AUGUSTA (AP) -The Baldacci administration reported Monday that the state General Fund finished the 2007 fiscal year with a surplus of $19.1 million and the state's Highway Fund finished with a surplus of almost $1.7 million.

"The state of Maine has closed the fiscal year with a very modest surplus, which we are making available for hospital payments as agreed upon," state Controller Edward Karass wrote in a summarizing memo to Gov. John Baldacci.

"After other adjustments, replenishment of the Contingent Account and the Loan Insurance Reserve Account amounting to $344,791 and $1 million respectively, the remainder of $17,790,584 is available to be transferred to the Department of Health and Human Services to honor the commitment you made to pay past due bills owed by the state to the hospitals."

Officials said Maine also finished the fiscal year with $156.1 million in reserve funds.

"Maine is on firm financial footing," Baldacci said in a statement.

"We have built our reserves from zero when I took office to more than $156 million today, and we have finished the year with a modest surplus."

Increased payments to hospitals is part of an agreement between the Baldacci administration and Maine hospitals that was announced in October 2006.

"The surplus allows us to move forward with our commitment to Maine hospitals," Baldacci said. "We reached an agreement, and my administration will honor that agreement."

Increased funding in fiscal year 2008 is designed to bring payments to hospitals more in line with their actual costs under the state Medicaid program.

Officials said Baldacci will submit a supplemental budget early in 2008 to fully fund a 2008 commitment.

"Our additions to the Budget Stabilization Fund, coupled with the additional $29 million deposit to the Budget Stabilization Fund on July 1 of fiscal year 2007 and the accrued interest significantly strengthen the state of Maine's financial position going forward," Karass wrote. "We must continue to be vigilant to ensure that we expend our resources for those services and purchases which are necessary and add value to state government's delivery of services to the citizens of Maine.

"Finally, there are many adjusting entries pending our final review for the year end as we begin the Comprehensive Annual Financial Report; however, at this time, I believe that these adjustments will not be material," Karass wrote.

Tracking General Fund revenue trends has been difficult for state government fiscal experts.

In March, the state's Revenue Forecasting Committee said General Fund revenue for the rest of the current fiscal year, which ends June 30, would be almost $34 million less than expected. At the same time, the panel reduced its revenue forecast for the subsequent two years by another $40 million.

The downward adjustments were attributed largely to poorer than anticipated corporate tax receipts.

Then in May, responding to a more favorable than expected performance on the individual income tax line, the forecasting panel increased General Fund revenue estimates by $17.8 million for fiscal year 2007 and by an additional $1.5 million for the 2008-2009 biennium.

Through the year, legislators have forged bipartisan compromises on spending initiatives.

In February, lawmakers overwhelmingly affirmed a unanimous Appropriations Committee deal on a $127 million supplemental budget bill for the current year.

In June, Maine lawmakers enacted a $6.3 billion biennial budget package, setting spending priorities for the two years beginning July 1.

Tight revenue for Maine state government as one fiscal year ended on June 30 and a new one began on July 1 virtually assured that $82 million being counted on for bolstering the state's compensation system for hospitals would not be immediately available.

The state's new two-year budget includes a provision to direct a lion's share of any surplus money - known informally in Appropriations Committee circles as the Cascade - toward boosting payments to hospitals for their costs of serving Medicaid patients under the program known as MaineCare.

Availability of $82 million was first envisioned publicly on Oct. 11, 2006, when with much fanfare a settlement deal between the Baldacci administration and the hospitals was announced.

Under the plan as spelled out at that time, the state would raise hospitals' weekly payments by including $82 million in state funds for hospitals in state fiscal years 2008 and 2009. That would produce $221 million in combined state and federal funding, a joint statement by the parties said.

During those same two years, the state would include $20 million to pay for 2004 hospital settlements. That would produce a total of $54 million in state and federal money, according to the Baldacci administration and the hospital association.

The agreement calls for another $102 million in state money - for a total of $275 million in state and federal funds - to be budgeted for fiscal years 2010 and 2011 so that all remaining MaineCare hospital settlements would be covered.

To date, the administration and Legislature have come up with the $20 million for 2004 hospital settlements.

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