Entrance to the Appropriations and Financial Affairs Committee room in the Maine State House in Augusta. (Photo by Jim Neuger/Maine Morning Star)
Maine is expected to see overall revenue shortfalls in the coming years, however the gap is now projected to be smaller, according to updated predictions released by the Legislature’s Revenue Forecasting Committee on Monday.
The latest gap projected for the state’s General Fund in the 2026-2027 biennium totals approximately $187 million, a roughly $450 million reduction from the committee’s projections in September, which estimated a shortfall of approximately $637 million.
Finalized projections heading into the next legislative session are due on Dec. 1, however the committee did not indicate on Monday that any drastic changes are expected to their preliminary report.
Most of the gains are expected to come in the current 2025 fiscal year and can be attributed to a number of factors: extended tax filing deadlines following consecutive storms last winter, wage growth, higher than expected capital gains and corporate income tax, among others.
Still, the state is facing a shortfall that the incoming 132nd Legislature will be tasked to address in the biennial budget next year.
“These projected revenues should not be seen as an opportunity for significant new spending,” Democratic Gov. Janet Mills wrote in a statement on Monday. “As my Administration has consistently warned, this next budget is going to be tight, and rather than create new programs, these revenues should be used to meet our existing obligations.”
Progressives and conservatives both within the Legislature and in the economic policy scene are already floating opposing suggestions for how to raise revenue.
Tax reform, spending cuts, and overall objections to using the “rainy day” fund
The progressive research organization Maine Center for Economic Policy would like to see reforms to Maine’s tax code to close the gap, while maintaining funding levels for education, health care and infrastructure. Meanwhile, the conservative Maine Policy Institute opposes tax increases of any kind and instead wants lawmakers to make spending cuts to address the shortfall.
In a recent policy brief, MECEP suggested adding new high income tax brackets and rates so people with the most wealth pay more of a fair share. Analyst Maura Pillsbury, who authored the brief, proposed a “millionaire’s tax” (a tax surcharge on income over $1 million), taxing unearned income, and ending offshore tax haven abuse, among other tax changes.
“The revenue forecasts show that there is less of a structural gap to make up, but there still is a pretty significant gap,” said MECEP analyst James Myall on Monday, following the latest projections. “So I think the revenue options of that report are still really timely and useful and I think they help to reinforce that it’s pretty possible for the lawmakers to make up the gap and there’s a number of ways they can do that.”
By contrast, Jacob Posik, director of legislative affairs at MPI, said the organization cautions against tax increases of any kind.
“We would certainly prefer spending cuts over new tax increases,” Posik said on Monday. When it comes to where to cut, Posik pointed to the state’s largest budget items: Health and Human Services and the Department of Education, specifically Medicaid expansion (which MPI and Republicans have historically opposed) and any “bloat” related to education spending. “We would rather see the curriculum coordinator and DEI stuff go away before we start cutting teacher salaries,” he said.
Aside from cuts, Posik said, “If you made us king for the day and we could wave our magic wand, we would eliminate every penny of corporate welfare that exists in the state of Maine.”
One thing both Myall and Posik agreed on: the Legislature shouldn’t use the “rainy day” fund as a solution.
Maine’s Budget Stabilization Fund, otherwise known as the rainy day fund, is at its statutory maximum of nearly a billion dollars. The maxed out fund and the surpluses Maine has seen in recent years were the focus of objections from both sides of the aisle to the governor’s proposed savings in the latest supplemental state budget passed in the spring.
Ultimately, lawmakers halved Mills’ proposed $107 million in savings in the budget plan that passed.
“While the Legislature didn’t agree with that proposal, the budgetary pressures still exist – programs continue to cost money while revenues are leveling off,” Department of Administrative and Financial Services Commissioner Kirsten Figueroa wrote in a statement Monday. “Lawmakers will need to contend with this fact, and we hope they agree with us that the priority should be to continue funding the programs they previously approved rather than trying to create more. This approach will be crucial to the long-term stability of the budget.”
When it comes to using the rainy day fund, both Myall and Posik said it would be different if the country was in a recession and the savings could be used with the expectation that revenues would bounce back in the next couple of years.
