PORTLAND – A “cuts only” approach to the state’s projected $1.17 billion revenue shortfall could undermine economic recovery, according to a new analysis released Friday by the Maine Center for Economic Policy.
“The last thing our economy needs is more people out of work,” the authors said in the report. “Slashing over $1.1 billion from the budget for 2012-13 could cost as many as 25,000 lost jobs. With more than 100,000 people already unemployed or underemployed in Maine as a result of the recession, such additional job losses would be devastating and take years to recover.”
The report was written by Garrett Martin and Dan Coyne, both of whom work for the liberal advocacy group.
Because most state revenues fund salaries, contracts and purchases, drastically reduced state spending during a recession will have a “ripple effect” of private sector job losses, the report warns.
The proposal last January to cut $275 million from the state budget would have resulted in the loss of 7,000 to 10,000 public and private jobs, the report said. Cutting $1.1 billion from the budget would cost 25,000 jobs.
Adjusted for inflation, the level of state spending in Maine has declined in recent years and is lower than it was in 1999, the report said.
J. Scott Moody, chief economist at the Maine Heritage Policy Center, a conservative think tank, said the study makes the contention that growth depends upon the public sector and private sector working together. In reality, the public sector “crowds out” the private sector because it can only spend what it first takes from the private sector, he said.
As a result, states with larger private sectors grow faster than states with smaller private sectors, he said.
Maine’s private sector, as a share of personal income, has fallen by nearly 11 percent to a record low of 63.6 percent in 2009 from 71.2 percent in 2000, he said.
“To get Maine’s economy back on track, policymakers need to first stop digging the hole deeper than it is already by shelving any plans to balance the budget with tax hikes,” he said.
Staff Writer Tom Bell can be contacted at 791-6369 or at tbell@pressherald.com
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