AUGUSTA — State revenue is projected to be $365 million more than was expected for the two-year cycle that starts July 1, giving budget writers a little breathing room as they prepare the next state spending plan.

The state’s Revenue Forecasting Committee met Tuesday to discuss its December report, which will be released formally next week.

With a strong showing in corporate and individual income tax lines, the group reprojected state revenue for this fiscal year by adding $111 million. And for the next two years, revenue is expected to be about $365 million more than earlier forecasts.

Gov. John Baldacci said the projections show that Maine’s economic outlook is brightening. He compared it to the steady turn of a “big ocean liner.”

Most heartening, he said, are the gains made by corporations, particularly those that do business beyond the state’s borders.

State economist Michael LeVert, a member of the forecasting committee, said corporations are making more money because they laid off workers and have not replaced them.

People who are working are making more money, he said, as they get more hours, win back pay cuts and have fewer furlough days.

However, he said, “There’s a little bit of disconnect between the revenue forecast and the employment forecast.”

The Maine Department of Labor reported Tuesday that the unemployment rate was 7.4 percent in October, down from 7.7 percent in September and 8.1 percent a year ago. The number of unemployed workers in Maine stands at 51,100.

Labor Commissioner Laura Fortman said in a prepared statement that the unemployment rate fell because of modest job growth, and because people are leaving the work force to get additional schooling or are too discouraged to keep looking for work.

“As the pace of recovery picks up in the months ahead, the unemployment rate may rise as thousands re-enter the labor force,” she said.

Gov.-elect Paul LePage has a team working on the new state budget, which is due to be delivered to the Legislature in February. Last week, the projected shortfall between revenue and spending was $1.2 billion. That number can now be reduced to about $840 million.

Depending on requests for supplemental funding through the rest of this fiscal year, there could be several million dollars more available for the new budget.

The state’s general fund budget for the year that ends June 30 is $2.69 billion, Baldacci told the Bangor Daily News on Tuesday.

Sawin Millett, who leads LePage’s budget team, said the additional revenue will make it easier to close the gap for the next two years, but spending cuts still will be necessary.

The 10-member team is getting briefings from state agencies about their budget requests and is looking closely at specific areas such as Medicaid, he said.

Sen. Bill Diamond, D-Windham, a member of the current Legislature’s Appropriations Committee, cautioned against too much optimism because of the additional revenue.

“People should not get overly excited about this and spend it,” he said.

Diamond said there’s still a lot of uncertainly about the economy and there are major bills to be paid, such as the state’s unfunded pension liability.

“That’s an example to remind ourselves these numbers change almost overnight,” he said.

Baldacci said the improved revenue forecast is a result of tough decisions made in recent years, such as restructuring and consolidation of schools and government services, and not raising taxes despite deficits.

“Those actions laid the foundation for recovery,” he said.

 

MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at: [email protected]