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Maine Still Feeling Impact of Recession

By   /   March 11, 2011  /   No Comments

As state officials cobbling together next year’s budget try to plug a $436 million hole, the Center for Budget and Policy Priorities, a non-partisan policy institute, says Maine is not alone. 

In a recent report, the center estimates that 44 states and the District of Columbia are projecting budget shortfalls totaling $112 billion for FY 2012, which begins July 1 in most states. 

According to the report, slumping tax revenues and heightened demand for state-funded services are beleaguering state finances.   

Tax revenues in Maine are 10 percent lower than pre-recession levels. In the wake of the worst recession since the 1930s, total general fund revenues tumbled from $3,1 billion in FY 2008 to the projected $2,8 billion in FY 2012.

Spending on state services, conversely, has escalated.  Food stamp enrollment has expanded, Medicaid rolls are growing, and outlays on General Assistance benefits have increased.  

The authors of the report also point out that curtailed federal stimulus funding will adversely affect state’s abilities to balance their budget without resorting to further cuts or tax increases. 

Maine’s Revenue Forecasting Committee predicts that Maine will not attain pre-recession revenue levels until FY 2013. 

But even that prediction might be too sanguine, according to Maine’s Director of Economic Research, Michael Allen.  While the recovery is gaining speed, Allen said unrest in the Maghreb could hamper progress. 

Allen points out that Maine’s geographical features make it vulnerable to oil shocks.  Mainers rely heavily on two important petroleum derivatives: gasoline to navigate the state’s expansive rural areas, and heating oil to warm many of the nation’s oldest homes. 

Economic research at Maine Revenue Services indicates that rising oil prices were a contributing factor to declining sales tax growth between FY 2006 and FY 2008.  While most of the country grew during the period, Allen said that higher gas prices upended consumer and business spending in Maine.

Aside from volatile oil prices, Allen said that anemic labor market growth could also derail the recovery.

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Stephan Burklin