Testimony at Hearing on LR 1045 (January 24, 2013) An Act to Make Supplemental Appropriations and Allocations for the Expenditures of State Government and to Change Certain Provisions of the Law Necessary to the Proper Operations of State Government for the Fiscal Year Ending June 30, 2013

At a time when Mainers continue to struggle through the state’s sluggish recovery from the worst recession since the Great Depression, it is incumbent on legislators to find solutions that keep Maine’s middle class strong and those striving to join the middle class from falling even further behind.

With that in mind, I offer the following questions related to the Supplemental Budget proposal. They are grouped in two buckets. One relates to broader financial issues and the other to specific proposals under consideration by both committees.

Broader Questions

1. How much will the state’s projected revenues differ as a result of the “fiscal cliff” deal approved by Congress earlier this year?

MECEP’s understanding is that the revenue projections on which this proposal was based were developed prior to the “fiscal cliff” deal and included certain assumptions that have since changed. We appreciate the difficulty of crafting these projections during a period of such uncertainty and value highly the work of Maine Revenue Services and the Revenue Forecasting Committee. That said, the picture has changed and has gained some clarity. Every dollar is important and each cut has the potential to impact people. It only makes sense that we operate with as accurate an accounting as possible.

2. What are the implications of the current proposal on Maine’s future financial picture and ability to meet its obligations?

This week, Fitch Ratings downgraded Maine’s general obligation bond rating. Central to this downgrade was concern about reserve levels and the limited options available to address our budget situation. While the measures used to secure additional revenues in this proposal may make sense in the short-term, because they eat into certain reserves and have the potential to undermine our ability to meet future obligations  the current approach is not the most fiscally prudent one.

3. Why aren’t all options on the table?

States across the country and the federal government are adopting a balanced approach, one that includes not just budget cuts but additional revenues as well, to address recession-induced budget challenges. At some point, we have to acknowledge that we can’t cut our way to prosperity and that the tax cuts passed in 2011 compromise our ability to maintain funding for education, health care, and other important services. The income tax cuts alone reduce revenues in the current fiscal year by almost $79 million. The bulk of the impact occurs in the third and fourth quarter of FY13. Deferring or eliminating all or a portion of the 2011 tax cuts could generate significant revenue, improve tax fairness, and create a balanced solution that is fiscally more responsible and mitigates some of the impacts contained in the current proposal.

Specific Questions

1. What is the impact of the cuts to the Bureau of Maine Revenue services and its ability to do its job?

The importance of Maine Revenue Services in providing information and collecting revenues due to the state cannot be overstated. Presumably, the cuts proposed in the Supplemental Budget are associated with unfilled positions. By not filling these positions, is MRS compromising its ability to collect revenues for the current year and the future?

2. What are the reasons for lower than budgeted reimbursements for veterans and veterans organizations?

Programs that provide targeted tax relief to individuals can be critically important to boosting household financial stability. It is especially important that all Maine veterans receive the benefits due to them under current law. The committee needs to know why reimbursements are lower than budgeted. Is it because participation rates are lower than expected? If so, why? Is it because of a lack of outreach/awareness to eligible veterans, or an onerous application process, or some other factor such as changing demographics? Can these issues be addressed in the remaining months to boost participation? The answer to these questions impacts whether or not the current proposal makes sense.

Thank you for your time and for your work on behalf of Maine people.

Garrett Martin, MECEP Executive Director, testifying before the Joint Standing Committees on Appropriations and Financial Affairs and on Taxation neither for nor against the Supplemental Budget.