“Those [funds] are supposed to be sitting in reserve for a 2008-style financial crisis,” Posik said.
As outlined by state law, the budget stabilization fund “may be expended only to offset a General Fund revenue shortfall,” with a few exceptions, such as financing death benefits and food banks during emergencies.
“If we just resort to using the Rainy Day Fund this year or this budget cycle and keep the expenses the same, they’ll likely be facing the same thing in the next budget cycle,” Myall said.
Myall and Posik also both pointed to the highway fund as a particular concern. The unsustainability of the highway fund has been a persistent challenge for decades, leading to a routine earmarking of transfers from the general fund.
“Those are kind of mandates that haven’t really addressed the underlying issue,” Myall said, “so I still think it would be good for lawmakers to be looking at, ‘How do we make sure there’s a continuing, sustainable source of funds into the highway fund?’”
Posik’s concerns relate to late-night budget disagreements last session.
Last session, the Democratic majority on the Appropriations Committee, which sets the budget, tried to combine the general and highway funds, as well as reverse ongoing highway revenue that Republicans championed the year prior. When the Legislature’s Democratic leadership opted to pass a baseline biennial budget last session without Republican support to avoid a government-wide shutdown, agencies that rely on the highway fund were still at risk of shutdown since it is separate from the continuing services budget.
After outcry from the governor as well as Republicans, Democrats on the committee walked those attempts back.
“We would certainly be worried if they moved in that direction again,” Posik said, “but I guess we’ll see.”
Lawmakers prepare for budget negotiations
Setting the biennium budget will be a major focus of the Maine Legislature as they begin work, although the governor will first present her proposal to serve as the starting point.
“Come January,” Mills wrote in a statement Monday, “I intend to introduce a lean budget proposal that will honor … existing commitments to the greatest extent possible, with any new investments seriously limited. The State of Maine has enjoyed significant new revenues over the past several years, which has allowed for investments in important new programs that have benefited Maine people. Now the Legislature’s focus must be on maintaining them as much as possible, not on growing the budget.”
Legislative Republican leadership directed Maine Morning Star to state Rep. Jack Ducharme (R-Madison), who in the 131st session served as a ranking member of the Appropriations Committee, regarding how they’d like to state to address the shortfall. While noting the decrease in the projected shortfall, Ducharme said it is “a gap that budget gimmicks won’t fill.”
“We should start by saving any projected surpluses in the current fiscal year to help close the structural gap,” Ducharme said.
In his view, the gap requires cuts or increases in taxes. “The majority party has to decide what their priorities will be,” Ducharme said.
Democrats maintained their majorities in both chambers on Nov. 5, however they lost a few seats to Republicans.
Ahead of Monday’s projections, Speaker-elect of the Maine House of Representatives Ryan Fecteau (D-Biddeford) said he hopes to ensure initiatives championed in recent years — affordable housing gains, free school meals, free community college, fully funded municipal revenue sharing and education as set by state law — remain intact.
“I think we really need to overcome some really significant challenges in these next two years, starting with the budget, that will be more complex than it has been in recent memory,” Fecteau said. “But it’s also not just about a budget. It’s about the issues that people have grown tired of being unaddressed, and we need to be able to step up to the plate and solve them.”
While President-elect of the Maine Senate Mattie Daughtry (D-Brunswick) said she and her leadership team are awaiting the updated projections in December, “we’re really excited to work with our caucus to have the consensus driven agenda and mission.”
Both incoming Senate Majority Leader Teresa Pierce (D-Falmouth) and Assistant Majority Leader Jill Duson (D-Portland) previously served on the budget committee.
The Senate leadership team said there is no doubt there will be long discussions and likely late nights when setting the budget, but that the end result will be balanced, as is constitutionally required.
“There’s always struggle within budget, whether you have lots of funds coming in from different sources or whether it’s a little bit of a tightening,” Pierce said. “We’ve been able to accomplish amazing historic things in the past with housing and construction and pay for people, and we want to continue to protect those things, but it’s important to have good information in front of us.
“We know we’re strong fiscally but we’re going to know a lot more in the coming weeks.”
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