We’re approaching the midpoint of the Maine Legislature’s “winter of discontent.” That turn of phrase, taken from the opening line of Shakespeare’s great play “Richard III,” captures the unhappy atmosphere these days in the marbled halls of the State House. The reason is clear – the fiscal fire hose that pumps tax money into the state treasury has sprung leaks all over the place.

We are now looking at a budget shortfall of at least $200 million and possibly much more if the economy really goes south. We probably won’t know the casualties of the upcoming budget cuts for quite a while, maybe not until just before the Legislature adjourns for the year, on April 16. But groups already singled out for cutbacks in Gov. Baldacci’s supplemental budget are packing committee hearing rooms, and the mood is angry. Legislators face an election in nine months, and the last thing they want to do is slash services, curb programs or raise taxes as they hit the campaign trail.

Maybe it’s not a winter of discontent, after all. Maybe it’s a winter of cold, naked fear.

The problem dates back to last June, when the Legislature passed a two-year budget of $6.337 billion, representing a $486 million increase from the previous budget. Under the Maine Constitution, the state budget must be balanced – the amount of money going out must equal the amount of taxes and fees coming in. But reaching agreement on the budget was difficult, so the Legislature took a leap of faith that $10 million in additional savings could be achieved by “streamlining” state government. That $10 million was “booked” in the budget as if it really existed, and then it was spent.

The Legislature took a longer leap of faith that the state would receive $28 million worth of unused gift cards sold by the likes of Home Depot, Starbucks, Dick’s Sporting Goods and other big retail chains headquartered somewhere else. The last Legislature passed a bill declaring that the state could lay claim to the value of unused or underused gift cards sold by those stores in Maine. That money, too, was “booked” as revenue and spent.

But when the state treasurer sent letters to those stores demanding payment, their corporate lawyers answered with defiant rejections. He has received not one dime. And now other states are passing laws to protect their companies from being targeted and hassled by states like Maine. (The same state treasurer, by the way, apparently squandered another $20 million of your tax dollars by investing in the sub-prime mortgage disaster. He keeps telling us that “we’ll get it back.”)

Those two gimmicks have left the budget short by $38 million. When I voted against the budget last June, I wrote an editorial column explaining my rationale. This budget was based on an old fiscal tactic called “print and pray.” Lawmakers print a number in the budget and pray it happens. It rarely does, which is why supplemental budgets appear like clockwork just months after a new budget goes into effect.

We’re now dealing with the governor’s supplemental budget to reduce spending by $95 million. By November 2007 – just a few months into the new fiscal year – that $38 million shortfall had morphed to that higher amount as the economy suddenly hit the skids. The housing slump, the credit squeeze and the staggering cost of oil have combined to tamp down economic activity.

To their credit, the state’s financial forecasters who predict incoming revenues sounded a warning last fall that tax “streams” were declining in crucial categories – sales taxes, corporate taxes and estate taxes. Cigarette taxes (at $2 per pack) were coming up short of projections by $800,000 a month, as smokers quit, cut back or shopped in New Hampshire. By January, the income tax “stream” also was slowing down.

On Jan. 29, another thunderbolt struck the State House. The federal government sent word that it would no longer provide matching funds for five different programs operating under Maine’s gigantic Medicaid program, known as MaineCare. The federal rule changes will cost the state an additional $45 million over the next 17 months, unless it decides to eliminate those programs outright. The rule changes also eliminate another $141 million for health care providers and school districts.

That combined hit of $186 million sent shock waves through the State House, but the Baldacci administration knew of these rule changes last September and never said a word. Indeed, these changes had been in the works for three years. We should have been alerted to the possibility so the budget could have been adjusted to anticipate this big new loss of federal funds. But the administration evidently preferred to remain silent and let the bad news go off like a bomb when the rule changes became final.

Maine has taken advantage of the Medicaid system since the 1980s, with aggressive expansion of the program in every conceivable way to extract as much federal matching money as possible. That approach has now come back to bite us. We will be hit much harder than other states by the rule changes, because other states have not pushed the envelope on eligibility standards so brashly.

Now a mad scramble is on to cut the budget by about $200 million. The budget-writing Appropriations Committee instructed the other 16 committees on Feb. 6 to start looking for cuts. The governor has said tax increases are off the table; so is taking money from the “rainy day” reserve. As the process unfolds, citizens concerned about program cuts will keep jamming committee hearings, and the Legislature’s winter of discontent will deepen.

State Rep. John McDonough (R-Scarborough) is the ranking Republican on the Marine Resources Committee and also serves on the Natural Resources Committee

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