioner Susan Gendron, who early last week sent all the state’s superintendents an alarming memo about possible 5 percent cuts in their upcoming fiscal year budget, said she has now been told education aid is safe for the 2005-2006 school year.
“In the 06 budget, (general purpose aid to education) should not be in the mix,” was the message Gendron said she heard from the chairman of the education committee late last week. It’s not clear, however, what will happen in fiscal 2007, covering the 2006-2007 school year.
Commissioner Gendron said the timing of her memo, delineating 5 percent aid cuts by school district, was “regrettable.” She said it was in response to the possibility that a people’s veto petition, being circulated by a group of Republican legislators to overturn the borrowing in the budget, would gather the needed 50,500 signatures by the end of June. The memo went out on May 24, the same day Gov. John Baldacci decided to publicly back away from borrowing to help pay expenses.
“My memo said to the folks ‘here’s what could be the possibilities,'” under the people’s veto, she said. “Unbeknownst to me,” Gendron said, the governor and Democratic leaders were about to publicly call for reopening the budget.
Senate Minority Leader Paul Davis, R-Piscataquis, said Gendron was just trying to scare people.
“It’s wrong to use scare tactics like this to derail the people’s right to vote on unprecedented deficit spending by the state,” Davis said.
A short week later, it looks like the people’s veto is giving Baldacci the cover he needs to back away from the unpopular borrowing. His ratings in a recent poll have dropped to all-time lows and all three Wall Street bond houses have lowered the state’s bond rating.
Taxing possibilities
Democrats say if the governor wants to eliminate the borrowing while holding true to his promise to fund education aid, it means a tax or fee increase – meaning he may have to break another political promise: No new taxes.
Some have called for raising the cigarette tax by 50 cents or $1 – to raise between $38 and $73 million. There also has been some bipartisan support for temporarily raising the sales tax. A penny increase would produce about $150 million.
House Speaker John Richardson, D-Brunswick, said he supports leaving education aid alone for this coming year “since everyone’s made their school budgets,” but next year is still in play.
“It wouldn’t be fair to cut the university and community college system, which is seeing a substantial increase in enrollment, while leaving a declining enrollment in K-12 untouched,” he said. A 5 percent cut to the university and college system would total $20 million.
“It’s not what I want to do,” he said, “but it has to be the exercise we go through…We need to look at the 5 percent cut proposal and work our way back from there.”
Richardson predicted a mix of new revenue – through tax or fee increases – and cuts could be split 50-50.
Senate President Beth Edmonds, D-Freeport, didn’t want to guess the mix in a no-borrowing alternative because her Democratic members have yet to weigh in on a plan. She was even reluctant to say education aid for this coming year was safe, but conceded, “it probably is.”
Sen. Carol Weston, R-Waldo, said her party will not support a tax hike or any cuts to education aid.
“Why would you add a tax? You would if you were in the middle of the pack,” she said, but Maine is ranked as one of the highest taxed states in the country.
Human service cuts
The Appropriations Committee this week is reviewing 5 percent cuts in all state departments, as a way of eliminating some of the $250 million in borrowing in the state’s two-year budget. Another $200 million in approved borrowing – largely to pay down the state’s pension system debt – can be put on hold without throwing the state’s budget, due to go into effect on July 1, out of balance.
The two biggest hits under that 5 percent solution would be to the Department of Education and the Department of Health and Human Services – for more than $90 million each over the two-year period – because they are the state’s biggest spenders when it comes to general fund money.
If education aid is taken off the table and if all the other departments take the 5 percent hit – and that’s a big if considering the pain associated with some of those cuts – the budget would still be out of balance.
That is causing eyes to turn toward the Department of Health and Human Services. Commissioner Jack Nicholas last week outlined what it would mean to cut $94 million out of his budget before the Health and Human Services Committee, which made no recommendations on the cuts, but simply forwarded them to the Appropriations Committee.
“Unfortunately, with the exception of education, Jack has the largest budget,” said Sen. Arthur Mayo, D-Sagadahoc, co-chair of the HHS Committee.
At the top of the list would be the elimination of Medicaid services to 23,000 adults without children – the program that was capped earlier this year because it had reached its federal spending limit. Cutting that program, which provides health care to adults at 100 percent of federal poverty, would save $36 million over the biennium. The state also could roll back coverage for parents of Medicaid-eligible children. Eligibility for parents was first expanded by the state from 100 to 150 percent of federal poverty and last month to 200 percent. That rollback would save $28 million.
The remaining $30 million in cuts would be spread out over all the other services provided by DHHS, including foster care, adult and children’s mental health, elder care, public health, mental retardations and substance abuse.
“We’re down to the level of some pretty significant impacts,” Nicholas said.
Political pressure
While Republicans say Democrats are trying to defuse support for a petition calling for a people’s veto of the borrowing in the state’s budget, it now looks like backing away from the borrowing is the expedient thing for Baldacci to do.
The Wall Street bond house of Standard and Poor’s announced Tuesday it was dropping it rating of Maine bonds. On Friday Fitch Ratings did the same, citing depleted cash reserves and an an imbalance between incoming revenues and expenses. Earlier last week, Moody’s also dropped the state’s rating.
On Saturday, the Associated Press reported a phone survey of Maine residents showed Baldacci’s favorability rating at 29 percent, with 37 percent saying they had an unfavorable opinion of him and 34 percent undecided. His job approval rating also dropped to an all-time low of 43 percent. Poll-takers said the main concern for residents is the state’s economic outlook. The poll was being taken just as the Pentagon announced it was recommending closing the Portsmouth Naval Shipyard and downsizing Brunswick Air Station.
Democrats are now using the possible base closures as a reason to rethink the borrowing, saying they cannot encumber the state’s taxpayers with that kind of debt when 12,000 or more jobs – on and off the bases – could be lost.
Richardson said the borrowing plan, with or without the Republicans’ help, will be replaced by the end of this session, which under law is June 15.
That leaves just two weeks for the Legislature to vote on the Part 2 budget – largely designed to fill a hole in the Medicaid account; approve a general obligation bond package for voters to approve in November; and amend the borrowing in the Part 1 budget.
“We will be out of here. We will not waste the people’s money,” Richardson said, by going into a second special session, paying legislators an additional $100-a-day pay on top of their annual salaries of $20,000 for two years.
He predicted the Part 2 budget would be done by the end of this week, followed by the rescinding of the borrowing. “We’ll do bonds as we walk out the door,” Richardson said.
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