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Gov. LePage's budget takes on hard issues, but still falls short

Spending and taxation questions are addressed without realizing the major changes needed.

Gov. LePage presented his first biennial budget against a backdrop of difficult fiscal issues.

Maine has been for several years on an unsustainable track with the growth in Medicaid (MaineCare) and K-12 education spending reaching levels that we just can't continue to support.

In addition, the issue of unfunded liabilities for state employee pension and health care costs has moved from the shadow to the front burner, largely from projections that indicate these costs will double to a billion dollars per year within a decade.

The Reinventing Maine Government Report from Envision Maine identified this issue as the first priority in its list of eight priorities the state must address in order to build a stronger Maine economy.

One has to give the governor credit for squarely taking on all of these issues in a largely constructive way in his first budget.

The governor's budget proposal totals $6.1 billion for the coming two years, about $300 million more than the current budget.

Because of structural changes to the way the state shares revenue with local governments, this budget is essentially flat-funded, according to Sawin Millett, LePage's finance commissioner.

The budget's main features have been well-documented by the press:

Modest reductions in the state work force -- just 80 cuts from the current level of 13,737.

Medicaid spending would actually increase by $80 million, largely because of additional enrollees in the current difficult economy.

To address the unfunded pension liability issues, state retirees and teachers would be asked to forgo cost-of-living increases for two years and newly hired workers would have to work until age 65 (from 62) to receive full retirement benefits.

A slight reduction in the state's income tax rate, from 8.5 percent to 7.9 percent. This is well short of the governor's stated goal of a top income tax rate of 5.5 percent, but it is a start.

A $63 million increase in funding K-12 education, largely to cushion the loss of federal stimulus money that was received over the past two years.

A promise to reform the welfare system, including eliminating immediate welfare benefits for legal non-citizens, such as newly arrived refugees.

Changing the way municipalities are funded by removing the requirement that they be guaranteed 5 percent of income tax and sales tax revenue.

Placing a two-year freeze on state bonding.

What the governor didn't say was that he was able to reduce taxes largely because the state now expects to collect more than $350 million in additional revenue over the next biennium as a result of the improving economy.

Still, there is enough pain to many vocal constituencies that the governor will have his hands full getting this budget through the Legislature.

Already, the drum beat from the Maine Education Association has begun, with chief lobbyist Steve Crouse quoted as saying : "it's going to be fairly ugly."

Nonetheless, I am not sure the governor has gone far enough in taking on the chronic problem areas of Medicaid and K-12 spending, and in addressing the overall cost of state government.

It may be that the governor is treading relatively lightly in terms of cuts to Medicaid because of the new federal legislation that makes reducing eligibility more difficult.

However, at least one state has been granted a waiver to reduce eligibility in its Medicaid program.

Maine needs to look more carefully at its generous eligibility requirements for certain aspects of the Medicaid program. K-12 spending is another area that should be revisited.

There are ways to encourage school boards to address Maine's most significant cost problem -- overly small class sizes that are expensive and do not provide meaningfully better educational results.

Finally, there is the issue of the cost of state government. Maine was judged "one of the most inefficient rural state governments in the country" by the Reinventing Maine Government report.

The governor's plan for a modest reduction in state employees is not adequate, nor is his proposal to come up with only an additional $25 million in savings in this area in the next biennium. Perhaps the governor simply wants to be prudent about overall cost reduction at a time when the economy is still fragile.

Nonetheless, the Maine economy will not fundamentally improve until we have the structural deficit issues under control. For me, the litmus test is an income tax rate below 6 percent.

If Gov. LePage can get Maine to a point where a 5.5 percent income tax is sustainable, he will have done Mainers and the Maine economy a real service.

This budget is a good start, but it is only a start.