State expects another budget surplus despite economic uncertainty

State officials expect to collect $283 million more in tax revenue than anticipated during this fiscal year and an additional $489 million during the next two, although revenue forecasters also warned about the potential for an economic slowdown and recession.

The Legislature will decide how to allocate the budget surplus and both parties have said they want to provide relief for Maine residents struggling to pay for heat this winter.

It is the second fiscal year in a row that revenues have flowed into the state treasury faster than anticipated. A state revenue surplus first reported a year ago eventually grew to $1.2 billion, half of which was given back to Maine taxpayers in the form of $850 checks.

The projected surplus for the current fiscal year is largely the result of higher-than-anticipated income tax revenues, forecasters said. The state collected $142 million more than budgeted during the first four months of the fiscal year that began July 1, a trend that is generally expected to continue.

The revenue forecast and debates about how to use the surplus will likely shape the legislative session that begins next week. Both parties have flagged heating and energy assistance as a priority, although no details have been proposed.

Gov. Janet Mills has said her administration is working on a plan to provide some additional financial assistance to Mainers struggling to cope with high home heating and energy prices this winter.

Mills said in a written statement that the updated projections would be “helpful as we finalize an emergency winter energy relief program” to be announced this week. She indicated the assistance would be targeted at middle- and low-income residents.

“I remain deeply concerned about the impact that high energy prices – from home heating oil to electricity – are having on Maine people,” she said. “Later this week, we will release a plan, and work closely with the Legislature, to provide financial relief – particularly for middle-class and low-income Maine people whose incomes are stretched thin right now – to help them remain safe and secure in their homes this winter.”

Mills’ spokespeople did not respond to an email Tuesday seeking details about her proposal.

During their presentation Tuesday, state revenue forecasters warned that economic conditions remain volatile and that revenue trends could change.

State Economist Amanda Rector said the state’s Consensus Economic Forecasting Commission noted the possibility of an economic slowdown because of inflation, high-interest rates, low consumer confidence and a shortage of housing and child care.

“They really highlighted that economic conditions are very uncertain right now,” Rector said, adding that it could take years for inflation to fully resolve itself. “Inflation was a big part of what they were concerned about. Inflation expectations are much higher, more persistent and more widespread that what the federal reserve previously expected.”

Despite longer term uncertainty, the committee increased its overall revenue projection for the current fiscal year by $282.8 million. For the next biennial budget, the committee increased revenue projections by $236.6 million in 2024 and by nearly $224 million in 2025.

Michael Allen, associate commissioner of tax policy, said the state had collected an additional $141.9 million in revenue through October. That’s 8.4% more than budgeted from the first third of the fiscal year, which began July 1.

Allen said the state had collected $97 million in additional personal income taxes, which was 14% over budget, and $19.2 million in additional corporate income taxes, which was 17.2% over budget.

Lawmakers are scheduled to return to Augusta next Wednesday. One of the first orders of business is expected to be heating and energy assistance for struggling Mainers, which consistently ranked as the top issue during the last campaign cycle.

Last year, Mills worked with Republican and Democratic lawmakers to provide $850 rebate checks to more than 850,000 Mainers. That financial relief package cost about $730 million, the funding for which came from a projected $1.2 billion surplus.

Mills has credited Republicans with the idea, but former Republican Gov. Paul LePage described it as a gimmick in his unsuccessful run for the Blaine House this year.

Heating oil is used by 60% of all households, making Maine the most oil-reliant state. As of Nov. 14, the statewide average price for heating oil was $5.71 a gallon, which is a dollar below the high of $6.74. Kerosene prices were $7.23 a gallon and propane was $3.32 a gallon.

And electricity consumers will see a price hike as well.

Beginning on Jan. 1, the new “standard offer” supply rate for home and small-business customers in Central Maine Power’s service area will rise from 11.8 cents per kilowatt hour to 17.6 cents, a 49% hike. The supply rate makes up 60% of a consumer’s bill.