Governor Baldacci Unveils Two-Year Budget Proposal
Press Release
Plan Reduces State Spending, Avoids Income and Sales Tax Increases, and Protects Core Government Functions
Governor John E. Baldacci today released the details of his biennial budget proposal for fiscal years 2010-11. The budget accounts for a $330 million decline in revenues caused by the national recession and a structural gap of an additional $508 million.
"We are in the midst of a national crisis, the likes of which have not been seen in a generation. Our country is mired in a recession. We are all called upon to do our part to get through this difficult time," Governor Baldacci said during a budget briefing today in the Cabinet Room. "This budget I'm presenting will be difficult for all of us. But to balance our budget and prepare our State for recovery will require shared sacrifice and a commitment to work together for the greater good."
The national economy has had a direct - and negative - impact on Maine. In the two-year budget for fiscal years 2010 and 2011, Maine must account for a revenue decline of $330 million. The same economic factors that are driving revenues down are also increasing the demand for government services.
The proposed $6.1 billion budget for fiscal years 2010-11 will be about $200 million less than the 2008-09 two-year budget. According to records at the Department of Administrative and Financial Services dating back to 1974, this is the first time that a biennial budget is smaller than its predecessor. The FY 2008-09 biennial budget was $6.3 billion.
"I have taken great care to safeguard core government functions: keeping police on the streets, maintaining the State's ability to respond to emergencies, protecting vulnerable populations - our children, our elderly and our disabled - and limiting, when possible, the ripple impacts of necessary spending reductions on Maine's economy," Governor Baldacci said.
In November, Governor Baldacci took aggressive action to cut $80 million in State spending for fiscal year 2009. His 2009 Emergency Supplemental Budget continues the curtailment and accounts for a revenue decline of $140 million.
The current budget proposal for FY 2010-11 extends the majority of the budget changes included in the supplemental budget.
In September, Governor Baldacci directed every State department and agency to develop plans to reduce spending by 10 percent. Many of the ideas generated by those submissions are included in the budget, and the exercise was the basis for much of the administration's budget discussions.
In October, Governor Baldacci ordered an immediate 10 percent reduction in his office budget. He also canceled raises for State workers not covered by collective bargaining, including members of his staff and senior administration officials.
"I recognized early last year that the national economy was deteriorating, even if we weren't sure how bad things would get, and I took immediate action to reduce State spending," Governor Baldacci said. "Every part of State government, and the programs and services it supports, has a responsibility to share in the sacrifices imposed by this recession."
The $6.1 billion two-year General Fund budget includes:
Spending reductions across State government;
Health insurance cost sharing for State employees. Employees who make more than $50,000 per year will be required to pay a portion of insurance costs;
The elimination of 219 positions, which requires 139 layoffs (The number of State employees will be at its lowest level since at least 1983);
A State-employee retirement incentive;
A continuation of the current strict hiring freeze while ensuring appropriate positions are filled regardless of funding source;
Temporary 10 percent reductions in tax rebate programs, such as Circuit Breaker, the Business Equipment Tax Reimbursement Program, the Maine Tree Growth Program and State-municipal revenue sharing. The Homestead Exemption is not reduced;
Increased fees in the departments of Marine Resources, Inland Fisheries and Wildlife, and Conservation to partially offset potential cuts in frontline law enforcement (Total fee increases in these areas: $4.1 million);
Changes to the tax code, including equalizing the taxes on smokeless tobacco, a change in business taxes that benefits Maine-based companies and a continuation of the estate tax;
Reduced funding for the public financing of gubernatorial campaigns;
Authorization for the Department of Corrections to transfer prisoners sentenced to the department to correctional institutions operated by private providers.
The budget does not increase the sales or income tax or use resources from the State's reserve accounts.
"There will be temptations to raise broad-based taxes to support important programs," Governor Baldacci said. "But raising the sales or income tax to support spending is not the right approach. We must be disciplined and mindful that this national economic crisis is already placing great strains on the people of Maine."
"This two-year budget includes many difficult, but necessary choices. But it also recognizes that regardless of our current circumstances, we must keep an eye toward the future and invest in those areas that will create economic strength," Governor Baldacci said.
Included in the budget is a placeholder for an increase in Federal support for MaineCare, the State's Medicaid program. The Baldacci administration conservatively estimates $98.8 million in increased funding for MaineCare to be included in President-elect Obama's economic stimulus package. The estimate is based on reports from Washington on increased funding for health care.
"Given the already serious spending reductions included in this budget, it is dangerous and unnecessarily alarming to propose further cuts that we believe will be offset by Federal support," Governor Baldacci said. "If the time comes that we need to find an alternative to this approach, I am prepared to do that."
