State government will close the books on its 2020 fiscal year with more revenue than forecasters expected, largely because of federal aid programs that offset the effects of widespread unemployment and a steep reduction in sales tax revenue from restaurants and hotels.

Higher than expected income tax withholding – much of it from a weekly $600 federal unemployment bonus – helped ease the blow to state finances by about $100 million, said Mike Allen, director of the Maine Revenue Service and an associate commissioner for tax policy.

The first year of the state’s two-year $8 billion budget ended on June 30 with general fund revenues off by just 0.7 percent – $28.8 million shy of budgeted. That’s still $120.8 million, or 3 percent, more than was collected in the last fiscal year, which ended in June 2019.

That’s relatively good news, said Allen. He and revenue and economic forecasters predicted in March that the state could face up to a $200 million shortfall for fiscal year 2020.

Instead, Congress approved consumer supports, including the Paycheck Protection Program, that helped keep Maine’s economy from collapse. The federal aid provided forgivable loans to businesses that kept workers on the payroll; a boost of $600 a week for the unemployed, including benefits for previously ineligible self-employed workers; and stimulus checks of $1,200 for most federal taxpayers.

That relief kept tax revenues flowing to state government, in some cases exceeding projections. For example, state income tax withholding in June was over budget by $14.7 million, or 3.1 percent.

“It wasn’t nearly as bad as we thought and our (income tax) withholding actually came in over budget,” Allen said in an interview Tuesday. “That extra $600 generated as much, if not more, than we probably would have got if the economy did not go into a recession.”

But with Congress now in gridlock over a second round of economic stimulus after the enhanced unemployment benefit expired, the state’s revenue prospects are uncertain, Allen said. He said sharp declines in sales tax revenue are expected as the tourism season, critical to the state’s economy, has been truncated by the pandemic. Forecasters expect taxes on restaurant meals will be off by 30 to 40 percent and lodging tax revenue will be down as much as 60 percent.

Income taxes are bound to shrink with the loss of the $600 jobless benefit. In May alone, sales, use and service provider taxes missed budget by $17.8 million. Consumer sales are also down 2.8 percent compared to June 2019. Sales tax on lodging was off nearly 80 percent, while restaurant sales taxes were off 46.7 percent.

Some of those losses have been offset by increased online shopping, with sales taxes collected through web purchases increasing almost 60 percent. Food and building supply stores also saw increased sales, helping to offset some of the hospitality industry losses.

Allen said the state will get another read on tourism sales tax losses next week, when receipts for July begin to come in. He said lodging receipts are forecast to be down 50 percent compared to 2019, and restaurant receipts are also expected to be about 30 percent lower.

A revenue forecast presented to lawmakers on the Legislature’s budget-writing Appropriations and Financial Affairs Committee earlier this month indicated revenue losses for state government could be as great as $523 million in the current fiscal year and as much as $1.4 billion over the next three fiscal years.

That forecast also assumes at least another $1 trillion in federal stimulus aid to workers and state and local governments, Allen said. What Maine’s share of that would be, or how that money would affect the economy is uncertain. But, Allen said, without it, the revenue picture could become even more precarious.

“We are assuming at least $1 trillion,” Allen said. “Anything above that would be better.”

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