Jan. 7—The Mills administration issued a budget warning to Maine lawmakers on Tuesday, saying they will be forced to consider scaling back existing spending commitments or find ways to generate more revenue to pass a balanced budget.
A memo from the governor’s budget office says lawmakers must address a projected deficit of $450 million in the next two-year general fund budget, plus an additional $118 million shortfall in the current year’s budget for MaineCare, the state’s Medicaid program.
The memo from the Department of Administrative and Financial Affairs, which was sent Tuesday to legislative leaders and members of the budget-writing committee, warns lawmakers against looking to the state reserve account, or income tax increases, for additional revenues and calls out lawmakers for spending $107 million in planned savings in the current budget.
DAFS Commissioner Kirsten Figueroa said lawmakers will “confront a difficult budget environment,” both in the current fiscal year and the next two-year budget cycle. She also stressed Gov. Janet Mills’ commitment to protecting her “core commitments to the Maine people,” including MaineCare expansion, 55% of education funding, free community college and 5% revenue sharing with municipalities.
“Additional investments beyond these core commitments will be limited and will focus on supporting the health and safety of Maine people and the operations of the State of Maine,” Figueroa said.
Senate Minority Leader Trey Stewart, R-Presque Isle, said in a written statement that the memo seems to affirm Republican views on state spending. He criticized Democrats for using their majorities in both chambers to push through their spending priorities over Republican objections.
“What the Governor just told us supports my contention that we don’t have a revenue problem in state government. We have a spending problem,” Stewart said. “But let’s not forget how we got here — over the past few cycles, Democrats have sidestepped Republicans to pass their own majority budgets. They still have the majority; so the question is will they work with Republicans this time to solve it?”
House Republicans agreed in a written statement late Tuesday.
“Republicans stand firm in our efforts to combat reckless spending initiatives that continue to exacerbate our fiscal condition. As noted by the governor, at the end of session last year, Republicans stood firm to defeat an additional $117 million in new spending…. As we confront today’s budget shortfall, Republicans will prioritize true ‘needs’ over ‘wants’ and oppose any efforts to raise taxes on Mainers.”
Senate President Mattie Daughtry, D-Brunswick, and House Speaker Ryan Fecteau, D-Biddeford, could not be reached to discuss the letter Tuesday. A spokesperson provided a statement from the Democratic leaders of the Appropriations Committee and said they also speak for Daughtry and Fecteau.
“We appreciate the information the administration has shared thus far on the budget outlook for the next few years,” said Sen. Peggy Rotundo, D-Lewiston, and Rep. Drew Gattine, D-Westbrook. “We look forward to receiving the full details of the budget proposal, and to a robust committee process that includes input from the public. Our commitment is to work collaboratively with all members of the committee to ensure a responsible budget that addresses the challenges Maine people are facing, including meeting their health care needs.”
The state is facing a $118 million funding gap in the current fiscal year for MaineCare, which the state says is caused by an enrollment requirement from the federal government related to the pandemic, overall increases in health care service costs caused by inflation and an increase use of MaineCare services.
The memo says the governor plans to cover this shortfall using additional revenue state forecasters predict the state will take in during the current fiscal year. The state is expecting $200 million surplus revenue this year, although forecasters have warned that revenue collections are leveling off and won’t cover budgeted expenses going forward.
Over the next two-year budget cycle, lawmakers must reckon with a projected shortfall of $450 million — the difference between projected revenues and the costs of programs and expenditures already approved by lawmakers.
“Any one of these factors on their own would not present significant budget difficulty, but, when taken together, create a perfect storm that must be addressed to stabilize MaineCare costs into the future,” she said.
Figueroa called out lawmakers for not heeding Mills’ prior warnings not to approve additional spending measures.
Mills’ last budget proposal called for saving more than $100 million in reserve accounts for future cost increases, but it was spent by lawmakers during their budget revisions. Lawmakers also eyed an additional $117 million, but the proposal did not advance.
“Over the past year, the Governor and her Administration have consistently warned that State revenues are leveling off and have urged lawmakers to practice fiscal restraint,” Figueroa said.
The memo suggests Mills would not support any increases in income taxes to cover the gap, while other options, including “targeted revenues,” are on the table. It also pushes lawmakers to consider cost-cutting and program changes.
“Lawmakers should understand that in order to close the gap between projected appropriations requirements for current law and projected revenues,” Figueroa said, “a diversified approach of programmatic changes, expenditure reductions, and targeted revenues — meaning, revenues that are not broad based such as income taxes — are likely necessary and are under consideration by the Governor.”
Lawmakers also were warned not to tap into the state’s rainy day account to avoid making tough spending decisions.
“The Budget Stabilization Fund, which exists for the purpose of covering budget shortfalls in times of economic distress, should not be considered as a source of revenue to balance the budget,” she said.
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