State officials warned lawmakers Tuesday that the pandemic is making it difficult to predict future state revenues and the long-term outlook is volatile.
The words of caution come as the Legislature prepares to reconvene next month and debate what it should do with $822 million in additional revenue the state is projected to take in during the current two-year budget cycle that began July 1.
Last month, the nonpartisan Revenue Forecast Committee estimated that the state would receive nearly 10 percent more revenue than originally estimated in the 2022-23 budget. The details behind those estimates were presented Tuesday to the Legislature’s Appropriations and Financial Affairs Committee.
Forecasting committee Chairman Michael Allen said such an increase in projected revenues has not been seen since the late 1990s, when the increase was followed by a recession.
Allen said he is confident in the projections for the current budget cycle, but he warned that the unpredictability of the pandemic, the additional federal assistance being debated in Congress and economic warning signs such as inflation, supply chain issues, stock market volatility and labor constraints make predictions beyond 2022 “volatile and susceptible to significant to downside risk.”
“We can’t forecast the pandemic, which makes forecasting the economy even more difficult,” Allen said. “We’re in a volatile environment. We’re confident in the next eight to 10 months.”
Allen also alluded to the emergence of the omicron variant of COVID-19, which was first detected in South Africa on Nov. 24 and has since spread around the globe. It is now in at least 17 states, including Massachusetts, but has not yet been detected in Maine.
“As the last couple of weeks have shown, the historic COVID-19 pandemic remains highly uncertain and variants can appear unexpectedly and spread across the globe quickly,” Allen said.
Allen said the revenue forecast also would have to be revised if Congress passes President Biden’s Build Back Better bill, a roughly $2 trillion spending plan to address climate change, expand safety net programs and expand health care. The bill passed the House last month, but faces an uphill battle in the Senate.
State Economist Amanda Rector, who also serves on the forecasting committee, also cautioned that the state could see an uneven economic recovery from COVID-19. Some areas of the state, she noted, still have relatively low vaccination rates and aren’t following guidelines to socially distance themselves to prevent community transmission.
As of Tuesday, Cumberland County had the highest vaccination rate at 78.9 percent, while Somerset County had the lowest at 56.7 percent. And the state continues to break records for the number of people hospitalized with COVID-19. Tuesday marked the 14th consecutive day that hospitalizations broke the 300 mark, as health officials worry that the uptick in cases reflects transmission over Thanksgiving.
“Human behavior underpins several key uncertainties at this time, including vaccination uptake, willingness to continue adhering to social distancing procedures and eventual willingness to return to normal activities once it is safe to do so,” Rector said.
Tuesday’s presentation will help frame the debate about what to do with a $822 million in additional revenue that the state is expected to bring in this year and next. Lawmakers are back in session on Jan. 5.
Gov. Janet Mills is expected to offer a supplemental budget next month outlining her priorities for the money. Mills has signaled a desire to provide “direct financial assistance” to Mainers struggling to afford higher costs of electricity, home heating fuel, gasoline and other necessities.
DIRECT AID LIKELY
It’s unclear what form that would take. Lindsay Crete, Mills spokesman, said the governor “is open to ideas from both Republicans and Democrats in the Legislature, and she looks forward to working with them in a constructive manner to help hardworking Maine people.”
Mills said last month that the revised revenue forecast reflects responsible fiscal management and federal recovery money, which has helped push the state’s Rainy Day Fund to a record $491.9 million – double the amount when she took office. She noted that Maine’s gross domestic product has surpassed pre-pandemic levels.
Republicans have called on Mills to reduce income taxes and return the money to taxpayers.
In a joint statement last month, House and Senate Republicans pointed to a previous proposal to provide $300 million in income tax relief to people who worked throughout the pandemic, by exempting an additional $10,200 in income from state income taxes. That would have provided an estimated average tax cut of $750, they said.
“Designed to mirror the benefit provided to those who received unemployment compensation during the pandemic, the proposal was rebuffed by Democrats unwilling to give up new spending,” Senate and House Republicans said in a joint statement.
Lawmakers also received an update Tuesday on direct cash payments that the state is sending to people who worked during the pandemic. Those payments already have been approved by the Legislature and are being distributed.
Kirsten Figueroa, commissioner of the Department of Administrative and Financial Services, said that checks of $285 have been mailed to 207,000 individuals – nearly 40 percent of the nearly 525,000 people eligible. The rest are expected to be mailed out by the end of the year.
Figueroa said holiday shopping could cause delivery delays at the U.S. Postal Service and, as a result, checks may not reach some mailboxes until late January. She said people should wait until then to contact the state about any missing payments.
GOING OUT ON A LIMB
Allen, the forecasting committee chairman and the state’s associate commissioner of tax policy, said the upward adjustment of estimated revenues is largest since the late 1990s, which preceded a recession. He said the forecast does account for a possible drop in the stock market and other factors, but there is a lot of uncertainty associated with those projections.
“We’re going to be out on a limb on this forecast,” he said. “The idea is to try to make sure we’re not on a limb at the top of the tree. We’re trying to make sure we’re on a limb roughly in the middle of the tree so if we do break we’re not falling all that far.”
Rector, the state economist, predicted that a strong winter outdoor sports season could boost the economy in rural parts of the state. She was also optimistic that people from out-of-state will continue to move into the state, where they can enjoy more space and work from home, though access to housing and adequate broadband remain a challenge.
A special commission recently issued a series of recommendations aimed at making it easier to build housing. Those recommendations, which could ignite a debate over local control, could be considered by lawmakers in the next session.
The group’s recommendations would limit a municipality’s ability to enact strict zoning for housing by allowing up to four housing units to be built on lots currently restricted to single-family homes, allow in-law apartments to be built as a matter of right and remove caps on housing developments, among other things.
And state officials are in the process of standing up the Maine Connectivity Authority to oversee broadband expansion on the state. The authority is expected to apply for additional federal funding by Dec. 27.
“In the out years (beyond the current budget cycle), we expect to see stronger migration into the state because of the interest in the quality of life aspects Maine offers – more rural, less densely populated – brought on by the opportunity to do more remote work,” Rector said.
Send questions/comments to the editors.
