LePage likely to cut $35 million from state budget, but still considering options

AUGUSTA, Maine — Gov. Paul LePage’s finance commissioner is recommending that state agencies start cutting spending by $35.5 million in the coming weeks to keep the current year’s budget in balance as the state deals with tax collections falling short of projections.

Administrative and Financial Services Commissioner Sawin Millett on Monday sent a letter to LePage and legislative leaders recommending a curtailment “as soon as possible.”

A spokeswoman for LePage said a curtailment is likely, but that the governor planned to review Millett’s recommendations and consider other options to contain spending before issuing an executive order demanding that agencies scale back spending. If LePage decides to order a curtailment, he’s likely to do it this week, said his spokeswoman, Adrienne Bennett.

“I feel steps need to be taken soon to assure that we not get further and further into the fiscal year and find ourselves in the difficult position of not having as much latitude or opportunity to lower and slow down spending,” Millett told reporters. “If we get into the fiscal year, January, February and March, then our options for gaining $35 million in reductions continue to decline.”

Millett’s call for a spending curtailment followed revised tax revenue projections last week that predicted revenues for the current fiscal year — which ends June 30, 2013 — will fall $35.5 million short of earlier revenue estimates. The December report of the state’s Revenue Forecasting Committee attributes much of the depressed revenue picture to uncertainty at the federal level over the resolution of the impending fiscal cliff. Mike Allen, associate commissioner for tax policy, told lawmakers last week that anxiety over the fiscal cliff has helped to slow economic output in the state, especially among businesses that have held off making big investments.

State law requires that the finance commissioner notify the governor and legislative leaders when it appears spending will exceed available revenues. After receiving that notification, the governor can order a spending curtailment.

Millett said it’s too early to know which areas of the budget a curtailment would target. A few areas, including debt service and retirement system payments, are off limits, he said. Bennett said LePage has indicated in the past he’s not keen on recommending furlough days for state employees, a budget-balancing tactic used during the administration of former Gov. John Baldacci.

“We would be asking agencies to make some prioritized decisions on what they could do without,” Millett said.

Any cuts made through a curtailment would be temporary. The Legislature could make them permanent or approve alternative cuts.

The Revenue Forecasting Committee’s report shows that sagging revenues in the sales, corporate and individual income tax categories account for most of the overall revenue decline. The committee also revised its revenue projections downward in the sales, tobacco, fines and investment income categories.

To complicate the diminished revenue picture, the state’s Medicaid program is facing a $100 million shortfall for the current budget year, which the LePage administration plans to address with a supplemental budget package aimed at keeping the budget in balance through June 30, 2013.

And as the administration looks ahead to the upcoming two-year budget cycle, it’s facing the prospect of revenues falling $125.2 million short of previous projections. That grows the structural budget gap — the amount by which expenditures would exceed revenues if state spending continues essentially at the same level, if the state meets all its spending commitments and if actual revenues don’t stray from projections — to $880 million for the two-year budget that takes effect July 1, 2013.

If LePage decides against a curtailment, Millett said the administration likely would address both the Medicaid shortfall and the diminished revenues through that supplemental budget package.

LePage met Friday with Republican legislative leaders and will meet the Legislature’s incoming Democratic leaders, presumptive Senate President Justin Alfond and presumptive House Speaker Mark Eves, for 15 minutes on Tuesday. The meeting will last 15 minutes because the Democrats are scheduled to attend mandatory legislative training sessions.

Last week, Alfond and Eves — who will lead majorities in both legislative chambers — expressed concern at the prospect of an across-the-board spending curtailment.

Democratic leaders on Tuesday said they were most concerned by the limited information available about a potential curtailment.

“Our immediate concern is the lack of details,” said Sen. Seth Goodall, D-Richmond, the incoming Senate majority leader. “Here we are, three weeks after the election and we’re still working to find out what the details are.”

The Republicans’ incoming legislative leaders last week called for quick action to address the budget situation. Rep. Kenneth Fredette of Newport, the incoming House Republican leader, and Sen. Roger Katz of Augusta, the incoming assistant Senate Republican leader, said they supported using a curtailment as a temporary measure to immediately contain spending.

They also urged legislative leadership to seat a new Appropriations Committee, which handles budgets, in the coming weeks before other committees so the panel can get to work on the upcoming budget proposals and so members of the public can offer their input at public hearings.

“For every day that we lose right now before June 30, it’s a shorter period of time in which to deal with those revenue shortfalls and the exceeding expenditures within the current budget,” Fredette said.