Maine’s 125th Legislature and the LePage administration have talked a lot about fiscal responsibility, but have their actions supported their rhetoric? House Speaker Robert Nutting called the Fiscal Year 2013 budget “an enormous step toward the goal of getting Maine’s fiscal house in order.” Governor LePage’s premature victory lap has a twelve-bullet section entitled “Putting Maine Back on a Track to Financial Stability.”
Fiscal responsibility is as much about revenues as it is about spending, and the 125th legislature and the Governor have hurt our fiscal situation by undermining the revenue side of the state’s balance sheet.
LePage’s own Commissioner of the Department of Administrative and Financial Services, Sawin Millett, understands this simple arithmetic. Speaking recently to the Joint Committee on Appropriations and Financial Affairs about the unpaid-for tax cuts in LD 849 Millett said:
“That’s what I hear, every time I go to meet with the bond rating agencies, so I think it’s important to keep the two sides of the equation always in balance, always in focus. We try to do that in this committee, and my questions and answers to you have always been with that in mind, that when you look downstream, and you take a long term view, that you try not to make one side of the equation get out of sync with the other.”
Despite the Commissioner’s concerns, LD 849 passed the legislature. The very next day, Moody’s Investors Service downgraded the outlook on Maine’s credit rating from stable to negative. While not specifically citing LD 849 in their report, Moody’s did state concerns about the imbalances in Maine’s fiscal equation:
“The negative outlook reflects Maine’s recurring challenges on the spending side of its budget, primarily in the Department of Health and Human Services (DHHS) which includes Medicaid; minimal budget stabilization fund (BSF) balances and chronically negative GAAP-basis combined available reserves, a large portion of which is related to Medicaid reimbursements due to hospitals; and a weak General Fund liquidity position reflecting the lack of reserves.”
LD 849 was only the latest of several tax cuts passed by the 125th. Tax cuts mean less revenue. In the case of LD 849, the lost revenue is about $600 million per year, once the tax cuts are fully realized. Contrary to proponents of discredited supply-side economics, tax cuts don’t “pay for themselves” by stimulating the economy and increasing total tax revenue. This is especially true in a small, isolated state like Maine where spending on imported essentials like gasoline, heating oil, and food leaves the state immediately with no “dynamic effect” on the economy.
Governor LePage and his allies in the 125th Legislature preach fiscal responsibility but they practice an ideological agenda of reckless tax cuts that threatens Maine’s credit rating and our ability to invest in a strong economy and future prosperity.