Maine Governor Revises Biennial Budget to Address $95M Shortfall

Maine Gov. John E. Baldacci Wednesday evening presented his State of the State address with optimism for the upcoming year, despite challenges that the state faces in 2008, including less-than-expected revenues.

Additionally, Baldacci’s administration yesterday revealed revisions of the state’s fiscal 2008 and 2009 biennial budget to address a budget gap, including consolidation efforts for natural resources and health and human services departments in the state and joint purchasing of prescription drugs by public employers.

As the national economy is struggling with declining home values, Maine faces a $95 million shortfall in expected revenues for the fiscal 2008-09 biennium, Baldacci said.

“The revenue downturn we face in the two-year budget is a serious challenge that demands action,” Baldacci said.

Since Maine requires that the governor ensure the state budget is balanced, Baldacci has already begun addressing the imbalance. In December, Baldacci issued an executive order to reduce state spending by $38 million for the rest of the fiscal 2008, which ends on June 30.

Despite the budget gap, Baldacci said that the state is in much better shape to “weather economic storms” than when he first addressed Maine as governor five years ago. Five years ago, the state faced a $1.2 billion budget gap, and its financial reserves were gone.

“The state was borrowing hundreds of million of dollars just to keep the lights on,” Baldacci said.

But today, Maine has rebuilt those reserves to almost $160 million, it closed its extensive budget gap, stopped short-term borrowing, and by the end of next year, it will have invested more than $1 billion new state dollars in local education, Baldacci said.

“With full knowledge of the challenges we face, I report that the state of this state is strong and determined to meet the future head on,” Baldacci said.

The governor added that he does not want to increase taxes or “pull the safety net out from under our most vulnerable citizens” to address the $38 million budget gap for fiscal 2008 and $57 million budget gap for fiscal 2009.

A big chunk of closing the budget gap will be in the form of cuts to departments, agencies, and services, Maine’s Commissioner of Administration and Finance Rebecca Wyke said in an interview. Many of the $38 million curtailments that Baldacci introduced in December were presented officially in the supplemental budget in order to get them approved by the legislature. Wyke said that there was no large budget cut that stood out, but rather it was “a lot of trimming all around.”

Baldacci has also proposed bringing together three of the largest purchasers of health care in the state—the Maine State Employees Health Commission, the University of Maine System, and the Maine Education Association—to “put their enormous buying power to work to lower prescription drug costs.”

Additionally, Baldacci proposed to reduce Maine’s four natural resources agencies to no more than two.

In conjunction with supplemental budget, Baldacci also presented a bill to unify the 15 county jail administrations in Maine, which he said would lower costs and save taxpayers money.

While the $95 million budget gap is a small percentage of Maine’s biennial $6.3 billion budget adopted last June, Moody’s Investors Service senior vice president Nicole Johnson said it is still a cause for concern.

The state went into adopting the biennial budget last year with a shortfall of about $500 million, she said. And while they did address that gap, they now are facing yet another gap.

The state has balanced its budget in recent years “largely by cutting spending,” Johnson said. “It remains to be seen how much more you can cut.”

Since Baldacci took office in 2003, Maine has reduced more than 600 state government jobs, and it merged two major state departments, eliminating a commissioner and deputy commissioner, Baldacci said.

Maine has also been hit with the same housing downturn that has hit other states, Johnson said. Additionally, Maine has experienced added expenditure pressure in recent years because of a mandate in 2004 that required the state to increase its funding for Kindergarten through 12th grade education. The state now pays 55% of state education spending, up from 49%, Johnson said. Johnson said a strength of the state is that they’ve funded those mandated costs. Still, the revenue shortfall needs to be addressed, she said.

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