Forecasted 3-year, $1.4 billion revenue shortfall reinforces need federal, state action to protect critical jobs and services

New revenue projections released by state officials on Wednesday reiterate that Maine faces jaw-dropping revenue shortfalls that demand a strong federal response and a willingness by state policymakers to raise the revenue needed to protect Mainers during a time of crisis.

The revised revenue forecast anticipates a $552.8 million revenue shortfall in the current two-year budget cycle, which ends just under a year from now, on June 30, 2021. Their report also anticipates an additional $883.2 million shortfall for the next budget cycle, which lawmakers will address when they start to craft a spending package in January.

The shortfalls arrive as the state takes on additional costs associated with the COVID-19 pandemic recession. Left unaddressed, these revenue shortfalls would spur widespread cuts in the public sector, jeopardizing countless jobs and investments in things like education, health care, transportation, and other services critical to Maine’s economic recovery.

Congress must act to protect Mainers from harmful cuts

Maine’s fiscal crisis is part of a broader phenomena of state revenue shortfalls as a result of COVID-19. The Center on Budget and Policy Priorities estimates state revenue shortfalls nationwide total $555 billion over fiscal years 2020-2022.

The state has $258 million in its budget stabilization fund, a reserve fund designed to backfill revenue holes in economic downturns. But that total is insufficient to close the full gap.

The best solution to the crisis lies with the federal government, which has unparalleled power to backfill state budget shortfalls, thereby protecting jobs, essential services, and other public investments when they are needed most.

The federal government can use its borrowing power to leverage low interest rates to stabilize state and local budgets. Bold action by Congress can prevent state budget collapse. But so far, fiscal aid to states has been too little and too limited. Congress began this work with the creation of a Coronavirus Relief Fund for states in March. Maine received $1.25 billion from this fund — about half of which has already been dedicated to bolstering state services such as preparing for safe delivery of public education, ramping up public health efforts, and backfilling the state’s unemployment insurance fund. However, the state is barred from using those funds to fill revenue shortfalls.

More resources are needed from Congress to avoid layoffs and cuts, and to cover the additional costs of prioritizing public health and economic security for families and communities.

State policymakers have a role to play, too

State legislators and the governor have been vocal advocates for increased fiscal relief for states from Congress. But they also have power to begin addressing revenue shortfalls and mitigate the need for harmful cuts.

The Legislature is currently in possession of several bills that would raise revenue by closing loopholes that benefit the wealthy and profitable, multinational corporations.

Taxing those groups to protect jobs for teachers and services for Mainers facing hardship makes sense in the current economic environment, in which the pain of the recession has been felt most acutely by low- and moderate-income workers — not the wealthy. Wealthier families are much less likely to have lost their job, have been able to save more as they spend less on services, are benefiting from low interest rates for borrowing, and are the ones benefiting from a stock market that has outperformed the economy at large during the pandemic recession.

Maine lawmakers can pass legislation to close a loophole in the estate tax established under Gov. Paul LePage and another in the corporate tax code, put in place by the Trump Tax Cuts. Historically, municipalities have been one of the first on the carving block during revenue shortfalls. Legislators can protect local property tax bases by closing the ‘Dark Store’ loophole that big-box stores like Walmart and Lowe’s use to avoid paying their property taxes.

These bills will not solve Maine’s revenue crisis alone, but they are a step in the right direction and would show that policymakers are willing to do what it takes to protect Mainers from additional hardship.

Cuts would delay Maine’s recovery. Policymakers should find better solutions,

Maine’s Constitution requires a balanced budget. Some policymakers will undoubtedly suggest that Maine should cut its way out of the revenue crisis. But such an approach would be short-sighted.

Solving Maine’s unprecedented revenue crisis with spending cuts would almost certainly mean widespread layoffs of public employees, which represent roughly one-sixth of Maine’s workforce.

Teachers, social workers, public safety workers, and more could all join the already record-smashing ranks of the unemployed. Cuts would also affect health care, school budgets, and local services such as road maintenance, clean water, and local parks and programs.

Those cuts would make the recession worse and delay Maine’s recovery. To protect jobs and services, policymakers should prioritize increased federal support, use of reserves, and increased revenue through targeted reforms to make our tax code fairer. Those solutions will help fuel Maine’s recovery, while cuts would only pump the brakes.