Maine Government plays critical role protecting people and jobs during Recession

MECEP Response to New Report by Envision Maine September 29, 2010

By Ramona du Houx - September 30th, 2010 · 

In an election year reports on the state of Maine’s economy are always numerous, add the fact we are climbing out of the worst recession since the Great Depression pundits are grandstanding and producing new reports. “Reinventing Maine Government” produced by Envision Maine, written by Alan Caron, David Osborne and Joshua L. Weinstein, is another analysis.

The report recommends reducing the size of the Legislature, reducing the number of counties from 16 to eight, and increasing spending on higher education. These ideas were also in the Brookings Report on Maine, in 2007. Some other consolidation ideas recommended by Brookings have been put into effect. The Envision report neglects the fact that in the last seven years state government has cut over 1,000 jobs (about eight percent of the workforce), consolidated services and used IT technology to network between agencies, and to save funds.

While Governor John Baldacci has started to consolidate services for all levels of government he readily admits more of this work needs to be done. On a national level consolidation was a topic at the National Governors’ Association meeting because, done right, it works. It saves funds and streamlines services giving people better outcomes.

The report also neglected the fact that Maine’s correctional facilities have been consolidated and the results have seen cost savings and a more efficient correctional system.

Some of the other ideas in the Envision report like cutting welfare, and health care expenses to be in line with national averages have already been analyzed by state government and seen as detrimental to the health and well being of the people of the state of Maine.

At a time when the safety net is needed more then ever putting forth an analysis to cut services could be considered partisan politics.

In 2002 Governor Baldacci faced a $1.2 billion deficit. He brought state finances in line by consolidation efforts, and small fee increases. He never raised broad based taxes, and before the recession the state had a surplus.

The state has managed to balance the budget without increasing taxes- while maintaining needed services for the people of Maine, during a global recession. Maine’s unemployment rate is lower than the national average. Despite the recession the Governor and the legislature put forth a bond package that voters approved to invest in Maine. The package employed 2,000 people in infrastructure projects for roads, bridges, railroads, waterworks and educational facilities.

The following is a response by The Maine Center for Economic Policy to the Envision report:

Maine’s Current Budget Shortfall Results from the Great Recession

Maine’s government did not cause the financial meltdown and an $8 trillion housing bubble. It was Wall Street that played fast and loose with our money and crashed our economy, and now it is the government – from federal to state to municipal – that is picking up the pieces, taking care of people who have lost jobs, families that lost homes, and small businesses that lost customers.

While future prosperity hinges on public investments in infrastructure, education, job retraining and health care, government’s most elemental role – particularly during an economic catastrophe – is to protect its most vulnerable citizens. In Maine, as many as 100,000 people are unemployed or underemployed as a result of the Recession and tens of thousands of Mainers have lost their employment-based health insurance.

Maine has responded by leveraging federal funding (largely the American Recovery and Reinvestment Act fund) with its own reduced resources to extend a helping hand to Mainers hit by the Recession, improving their access to unemployment benefits, training, food assistance and health care. Without such timely help, many more people could be facing poverty and severe distress. Massive budget cuts during an economic downturn undermine government’s ability to respond when it is needed most and will not result in any meaningful savings. Such cuts would also lead to more job losses and further deterioration of our infrastructure, schools, health care system and ability to enforce existing protections thereby delaying economic recovery.

Maine Has Been Prudent in Budgeting and Taxing

In recent years, Maine has worked in a bipartisan manner to craft budgets that reflect our values and demonstrate fiscal restraint.

Maine’s own spending has declined in recent years reflecting an awareness of fiscal realities. General fund expenditures are lower now than they were in 2008. Adjusted for inflation, they are actually lower than they were in 1999.

Maine is in the middle of the pack when it comes to taxes. In 2008, Maine ranked 26th in the nation, was lower than the national average, and 2nd lowest in New England based on per capita revenue. This measure, produced by the U.S. Bureau of the Census, includes all revenues collected by state and local government including fees.

Maine did not have a pension problem until the Recession. In fact, to supplant the current system with a mix of social security and 401k type of retirement fund would actually cost more. This finding is documented in the Envision Maine report but ignored subsequently.

Maine has historically carried less debt and paid back debt faster than most other states. Its debt interest payment has remained below the established 5% threshold for general obligations as a percent of General Fund and Highway Fund revenues.
Comparisons of state spending to personal incomes result in a distorted picture. Just because median incomes in Maine are approximately 91% of the national average doesn’t mean we should spend 91% of what other states spend on road construction, health care and education for example.

Maine Should Continue to Focus on Health Care and Maximize the Benefits of National Reforms

Maine has some of the highest rates of insurance coverage in the country and, in recent years, has seen increases in health care costs that are below national averages. While it has taken time to achieve these results and much work remains, now is not the time to step away from these efforts. This is particularly true since infrastructure and capacity developed in the last six years leaves

Maine well-positioned to take advantage of national health reform and contain health care costs in years to come.

The Envision Maine report calls our attention to these issues but creates a distorted view of Maine’s health care spending by overlooking key facts about our current program. MaineCare provides access to health care for low-income individuals and families. Much of MaineCare’s budget is federally-funded and reimburses health care providers for services to children, the elderly, and people with disabilities. Expanding eligibility to parents and childless adults has helped Maine achieve relatively high rates of health insurance coverage at a cost that is less than what it otherwise would have been. Extending drug benefits to seniors has allowed the State to reduce the cost of prescription drugs at significant savings. Suggesting that Maine move closer to an arbitrary spending average on health care would undercut these efforts and may create even greater fiscal challenges since each dollar Maine spends on reimbursements to health care providers is matched by three dollars from the federal government.

MECEP’s Upcoming State Revenue and Spending Analysis

As this report shows, the complexity of public programs demand rigorous research and analysis. It is not easy to quantify potential savings from proposed cuts; neither is it necessarily productive to compare states or state and national levels without fully factoring in regional, demographic and other critical differences. Ultimately, it is not simply the size of government that matters but rather a high level of transparency and accountability that guides government operation.

As always, MECEP is committed to ensuring that our government plays an effective role in building a more equitable and sustainable economy for all citizens. Accomplishing this requires effective citizen engagement and productive collaboration between public and private sector alike. In the coming week, we’ll release MECEP’s latest analysis of Maine’s revenue and spending. We hope it will provide an honest perspective on the ongoing discussion of government efficiency and support a fair and balanced approach to our tax and budget policies.