State officials are projecting a $139 million revenue surplus in the current fiscal year and a similar surplus in the next, setting the stage for another budget debate when lawmakers return to the State House on Jan. 3.

The revenue forecast announced Tuesday is the latest in a series of stronger-than-expected economic projections over the past three years, partly the result of consumer spending driving up sales tax revenues and strong employment driving up income tax collections.

It will be the focus of intense debate in the Legislature about what to do with unanticipated revenues, which are expected to total $265 million over the two-year budget cycle that began in July. Republicans have repeatedly argued for tax cuts, but Gov. Janet Mills and fellow Democrats have so far used surpluses mostly to provide relief checks to taxpayers or make one-time investments in programs or services.

The budget debate will coincide with what is certain to be a rigorous consideration of gun safety in the wake of the mass shooting in Lewiston, in which 18 people were killed and 13 were wounded.

The budget discussion will be driven by Mills, who is expected to file a supplemental budget request early next year. That budget request will be reviewed and possibly changed by lawmakers on the Appropriations and Financial Affairs Committee before facing votes from the full Legislature, which approved about 140 bills last session that are awaiting funding.

Spokespeople for Mills did not respond to questions Tuesday about the governor’s budget priorities heading into 2024.

Her top budget official, Kirsten Figueroa, the commissioner of the Department of Administrative and Financial Services, said in a written statement Tuesday that she welcomed what she called the “modest revenue growth.” In addition to the $265 million in surplus revenue expected during the current two-year budget cycle, revenue forecasters expect a $257 million revenue surplus in the two years that follow.

“Looking forward, the administration will work with the Legislature to ensure the continued funding of programs previously approved by the Legislature and maintain the state of Maine’s fiscal stability over the long-term,” Figueroa said.

Assistant House Minority Leader Amy Arata, R-New Gloucester, said she would support increased spending to address mental health issues and the state’s child welfare system.

“This is good news for addressing the mental health and child protection issues we’ve all been made aware of recently,” Arata said, referencing the Lewiston gunman’s mental health problems. “I believe new spending should focus on these things.”

Senate President Troy Jackson, D-Allagash, said the surplus will allow the Legislature to make more investments in a variety of unfunded priorities.

“Today’s revenue forecast report makes clear that the Maine Legislature has the resources to finish what we started and deliver for our families, our communities and our economy. Earlier this year, we passed a smart and targeted budget that made transformational investments in child care, housing, emergency medical services and more. But we know more needs to be done – glaring needs remain all across the state,” Jackson said in a prepared statement.

“Amid teacher shortages all across the state, lawmakers must double-down on efforts to raise wages for teachers, ed techs and school support staff. With families struggling to access critical care, lawmakers must prioritize investments in long-term care, including our veterans’ homes, and behavioral health. At the same time, we cannot let up on our work on child care, housing and EMS or ignore the tragedies plaguing our child welfare system. ”

House Speaker Rachel Talbot Ross, D-Portland, and Senate Minority Leader Trey Stewart, R-Presque Isle, could not be reached on Tuesday afternoon.

RENEWED CALL FOR TAX CUTS

Maine Republican Party Executive Director Jason Savage said the forecast is proof that Maine people are paying too much in taxes.

“Mainers continue to be overtaxed when costs are already out of control,” Savage said in an email. “Let’s stop kicking our working and middle class while they’re down. It’s time for tax relief.”

The state has been seeing strong revenues ever since the COVID-19 pandemic, which saw an influx of federal spending that helped keep people employed and enhanced unemployment benefits, driving increased spending on goods. State and local governments also were buoyed by federal spending.

Revenues have regularly outpaced predictions, leaving lawmakers to wrangle over what to do with the extra revenue. Republicans have repeatedly called for income tax cuts, while Democrats have focused on more spending.

MILLS IN THE MIDDLE

Mills has found herself in the middle, proposing one-time rebate checks to dispose of surpluses while supporting some ongoing spending increases.

Last year, lawmakers approved direct checks to help offset high energy costs and proposals that reduced state revenues, increasing the amount of pension income that is exempt from taxes and increasing funding for a property tax relief program for low-income seniors.

The nonpartisan revenue forecasting committee, which includes the state economist, an economic professor and state budget officials, predicted that the state would take in more than $5.2 billion in the fiscal year ending July 1. That is about $130 million, or 2.4%, less than it took in last year, but lawmakers expected a much bigger decline when they passed their two-year budget.

State Economist Amanda Rector said that the economic forecasting commission does not foresee a recession in the near term, even though it expects the Federal Reserve to continue its economy-constraining policies to address inflation. They expressed concern, however, that Maine’s shortage of housing could limit the number of people who could come to the state to meet the demand for workers.

The stronger-than-expected revenue forecast is driven primarily by continued consumer spending and income tax returns. Forecasters predicted the state would collect an additional $57.4 million in sales tax for a total of $2.25 billion, and an additional $41.6 million in individual income taxes for a total of $2.44 billion.

OPPORTUNITY TO FUND PROGRAMS

Progressive activists pounced on the strong budget forecast.

The Maine People’s Alliance sought to highlight strong business income to call for more funding for programs that help people with low incomes.

“Today’s numbers show that wealthy corporations are continuing to thrive,” MPA Policy Advocate Adam Zuckerman said in a written statement. “But right now, many Mainers are struggling, living paycheck to paycheck, and barely able to afford housing, food and services like child care that we all depend on. This forecast shows we have the capacity to make the investments in our communities that will help all of us – no matter who we are – thrive, together.”

The Maine Center for Economic Policy noted that lawmakers will have an additional $264.6 million over the next two years and $256.5 million in the following biennium, all while state’s budget stabilization – or rainy day – fund is currently at its statutory limit of $968.3 million.

MECEP Policy Director Sarah Austin called for additional investments in housing and wages for teachers, child care providers and direct care workers.

“Maine has the resources to take on these challenges and should prioritize these issues when the Legislature returns in January,” Austin said. “Maine should double down on the strategies that have created this growing economy by continuing to invest in people and communities. The state can use this surplus to remove barriers that currently hold people back from fully participating in and benefiting from our economy.”