Maine: state of deception

How a budget surplus emerged from a back room
By LANCE TAPLEY  |  August 27, 2008


Remember that $190-million shortfall in the current two-year state budget that the state’s interagency Revenue Forecasting Committee warned us about last winter? The yawning gap anticipated between tax revenues and the state’s planned expenditures dominated the news coming out of the past legislative session. Governor John Baldacci and lawmakers — painfully and reluctantly, they said — filled the hole primarily by slashing community services for the mentally ill, the developmentally disabled, kids in trouble, the elderly, the sick, and the poor. They also cut funds for public schools and higher education.

Surprise! When the 2008 fiscal year ended, on June 30, the state had a General Fund surplus of $56 million, so the shortfall in reality was considerably smaller than predicted — $134 million. That’s still a big number, but the most severe social-service cuts could have been avoided. The dire forecast was way off the mark.

Here’s another revelation: Key bureaucrats and legislators weren’t surprised by the surplus. Before the legislature adjourned, on April 18, they knew, by the volume of tax money tumbling into the treasury, that the $190-million-shortfall prediction was wrong. But they kept the public in the dark; they didn’t open up discussion on how the surplus should be spent; and they didn’t suggest reversing the cuts, which could have been done either at the end of the session or, later, in a special session. They had other plans for the $56 million.

With disarming frankness, Rebecca Wyke, commissioner of financial and administrative services, now says that the administration assumed all along that there would be “somewhere between $20 and $70 million” in a surplus. “We always have a surplus,” she explains, because “the Revenue Forecasting Committee tends to be a little conservative.”

Members of the legislative Appropriations Committee, the lawmakers who cut the budget, were also in the know. The committee’s cuts passed the legislature and were signed into law by the governor on March 31. Committee member Janet Mills, a Democratic representative and candidate for attorney general, however, recalls Michael Allen, the chief state-tax economist, telling the group, possibly as early as March, “that things might be better.” By the end of March, revenues were, in fact, already $22 million more than forecast.

And things continued to get better. Allen says that, prior to adjournment, members of the Appropriations Committee were aware “that April 15 revenues were coming in stronger.” April 15 was income-tax-filing day. By the end of April, revenues were $45 million more than forecast.

While the actual size of the surplus wasn’t confirmed until after adjournment, according to Grant Pennoyer, director of the legislative Office of Fiscal and Program Review, finances appeared so promising toward the session’s end that the Appropriations Committee decided to put $10 million of the expected surplus into a reserve fund before it was used for something else.

State secret
But the good news was not widely circulated. There were no news stories about the rosier financial picture until late May. Even usually well-informed social-service lobbyists were unaware that officials knew early this spring that the state’s financial picture was not so dim.

“We were under the assumption that it would be a tight squeeze to break even,” says John Hennessy, a lobbyist for several community agencies. If he had known the surplus would be substantial, he says, he would have fought for some of it for his clients.

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