Budget crises

Libertarians and anarchists rejoice. Those among us who rely on government checks and services are anxious and annoyed. Many citizens wonder about what to expect.

Since the state’s June 30 budget deadline approaches and there’s no agreement on an acceptable compromise a government shut-down threatens. We aren’t necessarily talking about Maine, here. There are actually 15 states who have so far failed to pass a budget on the morning of June 29. Readers may wish to keep this in mind when they read the editorials, columns, news reports, press releases, and letters to the editor blaming Paul LePage for refusing to compromise.

Keep two salient facts in mind in order to maintain perspective. First, it takes at least two to compromise; it’s not a unilateral operation. Second, only one of these 15 states has a governor named Paul LePage. Lose sight of these two facts and you will have a hard time following the debate over Maine’s budget crisis.

Illinois and Connecticut stand out, far out ahead of Maine, in the Budget Mess Hit Parade. According to CBS Money Watch the Land of Lincoln may be the first state to seek Chapter 9 bankruptcy protection. This can only happen if Congress amends the law, which seems unlikely.

The bankruptcy solution would not be considered at all if the state’s problem was not so desperate. It’s the only state that’s been operating without a balanced and complete budget for almost two years.

The State of Illinois has unpaid bills of almost $15 billion, about forty percent of its current operating budget. Small business contractors wait six months or more for payment.

The state lotto requires funding from the legislature each year. The current appropriation expires June 30, meaning there’s no authority to pay prizes. Lottery winners are getting IOU’s.

There’s a massive pension crisis. The unfunded pension liability for the state’s five major plans grew 25 percent in one year, reaching $251 billion. Moody’s Investors Service has downgraded the state’s bonds to near ‘junk’ status so it must pay higher interest rates to borrow more money to pay its bills. It appears that 1 in 4 tax dollars will go to pension payments to retired state and local employees, many of whom are now living in states with higher average temperatures and lower taxes.

Back in 2011, when LePage and the GOP-controlled legislature were at work reducing taxes, paying off the huge debt to Maine’s hospitals, and bringing the state’s pension obligations under control, Illinois Democratic governor and legislature had different ideas. They let the pension systems alone and raised taxes across the board on individuals and corporations. They figured an extra $7 billion would solve all the state’s problems.

It didn’t. The problems all got worse. Now the legislature, still controlled by Democrats, proposes a budget that spends $3 billion more than the state has. Governor Rauner, a Republican, refuses to increase taxes to close the gap. So the state had no budget when this column was written.

Connecticut’s situation is not so dire as Illinois’s, but it’s a lot worse than Maine’s. Connecticut now has a bond rating just behind Illinois and New Jersey. By the way, Moody gives Maine an Aa2 rating (putting our state’s bonds in its “high grade” category.) Moody explains: “The stable outlook reflects our view that strong management will continue to soundly manage operations and participant monitoring.”

Gov. Daniel Malloy, taking office the same year as Gov. LePage, faced a multibillion-dollar deficit in a budget enacted by the Democratic super-majority-controlled legislature. Malloy’s solution was his “shared sacrifice” agenda that increased in the state’s income tax, gas tax, sales tax, and estate tax. He also managed to claw $1.6 billion in givebacks from the state employee unions.

In June 2015 Connecticut’s General Assembly passed H.B. 7061 increasing income taxes for high-earners, trusts and estates, decreasing the available property tax exemption and increasing the sales and use tax on certain items. It extended the corporate income tax surcharge, limited the availability of net operating loss carryforwards to offset income in future years and limited the availability of tax credit offsets.

That should work, right? I mean, why wouldn’t it? You want to spend more then you just tax more. Almost any Democrat in Maine’s legislature could explain that to you.

Well, maybe not. This year Connecticut’s deficit reached $5 billion. And according to an analysis by the Pew Charitable Trusts, the state only has $240 million in its ‘rainy day fund’.

Five states out of fifty have a smaller cushion. Maine is not one of them. Maine has $168 million in its ‘rainy day fund’, 4.9 percent of its expenditures, a little below the national median. Connecticut’s fund is just 1.4 percent of its expenditures.

Illinois has no reserve fund. Its rainy day has already arrived.

John Frary of Farmington is a former candidate for U.S. Congress, a retired history professor, an Emeritus Board Member of Maine Taxpayers United, a Maine Citizen’s Coalition Board member, and publisher of FraryHomeCompanion.com. He can be reached at jfrary8070@aol.com.

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