The state government continues to bring in more tax revenue than expected and economists now project an additional surplus of $223 million in the current fiscal year that ends in June.

The unanticipated revenues are driven largely by higher wages, strong consumer spending and corporate taxes, officials said Friday.

Members of the nonpartisan Revenue Forecasting Committee also increased their revenue projections for the next two years by $71 million. The combined surpluses mean the state now expects $294 million in additional revenue for the next two-year budget cycle, bringing the potential size of the next budget to nearly $10.8 billion.

The new revenue forecasts immediately reignited debate over whether lawmakers should cut taxes amid historic surpluses or invest in state programs.

Republicans in the House and Senate issued a joint statement Friday calling for $400 million in tax relief primarily for low- and middle-income taxpayers. They noted that the state budget has grown by $2 billion since the pandemic began, while families continue to pay higher costs for fuel, food and other necessities.

“The current revenue projections will allow us to lower taxes so that Maine’s people can keep more of their hard-earned money,” they said. “Republicans are calling on Democrats to commit to working with us to end the practice of over-collecting and over-taxing our citizens and then sending part of it back to some. This practice of picking winners and losers must end.”

Democratic leaders did not mention tax cuts in written statements on Friday. Instead, they called for more investments in programs.

Gov. Janet Mills’ office said in a written statement the governor plans to submit an update to her proposed two-year budget that will include a “down payment” on her proposed Dirigo Business Incentive Program.

Her office described the additional money as “one-time revenue,” saying that she will look to invest more money into immediate needs, such as housing, food insecurity, emergency medical services and infrastructure. Forecasters are projecting tax collections to flatten in later years.

“Maine continues to stand on strong fiscal footing thanks in part to our responsible approach to budgeting and our strategic investments that have supported Maine people, strengthened our economy, and led to record high savings,” Mills said. “Looking forward, we will continue to manage state finances prudently, live within our means, and bolster immediate issues, like housing, food insecurity, emergency medical services and other priorities. I look forward to working with the Legislature in the coming weeks on these issues.”

House Speaker Rachel Talbot Ross, D-Portland, hopes to use the surplus to address “the inequity in economic recovery” in the state and address other issues such as climate change, environmental contamination from so-called forever chemicals, the opioid epidemic, health care and paid family leave, her spokesperson said.

“The speaker is buoyed to hear these positive projections because in listening to Maine people and businesses it is clear there are unmet needs,” spokesperson Mary Erin Casale said in a written statement. “Ultimately, this increased projection gives the Legislature the tools necessary to start meeting them.”

Senate President Troy Jackson, D-Allagash, said in a written statement that the money should be used to help solve the housing, EMS and childcare crises.

“The good news is that today’s preliminary revenue forecast makes clear that our economy is stable and the state has the resources to deliver meaningful relief to families, communities and businesses all across the state,” he said. “The lack of quality, affordable child care and housing is holding back working families and exacerbating the workforce shortage for businesses.

“At the same time, childcare providers can barely afford to keep their doors open and local EMS departments are at their breaking point. Maine lawmakers have a responsibility to invest in child care, housing and EMS departments for the sake of our families, communities and economy.”

While much of the unanticipated revenue will be collected in the current fiscal year, it will be allocated as part of the next two-year budget package because there is not enough time left to allocate and spend the additional funds by June 30, the governor’s office said.

Mills and legislative Democrats passed a nearly $9.9 billion baseline two-year budget in January but effectively postponed a debate about what to do with additional revenue. That leftover revenue now totals nearly $1 billion for the next two years and the Legislature must decide how to allocate it in the coming weeks and months.

Democrats said passage of the party-line baseline budget was needed to prevent a potential government shutdown if negotiations were to break down later in the session. Republicans dismissed that possibility, saying they were negotiating the budget in good faith and had no plans to use a possible shutdown as leverage.

Negotiations over part two of the state budget are expected to resume in earnest now that the economists on the nonpartisan forecasting commission have updated their revenue projections.

The upgraded forecasts are part of a continuing surge in revenue since the start of the COVID-19 pandemic. The surpluses have been driven by spending controls early in the pandemic coupled with a large influx of federal funding to support state and local governments, and businesses to prevent layoffs. And more recently, consumer price inflation and increased spending produced more sale tax revenues, and salary increases generated more income tax revenues.

Over the last few years, the state’s revenues have grown 35% from nearly $8 billion in 2020-21 to an estimated $10.8 billion in 2024-25.

State Economist Amanda Rector said the Consensus Economic Forecasting Committee believes the state’s economy remains strong, with low unemployment and rising wages, although the future remains uncertain as she expects federal officials to continue increasing interest rates to tamp down inflation. The committee believes job opportunities will continue to draw new workers to the state, she said.

“They did note heightened uncertainty that was still ongoing in economic conditions, but they did not anticipate a recession in their forecast,” Rector said.

Through the first three quarters of the current fiscal year, Mike Allen, associate commissioner of tax policy at Maine Revenue Services, said the state is seeing a surplus of $185 million, driven by higher-than-expected collections from individual income, corporate income and sales taxes. And so far in April, the state has amassed a surplus of $11 million, Allen said.

The forecasters are increasing revenue projections from individual income by $137.5 million by the end of June and $3.5 million in the next two years, while also increasing corporate income tax projections by $59.5 million by the end of June.

Allen said sales taxes were “running hotter than we expected,” resulting in increased revenue projections of nearly $35.6 million in the current fiscal year and about $77.9 million in the next two years.

“We really thought after the holiday season that sales taxes would really start to slow down and turn negative on a year-over-year basis, but that has not been the case,” Allen said. “Sales tax has been running stronger than expected.”

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