Monday, February 13, 2012

Back to the Past

Sawin gives the bad news.

Maine's Finance Commissioner Sawin Millet has always been a fiscal conservative. So it came as a bit of a surprise that in November he tolerated upward revisions to revenue projections coming from the Legislature's Revenue Forecast Committee. That committee, it turns out, may have been overly optimistic about how the rest of the State's fiscal year, ending June 30, will turn out.

Millett now reports that revenues in January lagged projections by almost $40 million, a huge miss. $15 million of the shortfall was due to higher-than-normal income-tax refunds, meaning that filers ended up making a lot less in 2011 than they had the year before. We know also that federal payroll withholdings took a nose-dive in mid-January. Further evidence of an economic slowdown comes from the chart below, showing deliveries of gasoline to retailers. Can you say Cliff Drop?

The fall-off in gas sales is consistent with Sawin's observation that sales-tax revenues are softening in Maine. It may be time to crank those revenue projections back to pre-November levels.

[update, February 14--]
The State of Maine is getting sued over alterations made earlier this year by the Legislature to benefit plans for state retirees. If the plaintiffs prevail--and their defined-benefit retirement plans are kept intact by the courts--the State will be in a world of hurt. Poor returns in the MainePERS investment portfolio over the past five years, with more of the same likely over the next five years, mean that the General Fund will have to cover the shortfall.

[update, February 23--]
Speaking of shortfall, Commissioner Millett is now penciling in a $14 million shortfall in the state budget for this fiscal year. Notice I said pencil. Revenue forecasters will be surprised at the blow-up just around the corner. Interestingly, $5.7 million from the recently announced 49-state mortgage settlement with the biggest banks on Wall Street will get thrown into the $14-million hole like so much silly putty. That money was supposed to go for relief to distressed home borrowers. The settlement, by the way, still awaits court approval. Knowing Sawin, I'll bet he has a big fat eraser on the end of his pencil.

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