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Matthew Gagnon of Yarmouth is the chief executive officer of the Maine Policy Institute, a free market policy think tank based in Portland. A Hampden native, he previously served as a senior strategist for the Republican Governors Association in Washington, D.C.
Another day, another surplus.
In what has become somewhat routine of late, Maine has found itself exceeding projected revenues and awash in cash, ending the 2023 fiscal year with a $141 million surplus. This extra money has allowed the government to continue spending money on certain programs, such as the $65 million that will be devoted to affordable housing programs. It has also filled the budget stabilization fund — what we like to call the “rainy day” fund — to the tune of $968.3 million, which is a record amount. It is so large, in fact, that it is now at the statutory maximum that can be reserved in the account.
This is, of course, very good news. It is better to have more money available than less, though it is important to note that government money only exists because it is collected from the citizenry and businesses served by that government. If the government is overflowing with money and constantly finding itself with more than expected or planned for, a very strong case can be (and should be) made that the government is taking too much, and should reduce its tax collections accordingly.
Regarding the rainy day fund, I don’t know anyone who thinks the state shouldn’t have a very significant amount of money stashed away in the event of a future economic downturn. I, for one, am glad that the stabilization fund has been maintained and grown in recent years, if for no other reason than the potential financial threat that exists in the future.
In 2006, Stateline declared that it was the “year of surpluses,” as state governments across the country found themselves swimming in record revenues, splurging on pet projects everywhere. Leaders in most states at the time (like mortgage-hungry consumers) were all too happy to live in a fantasy of their own making, believing that a future reckoning was never going to come. They behaved as though the money was endless, and surpluses were forever.
It was only a year later that nearly every state in the nation found itself in near financial ruin in the wake of the housing crash and ensuing financial crisis. The overheated government bloat that had been created in the preceding half-decade now became a massive burden, and states were forced to make enormous and very painful cuts to deal with the problem. In Maine, the crash forced Gov. John Baldacci and state leaders to deal with a nearly half-billion-dollar budget deficit in a single biennium.
The better path for states would have been to control government spending, rather than balloon expenditures recklessly, so that when the downturn happened the impact on government budgets would not have been as extreme. Spending less and saving more means a state will have a smaller deficit and more money to cover it.
A little less than two decades after the 2007 crisis, the intervening inflation now means that any large-scale deficit would likely be larger — perhaps a lot larger — than the one we saw back then. All the more likely given the recent and unprecedented rampage of spending that has taken place in Maine since Gov. Janet Mills has taken office. In retrospect, the behavior of leaders in Maine today is likely going to look just as reckless as what was done in the years before the Great Recession, but for now they are happy to congratulate themselves on “record investments” and all the goodies that money can buy.
That said, having almost a billion dollars in the stabilization fund is a good thing, and there is no question that the fund has increased significantly over the last few years. But while Gov. Mills is busy patting herself on the back and claiming that surpluses and rainy day savings are the result of her brilliant fiscal management, remember that she and her administration have had little to do with it.
One reason that the state of Maine is growing so rich lately, enjoying surpluses and spending extravagantly while still socking away money in savings, is the very same reason that you are getting poorer: inflation. As prices rise and the products you buy become more expensive, sales tax revenues increase proportionally. As wages have increased to compensate, more income tax revenue flows to the government. And as federal dollars fueled by debt flow into the state, Maine is not only given a windfall, but can free up dollars that would have otherwise been spent elsewhere.
Which is just to say that this is a mirage, and the mismanagement of today is likely going to blow up in our faces some day soon. When it does, well, at least we’ll have a rainy day fund.
