BACKGROUND

To summarize regarding Maine’s state budget challenges, the following factors are undermining state government’s fiscal sustainability:

• Spending growth has substantially outpaced revenue growth in recent years. From FY 2022 to FY 2025, the most recently completed fiscal year, General Fund expenditures grew by an annual average of 11.6%.2 Over the same period, General Fund revenue grew by an annual average of 2.1%.3

• MaineCare General Fund spending has grown by more than 20% annually since FY 2022. This is the state portion of Maine’s Medicaid expenditures — roughly 25% of all General Fund spending. Average annual growth in this account since FY 2022 was 21.4%. The same growth figure was 8.6% from FY 2018 to FY 2025 and 3.7% during the 2010s.4

• For the FY 2026-2027 biennial budget, General Fund appropriations only increase by 5.3% and 0.7% in the first and second fiscal years, respectively. MaineCare funding is actually slated to decline by 0.7% in FY 2027.5 Given the recent rates of overall General Fund spending growth—11.6% since FY 2022—and absent major policy changes, the limited funding increase included in the FY 2026-2027 budget seems well short of realistic need.

This is not an argument for more spending. Reducing biennial spending growth to an overall 10.6% (i.e., holding spending to current appropriated levels) would be a good start for a state budget that has been expanding well beyond sustainable means. It is difficult to see how spending growth could decline so much, however, that there is almost no growth (+0.7%) in FY 2027.

An FY 2026-2027 budget in “technical” balance

In my most recent post, I suggested that state government implement formal expenditure forecasting and reporting processes to match its thorough revenue forecasting and reporting processes. Without formal, binding spending projections, policymakers can structure budgets that include less funding than would otherwise be realistic to meet prevailing spending growth trends. In so far as this occurs, there is the potential for state government’s budget to be in “technical” balance—i.e., where projected revenue covers appropriated expenses—but not actually balanced because those expenses are understated.6

The Maine Revenue Forecasting Committee’s formal revenue projections, which by statute become binding, place a clear limit on resources at policymakers’ disposal. By contrast, there is nothing preventing approval of a budget that understates likely expenditures. That outcome, a budget understating likely expenditures, appears to be the case today. If it is, it may well be unintentional—or I may just be wrong—but regardless formal expenditure forecasting would significantly limit the potential for future discrepancies between appropriated funding and likely expenditures.

NEXT STEPS

In arguing for state government to implement a formal expenditure forecast, I suggested that it establish formal budget-to-actual reporting, as well. This would match revenue reporting that the Office of the State Controller (OSC) produces on a monthly basis. Absent that, it is difficult to know if state government is actually running a shortfall. So, hopefully I am wrong, and state government is not. That would be better for Maine.

In the event that there is a shortfall, however, policymakers should do everything they can to address it without raising taxes. The cost to live and do business in Maine is among greatest challenges (perhaps the greatest) facing our state, and increasing the cost of government to Mainers will only make affordability problems worse.7

Acknowledging that, state government should try, first, to live within its appropriated means. General Fund spending has already increased a great deal in recent years — from about $3.4 billion in FY 2018 to roughly $5.5 billion in FY 2025. With a further 10% funding increase to the FY 2026-2027 biennium ($11.6 billion in total General Fund), Mainers could reasonably expect that state government has sufficient resources to support its operations.8 In their oversight capacity, legislators should press state agency leadership to that end.

Given, however, the spending growth factors outlined above, operating within appropriated funding levels may not be possible. Should that be the case, there are a variety of steps policymakers could take. Tax increases and spending reductions are two obvious ones. I explained my opposition to the former in an earlier post, and cutting spending mid-budget cycle is disruptive and better avoided where possible. A third approach, tapping Maine’s $1 billion rainy day fund should be on the table before tax increases; but this should not be policymakers’ first alternative either. Building the Budget Stabilization Fund (BSF) balance, has been a major bipartisan accomplishment and provides an important backstop against financial downturns. Also, the BSF balance is a key metric for ratings agencies evaluating Maine’s credit worthiness.

