The state may have to cut its revenue projections just two months after it boosted them by $164 million – money that is all spoken for in the governor’s proposed supplemental budget.
Finance Commissioner Becky Wyke said wage and salary and personal income projections may have to be reduced and inflation increased, cutting back on the revenue available to the state, particularly in the second year of the two-year state budget.
“Fiscal year 2007 is where we think the impact might come,” Wyke said. She said it would be up to the Legislature to decide if it wants to cut the supplemental budget, which is currently being reviewed in committee, or take any shortfall out of the budget stabilization account, also known as the rainy day fund.
Gov. John Baldacci asked that $35 million of what now appears to be an overstated revenue increase be put into that fund during his State of the State address two weeks ago.
“It might be raining a little sooner than we hoped,” said Wyke.
Certain income lines, like corporate income tax, continue to be strong, Wyke said, but business profits are apparently going into dividends and fuel and not into raising worker pay – something that would help boost the personal income line.
The cigarette tax, even with a $1-a-pack hike, is coming in over budget, as are estate taxes, but those can’t be relied upon, Wyke said.
She said there is no estimate yet on how much the new revenue forecast will come down, if it does, and that won’t be decided officially until March 1.
“We’ve got to look at the whole picture,” said Mike Allen, the chief economist for the Maine Revenue Service. “We just don’t know at this point,” whether signs of a slower economy will affect revenue projections for the supplemental budget.
Allen said the revenue forecasting committee last week got news of new income and employment data that showed New England, including Maine, didn’t do as well in 2005 as the initial data seemed to indicate. And that could affect projections for the future.
“New England in particular seems to have slowed relative to the rest of the nation,” said Allen, speculating that rising energy prices hit the area hard.
Revenue forecasters increased revenue projections at the end of last year, predicting a $112 million boost in income tax revenue attributed largely to continued strong capital gains by the state’s wealthiest residents; a $92 million increase in corporate income tax, attributed to better business profits by the state’s larger companies; and, a $39 million increase in estate taxes, collected after an owner dies. Some of those increases were offset by lower than expected sales taxes.
The money is all earmarked in the supplemental budget, which includes $70 million in spending related to the Department of Health and Human Services, Medicaid and the Medicare Part D prescription drug program; $42 million in funding for schools; increased fuel and utility costs across state government; and, a number of targeted allocations ranging from $500,000 for cultural programs to exempting military pensions to attract more retirees to the state.
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