March 28, 2010

Predictions already look grim for next budget cycle

By Susan M. Cover scover@mainetoday.com
State House Bureau

AUGUSTA — Even before lawmakers vote on cuts to balance the current state budget, State House attention is turning to the next two-year budget cycle.

The predictions are grim.

State revenue, which will have dropped by $1.4 billion over the fiscal years of 2009, 2010 and 2011, isn't expected to recover anytime soon.

Yet spending in several areas – employee benefits and health care, for example – is expected to increase sharply in 2012 and 2013.

The state is supposed to increase public school K-12 education funding to 55 percent under state law, although the appropriation has yet to reach that level. Currently, the state pays 50.13 percent of education costs; in 2010-11, the percentage will drop to 48.01 percent, according to the Department of Education.

In 2011-12, the percentage drops further – to 43.83 percent – as a one-time infusion of federal stimulus funds disappears.

Still, lawmakers will be under pressure to increase the state's share of public school costs.

State employee health insurance is also likely to cost more in coming years, said Ryan Low, commissioner of the state Department of Administrative and Financial Services.

Pension costs are expected to increase by $300 million, he said. And Medicaid costs will grow 8 percent to 9 percent nationally, he said.

"I think the next biennial budget will be just as challenging, if not more challenging, than the current one," Low said. "If all of those things happen, and you have a flat revenue base, what do you do?"

State finance officials have not yet put a number on the anticipated gap. But if Low is right, and the gap is similar to what lawmakers faced this year and last, the shortfall would be around $800 million.

Another thing to consider is that federal stimulus money that helped states close budget gaps – such as education – won't be available for the 2012-13 budget.

Consider this forecast from the Pew Center on the States:

"Even as the economy slowly heals, history shows that the worst budget crunch for states comes in the year or two after a recession ends, and that a full recovery can take years," the center wrote in a recent report. "Magnifying the problem facing states, the federal stimulus dollars that helped plug almost 40 percent of budget holes will start drying up at the end of 2010."

Economist Charles Colgan, chairman of the state's Consensus Economic Forecasting Commission, doesn't expect the state economy to start growing again until 2013.

"The job market will remain weak, keeping incomes from growing fast," he said. "There's still weakness in housing, and consumer behavior will keep sales tax revenues growing, but at a relatively slow pace compared to past recovery periods."

This week, the Legislature is expected to vote on a supplemental budget to help close a fiscal shortfall in the cycle ending June 30, 2011.

Over the summer, Low and his budget team will begin work on another supplemental budget, which the next governor will inherit.

This new governor will have just about a month to prepare a new two-year budget to present to the Legislature for consideration.

Some lawmakers are already looking ahead.

During discussions last week in the Health and Human Services Committee, Rep. Patricia Jones, D-Mount Vernon, encouraged fellow legislators to act on a proposal to require hospitals to be more transparent about their spending.

"Those of us who will be back on this committee next year will be greatly challenged," she said. "Given that I'm picturing myself sitting here and going through all this again, we will need transparency and information. It would be important to look forward to next January."

As it stands now, the next governor will inherit about $3.5 million in the rainy day fund, an amount that could grow to near $10 million depending on decisions made in the coming weeks by the current Legislature.

Gov. John Baldacci has encouraged lawmakers to put away at least $10 million to give the new governor something to work with.

Yet, even with this sum stashed away, the basics of what caused Maine's recurring budget shortfalls will not soon change, according to Colgan.

While the cost of services continues to grow, he said, state revenue may not.

And what does that mean for the next governor of Maine?

"Tight budgets will be the rule for years," he said.

 

MaineToday Media State House Reporter Susan Cover can be contacted at 620-7015 or at:

scover@centralmaine.com

 

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