It is a new year and a new time for Maine, because 2011 is bringing a new Republican governor and a new Republican Senate and House of Representatives.

The new year is bringing new hope for a better economy, and 2011 has even started by bringing unseasonably warm weather. With such a set of favorable changes, we can greet the new year with something approaching optimism.

The challenges facing the new governor are legion, of course, and well-documented: a still weak economy, large budget deficit, the high costs of doing business in Maine, aging infrastructure and an undereducated work force.

Before our fragile optimism flounders on this set of challenges, we need a good plan. Let us start by focusing on a few fundamentals from two recent studies I cited in last week’s column: Envision Maine’s Reinventing Maine Government and Making Maine Work from the State Chamber and Maine Development Foundation.

1. Take on health care costs and make some tough decisions.

As Reinventing Maine Government suggests, Maine’s health care costs are crowding out other needs.

Maine’s share of Medicaid (called MaineCare), the state’s largest single expenditure, rose from 4.9 percent of total state funding in 1985 to 10.4 percent in 2008. For short-term budget balancing, Gov. LePage must address the fact that Maine has among the most liberal and expansive criteria for eligibility for Medicaid services of any state in the country.

Covering more people and more services would be a good thing if Maine were a wealthy state, but this expenditure is a major reason that the state has underfunded higher education. Reducing eligibility is an unpopular position but a necessary one. It will be a major test for the new administration.

Longer term, the state can leverage new federal regulation to make our marketplace more competitive. However, these reforms will take several years to play out.

2. Reduce education expenditures for K-12 and make these expenditures more effective.

The headline in Reinventing Maine Government says it all: “High cost, falling enrollments and declining results.” In the past 30 years, K-12 enrollment in the state has declined approximately 15 percent while expenditures have increased almost 600 percent, according to the Maine Development Foundation.

Maine now spends $13,500 per student per year, 25 percent more than the national average and 10th highest in the country. We have little to show for this expense.

Eighth-grade math scores have gone from first in the nation 10 years ago to 24th in 2007. Maine 11th graders scored below the national average on the SATs, a national standard for college entrance readiness.

K-12 spending, along with MaineCare spending, are the two largest expenditures in the state budget. There is no question in my mind that state K-12 expenditures will be reduced and that these reductions will force reductions at the local school level – although some towns will mitigate these reductions by increasing property taxes.

The key factor at the local level is to increase the student-teacher ratio.

Currently, Maine has the second lowest ratio of students to teachers in the country, 11.3 students for every teacher.

If Maine reached the rural states’ average of 13.5 students per teacher, the annual savings would be close to $100 million per year, according to analysis by Dr. David Silvernail of USM’s Center for Education Policy.

In addition to policies that encourage the growth of the student-teacher ratio, the new administration should also continue pressure for school district consolidation and address Maine’s higher-than- average special education costs.

3. Reduce Maine’s income tax rate and restructure other taxes to stimulate economic growth. If there were just one thing state government could do that would benefit the state’s longer-term economic growth, it would be lowering the income tax rate to 5 percent from its current 8.5 percent.

The state’s high income tax rate is a major cause of “Florida flight” – the shifting of higher-income Maine residents to Florida residents for six months and one day.

Moreover, our high income tax rate discourages professionals from moving here to take advantage of our quality of life. This is an area we must take on if we are to give Maine a chance for above-average job growth.

Both reports cite other areas that must be addressed: regulatory reform, unfunded state pension liabilities, the oversized state and local government, the oversized Legislature and, perhaps most importantly, public higher education.

However, the governor can do much good by focusing on the three priorities outlined above: health care costs, K-12 costs and the state income tax.

Successfully tackling these three will make 2011 a turning point for the Maine economy.

 

Ron Bancroft is an independent strategy consultant located in Portland. He can be contacted at: ron@bancroftcompany.com