Gov. Mills’ proposed savings halved in state budget after objections

The state budget changes Gov. Janet Mills signed into law this week include savings for the future, but at half the amount the governor originally proposed. 

When Mills, a Democrat, proposed in her budget plan to put aside $107 million as a means to protect Maine’s long-term fiscal health, critiques came from both within and outside of her party. In particular, critics pointed to the state’s unmet needs as well as the Budget Stabilization Fund, or rainy day fund.  

The supplemental budget takes $60 million from the rainy day fund for storm relief, decreasing the fund from $968.3 million, a record high and the maximum allowed under state law, to $908.3 million. However, more funding could go back to the rainy day fund if the state has surplus revenue after the Legislature decides whether to take action on the dozens of bills that still remain in limbo between passage and funding. 

Recent short-term revenue projections have placed Maine in a strong position financially, however Mills has repeatedly cautioned about the need to consider the state’s financial outlook beyond the current biennium.  

The Revenue Forecasting Committee in November projected a $265 million surplus through the end of 2025. 

“That sounds like a lot of money,” Mills wrote in her January State of the State address, “but, like Maine families, we have to look to the future to know what our revenues will be and to plan for the bills that are due in the months and years ahead.”

After the address, the committee announced updated projections for an additional $108 million in one-time revenue in the current biennium — putting the overall projected surplus at about $373 million in the short-term. However, in the next biennium, the state’s revenues are projected to plateau, which Mills cited in defending her proposed savings.  

The Legislature agreed with Mills on an overall need to save — just not as much and with a more targeted approach. 

Instead of $107 million in a new, temporary reserve as Mills proposed, the budget saves $53.5 million, with $30 million for the Education Stabilization Fund and about $23.5 million for the MaineCare Stabilization Fund. These savings will be transferred from the unappropriated surplus of the general fund on or before June 30, 2025.

Targeted savings

While Mills did not respond to a request for comment on the changes to her savings plan, after signing the budget on Monday, Mills said it “takes important steps forward to address our state’s most pressing problems” but that the state “will need to keep a close eye on the budget next year in light of flattening revenues.”

Sen. Peggy Rotundo (D-Androscoggin), who co-chairs the Legislature’s Appropriations and Financial Affairs Committee, told Maine Morning Star that the savings, while smaller, are in-line with the governor’s concerns.

“There was nothing attached to the 107 [million dollars],” Rotundo said of the temporary reserve as originally proposed. “It was really the administration being concerned about covering expenses in the future.” 

The savings now target future expenses in two of the state’s most costly areas: public education and health insurance. 

The education-related savings are intended to go toward shoring up the public school funding formula as well as the forthcoming increased wages for education technicians and other school support staff included in the budget, Rotundo said. 

Also, Maine is expecting additional expenses around MaineCare due to current shortfalls and upcoming rate reform, which the boost to the MaineCare Stabilization Fund can help with, Rotundo said. 

“It’s really just specifically designating money for those two areas, or those two funds,” Rotundo explained, “as opposed to not designating them as was the case with the administration’s proposal.”

Conservatives have maintained objections to the savings and called for tax cuts, including the think tank Maine Policy Institute, whose director of legislative affairs Jacob Posik specifically critiqued more state spending for the public education system and MaineCare. 

Meanwhile, James Myall, an analyst for the progressive Maine Center for Economic Policy, said the state is in a strong position when it comes to savings, pointing to the rainy day fund in particular.  

“We’re pretty pleased actually to see that the Appropriations Committee was not quite as cautious as the governor in putting a lot of extra money into savings,” Myall said. “I think there is this question over the longer term of thinking about sustainable revenue, but we’d certainly rather see these needs being met than to keep putting money into savings funds when there are these outstanding needs that people need to help for.”

A focus on one-time spending 

Throughout the legislative session, Mills and representatives of the Maine Department of Administrative and Financial Services (DAFS) defended the governor’s savings plan in light of predictions for plateauing revenue in the next biennium.

The short-term surplus was primarily because of strong corporate tax revenues, according to DAFS, whose director of communications, Sharon Huntley, cautioned in March “can be volatile and should not be relied upon for a long-term budgeting outlook like individual income or sales tax revenues.”

The budget adds more spending than the governor has said she is comfortable with, however Rotundo said the added spending is done in a way that addresses Mills’ concerns about avoiding ongoing allocations. 

“The $107 million was one-time money and if you look at the supplemental, you’ll see that there’s not a lot of ongoing spending in it, that we were very mindful of the fact that this was one-time money,” Rotundo said. 

The preference for one-time spending from Mills and the budget committee received pushback from both sides of the aisle as well. 

For instance, a number of mental health initiatives that required ongoing funding failed to garner the support of the Democratic majority of the budget committee, and, while advocates for mental health sympathized with the challenge of securing long-term appropriations, they argued that sustainable solutions require sustained investment.

During the final budget debates, some in the Republican minority, typically the party of fiscal conservatism, pushed for greater ongoing spending. Sen. Rick Bennett (R-Oxford), who is a member of the Appropriations Committee, helped lead a last-minute attempt in the Senate to fund the mental health measures and other initiatives left out of the budget. 

“The majority was fixated on this one-time versus ongoing funding basis,” Bennett told Maine Morning Star ahead of adjournment. 

“I accept it to some extent,” Bennett said of prioritizing one-time funding. “It’s a good guardrail. But when you’re dealing with crises, you spend the money that you need to to avert the crises, or solve it.”

Exploring alternative sources for long-term revenue

For all of its one-time allocations, the budget does also increase ongoing spending beyond the current biennium. 

It’s poised to increase spending from the general fund by $162.5 million in 2025-26 and $157.7 million in 2026-27. Current projections show revenue plateauing for those years as well, though a possible shortfall will also depend on whether the revenue projections change when the forecasting committee meets again.  

Myall, the analyst from MECEP, said the state can draw on the $53.5 million savings, in addition to any money already in the education and MaineCare stabilization funds, to help meet this need, although he urged legislators to look beyond savings. 

“The Legislature should be looking at ongoing sources of revenue to fund some of these things,” Myall said. One such proposal, to increase tax rates on the state’s highest earners, passed the Legislature with bipartisan support and is now waiting on Mills’ desk. 

Other options Myall pointed to include raising the estate tax back to the level it had been before it was cut under former Governor Paul LePage or creating a tiered system for the real estate transfer tax. These options, however, are at odds with Mills’ general opposition to tax increases of any kind.