Republican radio address

For the weekend of December 5-6, 2009

Greetings, this is Josh Tardy, leader of the Republicans in the Maine House.

Four weeks from now, the Legislature will convene for a Second Session that will be anything but pleasant. The dominating factor will be the continuing shortfall in state revenues. In July, a new two-year state budget went into effect, totaling $5.8 billion. That is $500 million lower than the last budget, marking the first time in decades that the state’s budget has actually gone down. Next month, legislators will be told that we have to cut an additional $383 million. Revenue from the sales tax, the corporate tax and the income tax is running below worst-case projections.

Governor Baldacci has said he will not approve any new taxes to get the state out of this financial hole. Republicans agree with the governor. Raising taxes in a recession is counter-productive and unfair to Mainers who are trying to make ends meet during these extreme economic conditions. Despite the governor’s stance, we are already seeing editorial proposals to raise the sales tax, at least temporarily, to stave off cuts in the two major budget sectors – public education and health and human services. Together, those two areas account for 80 percent of General Fund spending. But temporary taxes would not disappear anytime soon, because the economic outlook isn’t much brighter for the next budget. The latest figures from the Revenue Forecasting Committee show that revenues in the 2012 and 2013 period will fall $300 million short of projections.

And that’s not the worst of it. The state retirement system will need a doubling of state cash in the next budget to make up for recession-related investment losses. That would mean a General Fund contribution to the pension system of $900 million to $1 billion, compared to $436 million in this biennium. Such a huge expense would squeeze spending even tighter and lay waste to large portions of the budget. If this Legislature faces a fiscal crisis, the next one would face an all-out emergency. The only hope is that the economy comes steaming back to life in a big way; but we have already seen the stimulus program drop hundreds of billions into job creation, with little long-term payoff.

The drop in tax revenue is directly correlated to the rise in unemployment, of course. Maine’s official unemployment rate is 8.2 percent; but some economists say it is really higher than 15 percent, once you include laid off workers who are now underemployed and others who are so demoralized that they don’t even look for work anymore. We do know that enrollment in Medicaid has jumped by more than 10,000 people during the recession, to a total of 280,000. That’s roughly one in every four Mainers under age 65, when Medicare takes over. The addition of another 10,000 folks to the Medicaid system will only deepen the state’s financial distress. In 1998, when MaineCare had 154,000 people enrolled, the state was much better equipped to handle financial turbulence.

The obvious solution to our fiscal problem is to get unemployed folks back to work. But even that goal was dealt a setback this week. The State Department of Labor announced that unemployment insurance rates next year will jump 65 percent to replenish the unemployment trust fund. Unemployment premiums are paid on the first $12,000 in wages for each employee, and the total amount of the premiums is expected to increase from $83 million this year to $137 million in 2010. That money won’t appear out of thin air. Those dollars will have to be paid by employers, and to make it up they will hire fewer workers or let go some of their present employees. Small businesses already operating on the edge could close their doors.

On December 18th, the governor is scheduled to deliver his supplemental budget to make those $383 million worth of cuts. But the governor can only propose; the Legislature will have the final say on where the cuts will fall. Based on budget realities, however, it is almost inevitable that we will see deep reductions in education and health and human services. As the famous bank robber Willie Sutton once said, he robbed banks because that’s where the money is. In this case, the big money is concentrated in those two categories. And there is no escaping the fact that the fallout will be horrendous. Tuition at the UMaine system and the community colleges could rise significantly. Local schools will be forced to economize further; some are already talking about fees for kids to play sports. Jobs for teachers and school administrators could be placed in jeopardy. The ultimate backstop will be the property taxpayers, who could very well see big tax hikes to cushion the impact on the schools.

I wish I had better news to report. But unfortunately, our state and our nation face a long road back.

This is Josh Tardy. Thank you for listening.