Homeowners, schools and towns will feel impact of budget cuts

by Rep. Susan Austin

The Maine Legislature went back to work on January 6th facing one of its toughest assignments in years.

In late December, Governor Baldacci delivered his supplemental budget for the next 18 months. The proposal reduces the state’s $5.8 billion budget by $438 million to keep the budget in balance as tax revenues continue to decline. The current deficit is about $100 million; but the trend lines point to further deterioration through the rest of our two-year cycle, which ends in June of 2011. With these new cuts, General Fund appropriations will return to levels last seen in 2004.

Maine is not alone in its financial difficulty. Virtually all other states are in similar straits; and some states, such as California and New York, are in dire distress. Numerous governors and legislatures have resorted to tax increases to weather this economic storm. Governor Baldacci has ruled out higher taxes in favor of swinging the budget axe.

The biggest single “hit” will affect the MaineCare program. This is the state’s enormous Medicaid system that provides free medical care, dental care and nursing home care for 280,000 low-income residents. It will sustain a cut of $108 million over the next 18 months, mostly in lower reimbursement payments for hospitals and health care providers.

The fight over this particular budget cut will be lively, to say the least, because the state already has a troubled history when it comes to MaineCare reimbursements. When they fall too low, doctors, dentists and other providers begin to reject MaineCare patients and focus on folks with private insurance, where reimbursement levels are much higher.

Maine residents will feel the impact of the cuts most directly at the local level, where schools and municipalities are slated for big reductions. The pressure to raise property taxes will be intense. The governor warned us that these spending cuts will require “shared sacrifice.” Translation: open your wallets a little wider.

Let’s start with General Purpose Aid (GPA) to education. The state distributes GPA money to local school systems to help cover the cost of educating the 201,000 students in Maine’s 710 public schools for grades K-12. The governor’s proposal would cut GPA spending by $38.1 million this academic year and by $35.1 million next year, for a total reduction of $73.2 million.

In the overall scheme of education spending, these cuts are not wildly draconian. This year, for instance, the state budgeted $990 million in GPA funding, including $42 million from the “stimulus” program. For next year, the original total was $946 million, which includes another $59 million in stimulus money. All told, GPA outlays for the 2010-2011 cycle come to more than $1.9 billion; so a cut of $73.2 million is about 4 percent.

However, the cuts for this year ($38.1 million) will be problematic, coming so late in the academic calendar. And even a 4 percent budget reduction will force school boards to make tough decisions. Teaching positions could be jeopardized as schools opt for larger class sizes to cope with tight finances. (Maine currently has the highest teacher-to-student ratio in the nation, with one teacher for every nine students.) Some schools could begin charging fees for sports and other extracurricular activities.

Higher education – Maine’s university system and community colleges – faces an additional cut of $16.4 million over this budget cycle. Look for higher tuition charges.

Many homeowners also will feel a pinch. A popular program of property tax rebates will sharply tighten eligibility. The Maine Residents Property Tax Program – the so-called Circuit Breaker – will lower the qualifying income threshold from $60,000 to $36,900 for single people and $49,200 for households with two or more people.

According to Maine Revenue Services, some 200,000 households qualified for a rebate last year, but only about 100,000 applied. With the new income cutoffs, about 13,500 of those households who applied last time will be over the limit, losing on average about $400 each.

The reductions also include a $48.3 million cut in revenue sharing – the money the state sends down to municipalities to help cover operational costs. This year, for instance (fiscal year 2010), municipalities will see a reduction of about $23.2 million, which represents a cut of roughly 25 percent from the original total of $112 million statewide. Some of those cuts are part of the supplemental budget and some occur automatically as sales tax revenue falls.

A reduction of this magnitude will present a major challenge to municipal leaders, who will be hit simultaneously with a reduction in two other state funding streams. Reimbursements for the Homestead Exemption, which was previously chopped from $13,000 per residence to $10,000 in the original budget, will be paid late, with 25 percent of the money coming next year. The program is designed to compensate local governments for the property taxes “lost” due to the Homestead Exemption. In the following year, the state’s full payment will arrive late again.

Meanwhile, towns will see a 10 percent cut in the Tree Growth Tax Reimbursement Program, which will cost them $531,000 this year and even more next year.

No one is pretending these cuts will be easy. But the governor’s proposal is just that – a plan or blueprint. The Legislature will spend many weeks this winter going over the details before producing a final budget document. There will be countless hours of public hearings and negotiations as all aspects of these cuts are examined.

In the end, however, we will have to hit the $438 million target to keep the budget balanced. The pieces may move around, but the size of the overall puzzle will be the same.

State Rep. Susan Austin (R-Gray) serves on the Business, Research and Economic Development Committee.