The budget invests new money in childhood immunization and preparation for a possible pan flu epidemic, maintains eligibility in MaineCare, maintains the Red Tide monitoring program, and does not reduce police officers, including State Troopers, Game Wardens and Marine Patrol Officers. It also funds Opportunity Maine, a tax incentive program that encourages recent college graduates to live and work in the State.
In addition, funding for K-12 education in fiscal years 2010-11 will be maintained at $959 million per year, roughly the level recommended in the Governor's 2009 Emergency Supplemental Budget.
Higher education funding will be reduced by about 2.4 percent, a much smaller cut than was necessary for the 2009 Emergency Supplemental Budget.
While the budget seeks $2 million in savings from the Judiciary, it also provides new funding of $1.8 million for indigent defense. Overall, the Judiciary's budget will increase by almost $6 million per year over FY 2008-2009 funding.
In addition, the budget meets the long-term goal of reallocating the funding for the State Police between the General Fund and the Highway Fund. The General Fund will account for 51 percent of State Police funding, while the Highway Fund will provide 49 percent. The change amounts to a $5.7 million General Fund transfer to the Highway Fund.
The groundwork for this budget began in November 2007 when the Governor created his Council on Competitiveness and the Economy. The Council has worked with McKinsey and Co., a management consulting firm that advises leading companies on issues of strategy, organization, technology, and operations.
McKinsey has undertaken a significant review of Maine government at all levels that has helped direct many of the initiatives included in the FY 2009 Emergency Supplemental Budget and the two-year budget that is being released today.
The McKinsey report has identified between $100 million and $180 million in potential savings over three years. The report focuses on five key areas: K-12 education, the Department of Health and Human Services, corrections, municipal government and State purchasing.
McKinsey identified opportunities for savings in continued administrative reform of K-12 education; a reduction in the reimbursement rate for critical access hospitals, which is included in the FY 2009 Emergency Supplemental Budget; better coordination of capacity between State and county facilities and closing unnecessary facilities within the Corrections system; and greater municipal cooperation on management, purchasing, administrative functions and service delivery.
The report also identifies areas in which Maine has made significant progress in reducing administrative costs.
The Governor also announced that the budget and accompanying legislation would continue the mission of seeking efficiency.
The budget includes language to facilitate improved cooperation and joint purchasing among the University of Maine System, Community Colleges and Maine Maritime Academy, and between higher education institutions and State government. It also includes a consolidation of information technology operations within State government.
In addition, the budget sets aside $1.5 million in incentive funds for municipalities that seek to consolidate service delivery and administrative functions with regional school units.
"I understand that municipalities are being hit hard by the recession and declining State dollars," Governor Baldacci said. "But I also believe that there is great opportunity for savings for municipalities that take a more regional approach to providing administrative services. This funding will help those communities willing to consider change to use alternatives to their current way of doing business."
Separate legislation will be introduced seeking to improve the administrative structure of the State's natural resources agencies and to adopt a new structure for the Department of Economic and Community Development that emphasizes a regional approach to development and flattens layers of administration.
"I know that the increase in fees for hunters, fisherman and state park users is not ideal," Governor Baldacci said. "But I am also presenting an alternative to offset the fees with the savings achieved by reducing the number of natural resource agencies from four to one."
Governor Baldacci also commented on the uncertainty created by the recession, but his optimism that circumstances will improve.
"Maine will be tested by the current national recession and other unforeseen challenges," Governor Baldacci said. "But a consistent, disciplined approach to spending and taxation, a smaller, more modern and more efficient government structure, and smart investments in education, research and development, health care and economic development will usher in a new era of prosperity and strength."
"Our parents and grandparents suffered through the Depression and World War. They understood that tough times require sacrifice and ingenuity," Governor Baldacci said. "They made those tough choices and built a more prosperous world. We will do the same."
RETIREMENT INCENTIVE
This $10,000 lump sum payment retirement incentive is available to State employees who are otherwise eligible to retire effective July 1, 2009. For employees in Retirement Plan 110 (referred to as the Regular or Normal Plan), employees who were employed prior to July 1, 1983, must have at least 25 years of State service and be 60 years old. (These employees are referred to as "pre-cliff "). For employees who were hired after July 1, 1983, they must have 25 years of service and be 62 years old. Employees in Special Plans must meet the age and years of service eligibility criteria set forth for their plan.
The application period will be between July 1 and Aug. 15, 2009. The retirement date will be Aug. 31, 2009. The bonus will be paid in January 2010. The position that is vacated will be frozen from Sept. 1, 2009, until June 30, 2011. If this position is deemed essential and must be filled, the department has to freeze another position to achieve the same level of savings.
