December 2, 2012

State budget gap could reach $200 million

MaineCare shortfall constitutes half of budget gap

BY MAL LEARY, Capitol News Service

AUGUSTA -- The new Legislature that takes office this week faces serious financial problems, including addressing funding needs that could reach $200 million this budget year, which ends June 30.

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Patrick Flood

Contributed photo

"I think that the new Legislature could see a $150 to $200 million supplemental budget," said Rep. Patrick Flood, R-Winthrop, the outgoing co-chairman of the legislature's Appropriations Committee.

That budget would make up a revenue shortfall and spending in excess of projections, mostly in the Department of Health and Human Services.

"We have had similar shortfalls in the past and solved them, I think we can solve this problem," said Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the appropriations committee for the last two years. "It's not going to be easy, but we can get it done if everybody works together."

After the first four months of the budget year, state revenues were $26 million below estimates and the Revenue Forecasting Committee has decided that red ink will grow to at least $35 million.

Those lower estimates will continue into the new two year budget that starts next July 1 and means about $128 million fewer tax dollars to fund government programs and services. All of those revenue changes were triggered by the report of the Consensus Economic Forecasting Commission.

Jim Clair, chairman of the commission said that the economy is growing slightly better in the current budget year than projected, but the panel does not see any major increase in growth over the next few years.

"We either kept our estimates as they were from last February or reduced them slightly," Clair said. "We don't see the economy really moving until after all of this uncertainty in Washington is resolved."

The panel made the assumption that Congress will avoid the so-called fiscal cliff by continuing at least some of the current tax rates and make selective cuts in federal spending.

Complicating the situation is that the solution to the federal budget issues could affect the states in different ways. Mike Allen, tax policy associate commissioner, chairs the Revenue Forecasting Committee, and said the variations on what Congress will do make it very difficult to estimate state revenues.

"Your head can explode if you try to take into account all this stuff," he said.

The single biggest funding need is in the Department of Health and Human Services. Commissioner Mary Mayhew told lawmakers her agency is facing a need of at least $100 million to pay the bills in the current budget year.

"At this point, our expenditures are exceeding our budget," she said.

One of the biggest areas this is true, she said, is the cuts cuts made in MaineCare, the state's name for Medicaid, made in a budget passed earlier this year. Mayhew said the Legislature approved a package of changes that would affect coverage for about 36,000 low-income Mainers.

"We have not heard from the federal government whether they will allow those changes, so we are not saving the money that had been booked in the budget," she said.

Medicaid is a joint federal-state program and Mayhew said the state's share of the cost of the program has increased significantly even though the overall costs of the program have had a very small increase.

"The state's share, from fiscal year 2011 to fiscal year 2012 is up by 47 percent," she said. "Even though our overall spending has increased by just six tenths of a percent."

All states got an enhanced match rate under the Recovery Act and that was phased out this year and at the same time, the state was expected to increase its share of the costs because the state's average per capita income was doing better relative to the national average.

(Continued on page 2)

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