March General Fund shortfall preview of Moody’s projected 22% drop in revenue

FOR IMMEDIATE RELEASE: April 20, 2020
MEDIA CONTACT: Julie Rabinowitz, Director of Policy and Communication, 207-292-2722 ext. 102, Julie@mainepbp.com

AUGUSTA—Maine People Before Politics has issued the following statement upon today’s release of the March Monthly Revenue Report by the Office of the State Controller.

“The March General Fund revenues fell under budget by 2.2 percent, but those revenues were based mostly on the strong economy before the crisis,” stated Julie Rabinowitz, director of policy and communication for Maine People Before Politics. “Going forward the state will see huge losses in income, corporate, and sales taxes as well as hits to the Highway Fund because so many fewer people are driving. Mainers need to know how the state plans on addressing these massive shortfalls in the near and long term.”

Last week, the financial forecaster Moody’s Investors Service released a projection of the impact of the Coronavirus on state governments, as reported by the Bangor Daily News, which puts today’s initial report in context with the losses on the horizon as thousands of people are unemployed and businesses are ordered closed or greatly restricted.

Moody’s analysis for Maine indicates that it would be one of the ten worst-hit states, even factoring in projected federal Coronavirus aid. Moody’s projects that a 10 percent drop in the U.S. gross domestic product (GDP) would equate to an $865 million deficit—more than 22 percent of state revenue, and a 14 percent reduction in GDP would equate to a $1.1 billion deficit.

With only $239 million in the Budget Stabilization Fund (BSF), or rainy day fund, at the end of the last fiscal year, Maine does not have enough reserve funds to cover the shortfalls projected by Moody’s. The BSF is designed to cushion the blow of an economic downturn to give the administration and Legislature time to react and address a revenue shortfall, it cannot fully fund ongoing operations. 

“Given the speed and severity of the recession we are now in, and the devastating enormity of the potential revenue loss, our leaders in Augusta must demonstrate to the Maine people that they are being immediately proactive and not simply reactive. As of yet there have been no publicly announced hiring freezes for non-COVID-essential state positions or a curtailment order by Governor Mills to preserve as much revenue on hand as possible,” stated Rabinowitz.

She continued, “Governor Mills spent almost all of the projected surplus in her first two-year budget, and the supplemental budget passed last month spent even more—even as the economy was shuttering. Those revenue projections will never be realized. The Mills Administration must brief the Legislature in public about the reality of our fiscal situation and tell Mainers how they plan to use the rainy day fund as a stopgap as well as cut spending or raise revenue going forward.  Thousands of Maine families are in financial difficulty. They need reassurance that the Mills Administration will not burden them further with tax increases necessitated by a lack of response.”