Employees who retire under this plan will receive their retirement benefit including health insurance and the $10,000 lump sum payment. The annual savings of this initiative, all funds, is $7.2 million.
HEALTH INSURANCE
Beginning July 1, 2009, State employees whose annual salaries are equal to or greater than $50,000 will be required to make a contribution toward the cost of their health insurance coverage.
Historically, the State has paid 100 percent of the premium for employees. Under the proposed plan, employees with annual salaries of $50,000 to $89,999 will be required to contribute 5 percent of the cost of their coverage; employees earning $90,000 or more will have to contribute 10 percent of the cost of their coverage.
Employees earning less than $50,000 per year will be unaffected by this change. Similarly, dependent coverage remains unchanged.
The annual cost of the individual premium in fiscal year 2010 is projected to be $8,126 and for fiscal year 2011, $8,614. Total savings, all funds, arising from this change is approximately $1.05 million per year.
DEPARTMENT OF CORRECTIONS
Despite difficult budget challenges, the Department of Corrections will see an increase in its budget during 2010-2011. The Department will see a roughly an $18 million increase in funding over 2008-2009.
The Department of Corrections plans to redistribute the prisoner population to reduce overall costs by contracting the housing of close and medium custody and longer sentenced prisoners to a private facility. The daily costs of boarding prisoners at an out of state facility are under $70 per day compared to the department's average rate of $103 per day.
The budget invests in the establishment of a redesigned, efficient corrections system that will meet the needs of both the State and county correctional facilities and assures ongoing property tax relief through additional funding for the newly created Board of Corrections.
The budget continues, but does not expand, use of county jails at the marginal rate of $22 per day.
39 additional positions are eliminated for a total reduction, including the supplemental budget reductions, of 64 positions.
The budget plan:
Continues the reductions contained in the supplemental budget;
Closes the second housing unit at the Charleston Correctional Facility;
Reduces contracted services by $500,000;
Closes a 90-bed housing unit at the Bolduc Correctional Facility in Warren;
Closes a 40-bed minimum security facility at the Downeast Correctional Facility in Machiasport;
Closes a 94-bed medium security housing unit at the Maine Correctional Center in Windham;
No facility is being closed completely;
Contracts with a private vendor for the housing of 118 prisoners. The prisoners to be housed in an out of state facility will have long sentences and minimal family ties in Maine. These prisoners will be returned to Maine with one year remaining on their sentence for transition and reentry planning and programming;
Double cells two additional pods at the Maine State Prison, adding an additional 84 beds within existing resources.
FY10-11 HIGHWAY FUND BUDGET
Highway Fund (HF) revenues for FY10-FY11 are $648.9 million, which are down 3% from the FY08-09 biennium.
This budget allocates between HF Agencies as follows:
78% MaineDOT
11% Secretary of State
10% Public Safety
1% DAFS
As provided by Public Law 2007, Chapter, 470, 7.5% of fuel taxes, being $37.7 million, will be transferred to the Maine Municipal Bond Bank for capital transportation purposes.
This budget reduces the portion of the State Police budget paid by the Highway Fund from 60% to 49% pursuant to Public Law 2007, Chapter 682. This represents an annual HF savings of about $5.7 Million, which has been used to provide debt service for a $50 million TransCap Revenue bond for highway reconstruction, as provided by Public Law 2007, Chapter 682.
This budget includes the elimination of 137 full time equivalent (FTE) positions. Fifty two (52) of these are currently filled. The breakdown between Highway Fund agencies is as follows:
FTE, filled
MaineDOT - 118, 44
Secretary of State - 16, 5
Public Safety - 3, 3
Total - 137, 52
These position eliminations reduce the Highway Fund demand by $14.7 million and reduce the Federal and Other Funds by $4.7 million, for a total savings of $19.4 million for the biennium.
The MaineDOT position eliminations noted above represent almost 6% of all MaineDOT positions.
MaineDOT eliminations were designed to minimize impact to frontline operations. There are no plowing or bridge maintenance layoffs.
The eliminations primarily impact management and support functions. Though confidential (non-union eligible) positions represent only about 5% of all MaineDOT positions, 23% of the proposed layoffs are Augusta-based, salaried, confidential positions.
Further, almost 20% of all MaineDOT Augusta-based, salaried, confidential positions were eliminated, representing 18 positions.
When the FY 2010-11 budget is passed, MaineDOT will have eliminated almost 200 positions over the past five years, representing 9% of its workforce.
The Capital account historically has been bolstered by Federal Funding, General Obligation bonds, TransCap Revenue bonds, and GARVEE bonds. The anticipated federal stimulus package may also significantly supplement this account on a temporary basis.
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