The state is going to be short $34 million in this fiscal year that ends in three months and another $40 million for 2008 and 2009, based on less-than-anticipated corporate income tax revenue that will have to be made up, at least in part, with budget cuts.
The bad news comes at a time when Gov. John Baldacci and the Legislature already are trying to negotiate a controversial two-year state budget. It has a school consolidation plan imbedded in it that is budgeted to save $36 million, along with an unpopular $1-a-pack hike in the cigarette tax that raises $131 million over two years.
The uncertainty over the budget is bad enough that Susan Gendron, Baldacci’s commissioner of education, will be sending out two general-purpose aid scenarios to school administrators this week. One will show what state aid for schools will look like in the 2007-2008 school year if there is enough money to meet the state’s obligation of ramping up to 52.5 percent of costs, and the other will keep the state’s percentage the same as this year. The scaled-back version would give districts $60 million in new aid versus a promised $80 million.
In a letter to school superintendents, Gendron explains the fallback scenario is being presented because of the uncertainty over passage of the cigarette tax and the just- revised revenue reforecast.
Bad news had been anticipated, but the numbers were worse than expected.
The Revenue Forecasting Committee at the end of February decided against issuing a reforecast based on lower than anticipated corporate tax collections in December and January in hopes that the numbers would turn around.
At the time, the committee said a worst-case scenario would be a $20.5 million shortfall in the current fiscal year and $16.3 million in the 2008-2009 biennium.
But the numbers, already down $18 million to budget, got worse on March 15 – tax deadline day for most corporations in the state, just like April 15 is tax day for individuals.
Based on the corporate income tax returns, the committee decided to reduce the corporate income tax line by $27 million for the remaining part of this fiscal year and also reduced the individual income tax line by more than $6 million – $5 million of which was due to greater-than-expected requests for business equipment tax reimbursements.
With only three months left in this fiscal year, it could be tough for the administration to cut its way out of the problem. A freeze has been put on discretionary spending in all departments and, as a last resort, the governor could tap the budget stabilization fund, currently at $113 million. Ironically, about $29 million was put into the fund after the forecasting committee increased revenue projections, including corporate income tax, late in 2006.
Members of the forecasting committee went before the Appropriations Committee Monday afternoon and were asked how they got the forecast so wrong on the corporate tax line.
“The big issue was a misinterpretation of a spike,” said Mike Allen, the chief analyst for the Maine Revenue Service. He said corporate income payments were coming in over budget in 2006, and the revenue service thought the trend would continue.
Maine and Maryland stand alone right now as states that have seen their corporate income taxes drop for calendar year 2006, but the whole country is predicted to slow down in 2007 and 2008, Allen said.
In fiscal years 2008 and 2009, the corporate income tax forecast has been reduced by close to $57 million, but that was offset by a $9 million increase in the individual income forecast and a $7 million hike in other revenue.
House Minority Leader Rep. Josh Tardy said the news was bad for both Republicans and Democrats alike.
“This is a problem we all share,” he said, and makes it harder to work through an already difficult budget.
“We need to look at every aspect of state government, and we need to start with the Health and Human Services component of the budget,” he said. Medicaid programs will have to be reviewed with the goal of “protecting Maine’s most needy.”