Maine still hasn’t fully recovered from the recession of 2008. Economic growth remains sluggish, and we continue to face significant economic challenges. The legislature must focus first on making Maine’s economy more resilient and on improving the quantity and quality of Maine’s workforce. LD 1606 is a step in the wrong direction.
Good morning Senator Hamper, Representative Rotundo, and members of the appropriations and financial affairs committee. My name is James Myall. I am a policy analyst at the Maine Center for Economic Policy. I am here today to testify against LD 1606, “An Act to Provide Funding to the Maine Budget Stabilization Fund.”
Maine still hasn’t fully recovered from the recession of 2008. Economic growth remains sluggish, and we continue to face significant economic challenges. The legislature must focus first on making Maine’s economy more resilient and on improving the quantity and quality of Maine’s workforce. LD 1606 is a step in the wrong direction.
While the Budget Stabilization Fund is intended to provide a cushion for future “rainy days,” it’s raining now. State funding for education, health care, and infrastructure as a share of Maine’s economy is near its lowest level in 30 years.1 Adjusted for inflation, Maine schools are receiving $738 less per student per year compared to 2008.2 Maine’s roads and bridges are crumbling to the detriment of businesses. And Maine is the only state to see no improvement in the percentage of people with health insurance since the implementation of the Affordable Care Act.3
Fortunately, we have the ability to address these challenges. By committing available resources to fixing some of the current holes in the state’s roof and shoring up current sources of revenue, we can put Maine back on a path to prosperity. When the economy starts booming again, that’s the time to replenish the Budget Stabilization Fund. For now, the legislature must help repair the leaks – some of which have gotten bigger in recent years.
By maintaining state funding for education, health care, and infrastructure, lawmakers can actually strengthen Maine’s financial position. Credit ratings agencies such as Standard and Poor’s (S&P), Moody’s, and Fitch use a variety of factors to assess a state’s credit-worthiness. I have included the S&P ratings factors with my testimony. Among these, job growth, broad-based revenue, and revenue predictability are important considerations. The size of the Budget Stabilization fund is considered, but is only one factor among more than 30.
In an April 2015 rating for Maine, Fitch cited Maine’s “weakest recovery amongst the states” and the “phase-in of income tax reductions…which could pose budget challenges for the state” as reasons not to upgrade the state’s credit rating.4 Kansas’s credit rating was downgraded by both S&P and Moody’s in 2014 due to their “belief that there will be additional budget pressure as income tax cuts scheduled in future years go into effect.”5 These concerns about budget pressures created by tax cuts provide a cautionary tale for lawmakers as you take up the LePage administration’s recent proposal to eliminate the estate tax.
By contrast, directing funds to the rainy day fund now is no guarantee of improved credit-worthiness. New Hampshire’s credit rating is higher than Maine’s despite the state having passed a 2015 budget that emptied its budget stabilization fund entirely.6 The reality for many states, especially those like Maine and Kansas that cut taxes in the wake of the recession, is that the recovery of state revenues is far from complete and that is a more pressing concern than rebuilding reserves at this time.
The most reliable way to improve Maine’s economic outlook is to bolster state funding in a number of key areas. Maine needs an educated, healthy workforce and access to good infrastructure to be more productive, create jobs and attract new businesses and residents. At a time when we are shortchanging our schools, letting our infrastructure crumble beneath us, forgoing federal funds that could provide health care to tens of thousands of Mainers and create thousands of jobs, and triggering property tax increases at the local level just to maintain the most basic levels of public services, LD 1606 is not the solution. It is raining now and our roof is leaking. We need to fix it.
Thank you.
1 MECEP analysis of gross state product (GSP) data and historical revenue figures from the Office of Fiscal and Program Review.
2 http://www.cbpp.org/research/most-states-still-funding-schools-less-than-before-the-recession
3 MECEP analysis of American Community Survey data. See: https://www.mecep.org/new-census-data-reveal-maine-is-the-only-state-that-has-not-experienced-an-increase-in-the-percentage-of-people-with-health-insurance-since-aca-passage/
4 http://www.businesswire.com/news/home/20150331006639/en/Fitch-Affirms-Maines-GOs-AA-Bond-Bank#.VSPgpvnF-Tt
5 http://www.bloomberg.com/news/articles/2014-08-06/brownback-s-tax-cuts-prompt-s-p-to-reduce-kansas-s-credit-rating
6 http://www.businesswire.com/news/home/20141208006235/en/Fitch-Rates-Hampshires-145MM-Bonds-AA
