Budget crunch looms; revenue likely to fall short

BAR HARBOR — In the midst of an economic downturn, the state of Maine and its hundreds of communities could have a bumpy road ahead of them. 

As the novel coronavirus continues to take a financial toll throughout the country, states and municipalities are tasked with providing assistance and services to millions. Those localities are being asked to do so as they anticipated massive budget shortfalls in the coming weeks and months. 

“It’s going to be a tough year,” said Eric Conrad, a spokesman for the Maine Municipal Association. “I think all of our members know that, and we’re all just bracing and waiting to see what things are going to look like.” 

According to a study released last week by the Center on Budget and Policy Priorities, losses in revenue resulting from the pandemic could tear a $500 billion hole in state budgets. That figure doesn’t include the local level, where 88 percent of the 2,400 municipalities polled in a survey commissioned by the United States Conference of Mayors and National League of Cities are expecting shortfalls. 

Kyle Hadyniak, director of communications for the Maine Department of Administrative and Financial Services, told The Mount Desert Islander that the state has “not yet generated an official estimate on the long-term official estimate on the long-term financial impact of COVID-19.” 

Michael Hillard, a professor of economics at the University of Southern Maine, estimates Maine could be looking at a budget shortfall of $1 billion. 

States can’t spend the way the government does at the federal level. Whereas low interest rates give the federal government the ability to borrow vast amounts of money, states face more restrictions on how much can be spent and how money borrowed from the federal government can be used. 

“A big problem for state and local governments is that they’re required to balance their budgets in a way that the federal government isn’t,” said Hillard. “They can borrow for things like infrastructure, but they can’t borrow for operations.” 

Local governments could face crunches stemming from collapses in property tax revenue, which funds more than half of local government spending in Maine. That would be catastrophic for Maine’s primary education system, which Conrad said receives 60 percent of money levied through property taxes. 

In the U.S. Conference of Mayors survey, 87 percent of cities and towns with 50,000 residents or fewer said they anticipate budget shortfalls this year, and 26 percent said they anticipate having to furlough or lay off employees. Although cities with 500,000 residents or more will receive direct funding through the CARES Act, Maine has no such cities. 

“You have a lot of places that are going to have to make tough staffing decisions,” said Conrad, who added that municipalities must have their budgets for the upcoming fiscal year in place by July 1. “If you were looking to add positions within your departments, you might be thinking twice about doing that right now.” 

In order to help alleviate many of the problems resulting from budget shortfalls at the state level, the National Association of Governors has asked Congress for $500 billion in aid. On Sunday, U.S. Sens. Bill Cassidy (R-La.) and Bob Menendez (D-N.J.) proposed such funding be included in the next stimulus bill passed by Congress. 

Such a provision would help cities and states in a manner not addressed through the CARES Act, which was largely focused on providing stimulus checks, aiding businesses and expanding unemployment benefits. Yet with state and local governments at the forefront of addressing the crisis, they, too, are in desperate need of relief. 

“It’s great that we’re helping out small businesses, but why is a firefighter or a teacher less worthy than small businesses in terms of assistance?” Hillard said. “We need some money going to cities and states as well, and if we don’t, we could see drastic measures.” 

The federal government providing states with billions in aid wouldn’t be unprecedented; following the 2007-09 Global Financial Crisis, Congress earmarked $100 billion of the $787 billion American Recovery and Reinvestment Act for education spending in an effort to avoid massive budget cuts. States also were granted $87 billion in Medicaid assistance. 

Yet the current economic situation, University of Maine Assistant Professor of Economics Andy Crowley said, is different. Whereas the 2009 stimulus package was passed in response to an economic slowdown, this crisis has been more akin to an economic shutdown. 

“Historically, there’s just nothing like this,” Crawley said. “You’re not talking about slowing down; you’re talking about completely shutting the engine off and then starting it back up. That’s not really something where you have a historical precedent.” 

Precisely how bad the situation gets, Crawley said, will depend on how long the current climate lasts and what public health measures are taken. The longer the presence of the virus calls for social distancing measures and mandated business closings, the more state and local budgets will be affected. 

Yet most economists remain firm that the alternative, ending lockdowns and removing social distancing guidelines, would be an even worse option. Even as a small minority clamors to “reopen” Maine’s economy, doing so in a way that would lead to pre-virus levels of interaction would be even more detrimental to the economy in addition to having a decisively negative impact on public health. 

“I’ve seen so few economists saying, ‘Let the economy open,’” Crawley said. “You risk these massive outbreaks happening again and people dying or getting sick. We need to stay the course because the risks of not doing so are far larger.” 

Mike Mandell

Mike Mandell

Mike Mandell is the sports editor at The Ellsworth American and Mount Desert Islander. He began working for The American in August 2016. You can reach him via email at [email protected]

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