Testimony at Hearing on LR 1045 (January 28, 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

MECEP continues to have concerns about the implications of the current proposal on Maine’s future financial picture – a point that was underscored by last week’s downgrade of Maine’s general obligation bond rating by Fitch Ratings. Central to this downgrade was concern about reserve levels and the limited options available to address our budget challenges. 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.

MECEP also believes it is important to adopt a balanced approach, one that includes not just budget cuts but additional revenues as well, to address Maine’s 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. 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.

Our collective challenge is to promote economic opportunity. For some this equates to building a strong middle class and clear ways to get there for those who aren’t yet there. It also requires us to recognize that for some, maintaining quality of life may be just as important as improving it. Public policy plays an important role in both instances.

One way we think about this at MECEP is by considering the continuum of financial stability which I have included in your packet. At each stage along the continuum there are clear indicators that help differentiate between people in crisis and people on their way to wealth creation. There are also a range of public policies that can either help move someone along the continuum or keep them from falling further behind. It’s a little like that old game of “Chutes and Ladders.” Some policies like investments in early childhood education or workforce training help create ladders. Others like access to health care or emergency assistance help keep individuals from sliding down. Still other policies, like targeted tax relief or housing assistance can be both a ladder and a way to prevent a downward slide.

In the case of the proposed cap of General Assistance, we risk creating a situation in which more people find themselves on a downward slide. This not only makes a difficult situation worse for the individuals involved, it also has far reaching consequences for Maine’s economy. For starters, individuals that lack basic financial stability have limited capacity to be full participants in Maine’s economic recovery. Over time, growing inequality creates a drag on the economy. It sucks the life out of consumer spending which is a critical engine of growth. Increased inequality also reduces our ability to make public and private investments that create “ladders” of opportunity.

In our current fiscal climate, the GA cap also increases the cost shift to towns. We are very concerned that this tendency, spread across a number of areas, places increasing pressure on towns to raise property taxes. MECEP’s analysis shows that when this occurs, any benefits low-income Mainers derived from the 2011 income tax cuts will be dwarfed by associated increases in property taxes. Thus, we believe the proposal before you does not demonstrate the most fiscally prudent path forward. Nor do we believe that it is in the best interest of Mainers who are struggling to recover from the worst recession since the Great Depression.

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 Health and Human Services neither for nor against the Supplemental Budget proposal.