December 8, 2013

Maine Voices: Future state budgets already in hole

Promises to fund programs and cut taxes leave structural gaps that future lawmakers will have to fill.

By Richard Woodbury

YARMOUTH — Maine legislators like to contrast the balanced budget requirement of state government with the continual over-borrowing of the federal government. In terms of current revenues and current spending, they are right.

about the author

Richard Woodbury of Yarmouth is an economist and an independent member of the state Senate.

But there’s a second budget measurement on which Washington and Augusta are more closely aligned. It is their “structural” deficits. Structural deficits are not about current revenues and current spending, but rather about what government says it will do in the future.

There is a structural imbalance in the Social Security program, for example, because the Social Security benefit formula defines a level of future benefit outlays that will exceed future revenues from Social Security payroll taxes – thus the need for Social Security reform.

The same structural imbalance happens in Maine when we commit to future spending obligations that aggregate to more than Maine’s tax policies will collect in future revenues. Legislators have a tendency to do exactly that – promise things in the future – when they have no ability to pay for those same things today.

These commitments, which are laid out explicitly in Maine law, may be future spending obligations or they may be future tax cuts. But by committing to them prospectively, we create a structural gap that each new Legislature needs to confront after taking office.

Washington’s solution to its sizable structural deficit is to borrow money, causing an accumulation of national debt. Augusta’s solution is to routinely go back on its so-called commitments. Neither is good for public confidence in government, and neither is good for our long-term economic health.

Over the last decade, the structural imbalance in the state budget in Maine has perpetuated and grown to a degree that is no longer transitional or solvable without comprehensive policy reform.

It is a destructive imbalance, particularly over the long term, because it crowds out productive investment in areas we need to spend more, such as pre-kindergarten education and post-secondary workforce development – and because it undermines people’s trust in government to follow through on any of its stated inten- tions.

Just how big is Maine’s structural gap? Regrettably, we no longer monitor it on an active basis, so we don’t know exactly how big it is. But we can estimate some of its larger components, the top four of which aggregate to nearly $400 million annually.

For example, we are at least $175 million short of meeting the 55 percent school funding amount specified in Maine’s education subsidy laws. We are about $75 million short of meeting the 5 percent revenue sharing specified in Maine’s municipal transfer laws. The gap grows another $75 million when our temporary sales taxes revert back to the baseline rates in Maine’s tax laws. And there are still $34 million in yet-to-be-identified spending reductions and $40 million in yet-to-be-identified tax expenditure reductions that the Legislature has already booked in order to balance the current budget. This gap is not going away.

Unless we do something now, the newly elected 2015 Legislature will once again arrive at the State House with an impending budget imbalance of several hundred million dollars a year. In other words, we will have bequeathed to the next Legislature the same tired structural gap that we inherited. And once again, it will fail to meet the impossible promises of their predecessors, and the credibility of government will erode a step further.

This problem is not solvable without comprehensive policy reform. And it can’t be done in isolated bills that deal with education policy alone, or health policy alone, or retirement policy alone, or tax policy alone. It needs to be integrative because the mathematics need to balance across multiple policy domains.

I proposed a bill this session that would tackle the structural gap, and the multiple policy foundations that have caused the structural gap. It is not perfect. It is far from perfect. But it is the only bill of its type that is even on the table for consideration. It is ready to be shaped, massaged and improved through the legislative process. Ready, that is, if legislative leadership will allow it to be part of the conversation.

But come to think of it, forget about my bill. I’m just looking for our legislative leaders to raise their ambitions about what’s possible. We need to tackle this problem. We need their engagement, their buy-in and their collaborative leadership to tackle this problem.

Nevermind that it’s an election year. Our structural deficit has become too destructive to perpetuate forward yet again. It’s time to dive into this and repair the imbalance.

If we were to successfully reform our policies to match long-term revenues with long-term spending plans, it would be the most important accomplishment of any Legislature in the last decade.

— Special to the Telegram

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