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Nearly 20 years ago, in June 2004, Maine voters passed a referendum calling on the state to cover 55 percent of K-12 public education costs. Around the same time, there was also significant political pressure to limit government spending in hopes of lowering taxes, especially property taxes.
That same year, Maine lawmakers passed legislation to essentially cap government spending, at the state, county, municipal and school board level. Annual spending increases were, at that time, limited by growth in population and personal income.
At the state level, revenue that exceeded the allowed spending was directed to a budget stabilization fund.
For years, spending caps at the municipal and school level have been exceeded, with permission from local voters.
Yet, the state budget cap still remains, with some changes: Population has been removed from the calculation of the growth factor and the size of the budget stabilization fund was raised from 10 percent of revenue collections to 18 percent during the LePage administration.
Yet, the cap is still set based on the amount of state spending in 2005. It also does not reflect the increased state spending needed to reach the 55 percent K-12 education funding requirement, which the Mills administration and lawmakers did for the first time in 2021. It also doesn’t include state appropriations needed for Medicaid expansion, which was approved by Maine voters in 2017 and enacted by Gov. Janet Mills in 2019. Nor does the formula account for the spending increases need to fulfill many state commitments, which were supported by lawmakers from both parties, such as an increase in municipal revenue sharing, a new tax break for property owners over 65 and an increase in the state’s homestead exemption, raised reimbursement rates for medical providers and free school meals.
Although lawmakers could vote to simply ignore the cap when approving a new state budget, it is time for another update.
Mills has proposed to re-base the cap on revenues for fiscal year 2024. It then would be adjusted in future years using this new baseline. This makes sense. The cap should be based on the state’s current spending commitments, which are significantly different — and, yes, higher — than they were in 2005 when the cap was put in place.
Lawmakers could simply override the cap with a majority vote, as towns and school districts have done for years. Rather than simply agreeing to exceed the cap, we think updating the cap itself is more prudent.
In addition to modernizing the cap, the governor’s plan includes new instructions on what to do with revenues when the budget stabilization fund exceeds its statutory 18 percent of collected revenues. If that were to happen, the additional funds would be directed to a fund for highway and bridge work (where there is a significant backlog of deferred maintenance and upgrades), to the school renovation loan fund, and to a fund for state employee retirement benefits.
This update to the spending cap isn’t meant to accommodate a spate of new spending initiatives. Rather, it is necessary to continue to find programs and services that lawmakers — from both parties — and voters have called for and supported.
