Save the surplus party balloons for now

Given the choice of a deficit or a surplus, it’s much better for the state to finish the fiscal year with a surplus.

But we shouldn’t blow up the party balloons or start spending the cash too fast.

The state finished the fiscal year, which ended June 30, with a $58 million surplus. The biggest pots of cash came from one-time sources: an increase in income tax payments as wealthy taxpayers moved income into 2012 to avoid federal tax increases and a single, large estate tax payment that contributed to $8.9 million of revenue.

Neither is likely to happen again next year.

And, in fact, changes in tax policies that took effect beginning this year reduce income taxes for the wealthy and cut the levies placed on multi-million dollar estates, making it even less likely that tax collections will continue to increase.

Despite disproven and misleading rhetoric to the contrary, lower tax rates do not mystically generate more tax payments. It’s the essence of “voodoo economics.”

Compounding the coming revenue crunch from Republican-backed tax cuts that were never paid for, sales and use tax revenue has been sluggish. While early signs for the new year are decent, the “anemic growth” last year remains a serious concern.

By law, $42 million of the surplus is set aside in the state’s reserve accounts, which can be tapped in an emergency. The reserves also help to manage the state’s cash flow over the year, making it easier to avoid short-term borrowing.

The Legislature’s commitment to rebuild the reserve accounts is smart public policy and a prudent use of one-time money.

And it avoids one of the biggest temptations for lawmakers: Using one-time money to fund ongoing expenses, adding to an already large and looming structural gap in which future revenues aren’t predicted to keep up with future expenses.

For a family, it’s like getting a $200 bonus at the end of the year and deciding to buy a new car with a $200 monthly payment. Sure, you’re fine for the first month, but, after that, the bonus is gone, and the expense keeps on going.

As the news of the surplus has moved around political circles, different ideas about how best to utilize the money have been floated. Ideas have included restoring cuts to municipal aid and additional tax cuts.

It makes no sense to further cut income taxes in a way that mostly benefits top earners while shifting more of the burden onto homeowners.

From a policy perspective, restoring municipal revenue sharing and cuts to property tax relief programs that mostly benefit working families should be a high priority.

But as much as we need to find a way to make these restorations and to increase funding for education, the most prudent course of action is to wait.

The impact of the 2011 cuts in the estate tax and income tax could be greater than expected; sales taxes could remain flat or grow too slowly; and past experience would suggest that some savings initiatives adopted as part of the new two-year budget will fail to meet expectations.

With a confrontational governor facing a tough re-election fight and every seat in the Legislature at stake, it will be difficult to find solutions to unexpected revenue problems.

Money in the reserve account might give lawmakers the flexibility they need to overcome unanticipated problems this spring.

Maine has many unmet needs, and tax policy enacted in 2011 when Republicans were calling all the shots made things worse.

Working families are being pushed with higher property taxes, while towns and cities are carrying too much of the burden for necessities such as K-12 education.

Even as there is great urgency to repair some of that damage, the small surplus can’t solve those problems until the tax code is fixed.

David Farmer

About David Farmer

David Farmer is a political and media consultant in Portland, where he lives with his wife and two children. He was senior adviser to Democrat Mike Michaud’s campaign for governor and a longtime journalist. You can reach him at