Last week, Governor Janet Mills issued a “curtailment order,” a tool Maine governors can wield to balance budgets after the legislature has adjourned. Curtailment orders have been issued by previous governors who faced substantial budget deficits following economic slumps, including the most recent governor, Paul LePage, and his predecessor, John Baldacci.
In the order, Gov. Mills outlines a series of one-time budgeting fixes to make up the rest of the projected budget shortfall resulting from the economic slowdown caused by the coronavirus pandemic and the business closures ordered by the governor in response to it.
In July, state economic forecasters reported an estimated budget shortfall exceeding half a billion dollars for this fiscal year, ending next June. Since the legislature appropriated $106 million in a supplemental budget before adjourning in mid-March, Mills’ order attempts to bridge the remaining gap of $422 million.
In early August, the governor ordered state department heads to target around 10% in potential cuts by September 1, but also advised them not to make cuts to education or health spending, the two largest areas of spending in Maine’s budget. Gov. Mills has since extended the deadline for agencies to submit their possible cuts to October 19.
In the curtailment order, Gov. Mills makes use of about $130 million in savings that arose from hiring and spending freezes she instituted in late March, as well as $70 million in greater-than-expected liquor tax receipts. She will use $97 million of available federal COVID-19 relief funds allocated earlier this year–$1.25 billion in total–for state health worker payroll.
Congress also altered the reimbursement rate for Medicaid in those relief bills, allowing for potential savings of $125 million to be realized when the new Maine Legislature convenes in January. All told, these measures add up to closing the shortfall projected in the current fiscal year.
Forecasters expect another budget gap close to one billion dollars over the next biennium, spanning from July 2021 through June 2023. The Mills administration and the next iteration of the Maine Legislature will tackle this question. How much of the next budget gap will be closed by spending cuts, and how much will be made up of “revenue adjustments,” also known as tax increases?
Over the next budget cycle, state leaders must be willing to make tough choices just like Maine people did after the governor deemed their businesses and workplaces “nonessential.” Many were denied the attempt to make a living this spring and summer. Responding with cuts to government is merely prudent.
The impending shortfall beginning next year amounts to about 12% of the total budget. This might sound like a significant chunk, but Mills would only need to look to the last budget approved by the LePage administration in 2017 to determine the path to right-sizing state government and weathering the ensuing economic downturn. After all, Gov. Mills’ broad, draconian orders that shut down vast swaths of the state, coupled with the continued suppression of economic activity, have only exacerbated this crisis.
Former Gov. Baldacci issued a curtailment order in 2008 to respond to declining tax revenue during the last financial crisis, the “Great Recession.” In an interview with Matthew Gagnon on the WGAN Morning News last week, Baldacci said he believes that raising taxes “should be the last place anybody looks” in order to balance the next budget.
Gov. Mills in her first budget negotiations pledged to not raise taxes. As people are still reeling from the economic shock she imposed through the forcible closure of businesses and pushing thousands of Mainers onto an ill-equipped unemployment system, it remains to be seen whether the governor will retain this priority in her second biennial budget.
Instead of facing this responsibility head on, Gov. Mills continues to plead for another federal bailout. Meanwhile, the CBO predicts a federal deficit triple that of last year and a public debt nearly equivalent to that of the entire economy.
