Why Maine’s Budget Matters
Here at MC&C, we tend to focus quite a bit on the matters taking place in New York State. But that doesn’t mean that we don’t occasionally pay attention to what’s going on elsewhere. We’ve looked at how other states view Sec. 1031 exchanges, for instance. We’ve also covered budget issues faced by other states. State budgets are an important and useful topic for a variety of reasons. For one, state budgets shed light on many principles of money management. It’s very common to look around at the states in our union and find clear examples of poor fiscal planning. Our readers can learn from the mistakes made by such states and improve their own financial condition. With our own self-improvement in mind, we’ll now look at the State of Maine’s budget and some of the issues facing that state.
More Than Just a Pretty Place
Maine is a common destination for New Yorkers looking to get away from the hustle and bustle of the big city. Maine is home to beautiful scenery and pleasant cities. As we will see, however, Maine is presently saddled with some serious fiscal worries. Recent budget changes have given many analysts and commentators cause for anxiety. Let’s go over the latest budget changes and then highlight the reasons why the current budget may be unsustainable.
Governor Proposed General Fund Budget of $8+ Billion
The Governor of Maine, Janet Mills, proposed a budget of $8.04 billion. This proposal represented an increase of 11% over the previous budget. Part of the impetus behind this sizable increase is the expansion of Medicaid services for residents. The Governor maintains that this budget increase won’t require any state tax increases. Right away, this promise gave cause for alarm, as Maine has a history of increasing taxes to cover budgetary deficits. The new Maine budget proposal leaves very little room for error. If projections are off, or if unexpected expenses turn up, the state could end up suffering dramatically. Budget issues could lead to wage stagnation, unpaid layoffs and other negative consequences for state employees. Tax increases would lead to less money in the pocketbooks of Maine residents.
The Governor proposed the Maine budget under the promise that this increase would be sustainable, but there are plenty of reasons to suspect otherwise. Of course, it may work. But, looking at the situation dispassionately is always the desired approach. Let’s consider some of the reasons why this proposal is cause for concern.
Reasons Why Maine’s Budget May Be Unrealistic
Governor Mills’ budget spends roughly 99.995% of its funds. This means that there is almost no cushion should any unexpected changes come about. And unexpected expenses are almost certain to happen at one point or another. Look at something such as damage caused by natural disasters. If a natural disaster creates damage which must be remedied, this will pose a very clear problem given the constraints of the budget proposal. Another issue is that the budget proposed by Mills spends an old surplus on expenses which are recurring. In other words, the proposal will inevitably lead to a deficit in future years because it draws from funds which won’t be available. New state employees will expect to be paid in future years, for instance, even though the surplus will be dried up. Thus far, Governor Mills hasn’t come forth with a solution to this problem.
Overly Optimistic Projections?
The proposal also rests on an optimistic expectation for the state economy. Though the State of Maine is currently experiencing growth, this likely won’t be the case in the near future. Economic fluctuations are inevitable, and this means that the budget will likely need to tap into reserves at some point. The current margin of error doesn’t seem to allow for that. What’s more, the State of Maine currently owes the federal government $72 million. This debt is associated with the Riverview Psychiatric Facility. What happens to Maine’s budget when the fed comes to demand payment on this debt? The fed could come knocking at any time, and this would be a blow that the budget couldn’t withstand without additional measures.
Finally, it’s extremely difficult to project expenses for Medicaid. Experts can try to come up with projections, but these projections cannot be totally reliable. And if projections underpredict expenses associated with Medicaid then the state will slip into the red.
Maine may be scenically delightful, but clearly the State of Maine has some fiscal issues to work out. This appears to be a clear case of poor fiscal planning. And even though we don’t want to imitate this practice, it should be noted that poor planning is all-too-common in the realm of finance. Very often we structure our current budget without properly accounting for everything, particularly things which aren’t certainties. We prefer to think that the future will unfold in an optimal way, and that any unforeseen events will benefit us. A fiscally smart person knows that this is mistaken thinking, however. We always have to structure our budgets according to a dispassionate analysis of our current and future situation.
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Image credit: Jim Bowen