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TO:                  Superintendents of Schools, School Board Chairs, and the State Board of Education


FROM:            J. Duke Albanese, Commissioner


DATE:             November 8, 2002


RE:                   State Budget Situation and Special Session of the 120th Legislature


            I am writing to update you on current and pending actions relative to the state revenue shortfall, and the implications for local budgets.  As you know, the state of Maine, like most states across the nation, continues to be challenged by the sluggish economy.  Local school districts and municipal governments are affected as well.  Reductions in General Purpose Aid and revenue sharing to our towns and cities are examples of the effects of the downturn in the national and the state economies.  Locally, your financial commitments are many; from the fluctuations in the price of petroleum products, to sky rocketing health insurance costs, to commitments in personnel contracts, your budgets have little room for flexibility when revenues become unstable.


            We find ourselves well into the second quarter of the fiscal year.  One curtailment of General Purpose Aid has pared the Operating component of the school funding formula by 1.11% and the Program and Adjustments components by 1.37%.  The 120th Legislature has been called into special session and will convene next Wednesday, November 13, 2002, to consider the Governor’s original curtailment actions, as well as additional recommendations for cuts to help realize a balanced budget for this fiscal year ’03. 


            Next Tuesday, November 12, 2002, the Revenue Forecasting Committee will once again take the pulse of Maine’s economy.  In all likelihood, the Committee will project further reductions in the revenues Maine can expect to receive between now and June 30, 2003.  Additionally, the Committee will probably address the looming uncertainty about next April and if there will be a drop in capital gains revenue for the State given what was experienced last year.  In any event, the Committee’s estimate seems sure to be a downward one. 


            Clearly, our schools and communities find themselves in the midst of a challenging economy.  Hopefully, as a first step, the 120th Legislature will take action next week to accept recommendations made by Governor King, thus addressing the lion’s share of the $240 million shortfall that seems to be growing.  Subsequent actions beyond the shortfall will likely need to be taken by Governor King, Governor-elect Baldacci, and the newly elected 121st Legislature. 


            I have shared my advice for local action with the Executive Committee of the Maine School Superintendents’ Association and its regional Presidents when they met last week.  Simply put, I would suggest that school superintendents – working closely with their staffs and their boards – manage their financial resources most conservatively.  Close scrutiny of all budget expenditures is warranted in times such as these.  I would suggest that at least for the short term you postpone any non-essential expenditures and consider carefully the filling of any personnel vacancies.  The next few weeks should reveal the depth of any further shortfalls of revenue for the State, as well as the likely actions to be taken by the present and soon-to-be-seated leadership in Augusta.  Whatever savings you can realize through tight financial oversight at this stage in the fiscal year can help to offset any further action that may have to be taken by the state this year.  If the state weathers the challenges of FY’03 without further cutbacks, then the savings could be used to help temper your budget needs for next year, FY’04.


            Be advised that I don’t mean to overstate Maine’s economic challenges since our state’s employment remains strong compared to the nation’s, and many of our revenue streams have been on target.  However, we are most affected by global and national trends, and I suggest careful and cautious budget administration be the order of the day until we see evidence of a recovery.