March 29, 2024
BANGOR DAILY NEWS (BANGOR, MAINE

Revenue may trigger cut in sales tax

AUGUSTA — Despite concerns raised by some state analysts, Gov. Angus S. King said Tuesday that Maine’s immediate economic outlook remains robust. In fact, there’s even a remote possibility the governor might have to consider another automatic half-penny rollback in the state sales tax.

Such reductions are required under Maine law whenever state revenues grow by at least 8 percent over the two-year budget cycle. King said revenue growth is more or less on target and that another milestone could be reached because of language in the law that requires a “base-to-base” comparison in revenues.

To the governor’s dismay, the law does not recognize other tax relief programs such as the Homestead Exemption already funded under the budget.

“It’s as if the tax cuts that were passed never happened,” King said. “So we could end up facing a mandatory tax cut. I don’t know if we will, but it’s conceivable that we might pass the 8 percent [threshold] technically, but with phantom dollars that we’re never received in revenue.”

Still, it’s a problem that King would not be all that unhappy about confronting. Maine’s economy was still in recession when the governor was first elected in 1994. At that time, the state’s Rainy Day Fund contained about $5 million. Today, the account holds more than $100 million. King’s first state budget came in at $3.5 billion. Four years later, he is asking the Legislature to fund a $4.5 billion two-year spending package.

Last week, the Consensus Economic Forecasting Commission signaled concerns over the likely decline of personal income growth in months ahead. The announcement caused minor alarm among legislative economic analysts who speculated that the commission’s assessment could change the revenue forecasts that guide the governor’s proposed budget for the next two fiscal years.

King said Tuesday that he will await next week’s recommendations from the Revenue Forecasting Committee before reaching a conclusion on the direction of the state economy. He emphasized that even if personal income growth does decline, it’s not apt to adversely affect the budget.

“You’d think it would, but we’ve been seeing a very significant growth in revenues over the last year or so way beyond that of personal income which has been growing at 4 or 5 percent last year while revenues grew by 10 percent,” he said.

Trying to determine exactly whether Maine is ascending, cresting or descending from the economic rebound of the last four years is “tricky business” according to King who once again is happily dealing with a revenue surplus — this year’s is about $160 million.

“In the past, we’ve tried to be reasonably conservative in our revenue projections and we’ve ended up being too conservative,” he said. “It doesn’t serve anybody’s needs to go through a harsh process of cutting or avoiding tax cuts and then come to find a $100 million surplus at the end of the year.”

Scheduled to present a budget address to the Legislature during the afternoon of Feb. 16, King is expected to emphasize the advances made in the Rainy Day Fund and the need for the state to expand its limits on the fund from the current 5 percent of general revenue to 6 percent. Hoping to avoid the kind of fiscal crisis that former Gov. John R. McKernan rode out in the early 1990s, King will try to find middle ground between lawmakers who want more money for education and others requesting greater tax relief now.

“All of my instincts are to be cautious in revenue projections and have a happy surprise,” he said. “But after a while, if you have a $100 million to $125 million surplus every year — and this will be our third year running — you have to say that maybe you’re being too conservative on your assumptions because some of that money could have been turned into either tax cuts or more money for education.”


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