Instead of those actions, my suggestion would be for policymakers, first, to take advantage of prevailing budget trends and clear opportunities to address any shortfall before resorting to tax increases. These alone would likely be insufficient to close a large budget gap but would be a better place to start than reflexively raising taxes. Briefly here and with more detail to follow:

• Robust General Fund revenue growth. After tapering in FY 2023 (-0.2%) and FY 2024 (-0.5%), General Fund revenue growth returned in FY 2025 (+6.9%) and has continued in the first quarter of FY 2026 (+5.1%). Any revenue above projections would, of course, help mitigate a potentially looming budget shortfall.

• Opportunities to enhance efficiency in General Fund spending. In recent years, state government has “carried” large sums of General Fund dollars from one fiscal year to the next. More efficiently appropriating these funds should produce the practical effect of increasing revenue without actually doing so. Likewise, a focus on efficient administration of the MaineCare program may yield similar benefits for the General Fund budget.

• Opportunities to utilize available cash on state government’s balance sheet. Other Special Revenue Funds (OSR) in state government coffers have increased substantially in recent years. After a year-end balance of $298 million in FY 2018, the same balance has averaged more than $1 billion since FY 2022. Whether for General Fund relief in eligible cases, or simply to support the funds’ designated functions, state agencies should put those resources to use.

A fourth factor, the opportunity to drive operational improvements in state government, would likely produce limited savings in the current biennium but should yield considerable ones down the road while also delivering improved government service to Mainers.

(1) ROBUST GENERAL FUND REVENUE GROWTH

After historic rates of General Fund revenue growth in the early 2020s (+14% in FY 2021, +19% in FY 2022), growth tapered considerably in FY 2023 and FY 2024 (negative in both years).9 Growth rebounded in FY 2025 and has remained strong in FY 2026. While some of the FY 2025 revenue growth was due to one-time factors, the latter still outpaced final Revenue Forecasting Committee (RFC) projections by more than $100 million ($5.722 billion actual compared to $5.605 billion projected in May).

Continuing this trend, FY 2026 General Fund first quarter revenue collections were 5.1% ahead of budget. With $5.571 billion in General Fund revenue budgeted for FY 2026, an additional 5.1% for the full year would amount to $284 million in revenue above RFC projections. In relieving potential General Fund budget pressures, this is how it would look mathematically:

• Returning to the FY 2022 to FY 2025 annual General Fund spending growth rate of 11.6% and applying that to FY 2025’s estimated General Fund spending of $5.513 billion, the same 11.6% growth in FY 2026 would result in expenditures of $6.152 billion.10

• This compares to the appropriated level of $5.807 billion.

• Adding another $284 million to the latter—for a total of $6.091 billion—would bring FY 2026 funding resources much closer to the projected spending level ($6.152 billion) than the amount of funds ($5.807 billion) currently appropriated.

First quarter revenue growth may be an anomaly, and it may taper. Also, even if it does not—and growth continues at the first quarter level through the rest of FY 2026—the next fiscal year (FY 2027) is a different story. Because policymakers only budgeted for 0.7% General Fund growth in FY 2027, funding for the latter year is likely to be a significant problem unless revenue growth accelerates even more.

With hopes, then, that General Fund revenue growth will remain strong, policymakers should consider the second two opportunities identified above to improve state budget conditions: (1) driving General Fund spending efficiencies and (2) more effectively utilizing cash on state government’s balance sheet. The sooner these measures are deployed, the sooner their positive effects will come to fruition.

(2) OPPORTUNITIES TO ENHANCE GENERAL FUND EFFICIENCY

Be it in (1) more efficiently appropriating General Fund dollars; (2) maximizing MaineCare funds—i.e., those with a federal match—relative to state-only funding; or (3) ensuring that the program is administered as effectively as possible, there are several key steps policymakers should consider to drive efficiency and savings in Maine’s General Fund.

Review and redeploy General Fund carrying balances

I wrote at length on the topic of General Fund carrying balances in my post “Growth in State of Maine Government Cash Balances.” Please see the latter for more detail, but the basic concept is that there are two kinds of General Fund accounts — lapsing ones and carrying ones. This is how the OSC explains the distinction:

Unencumbered appropriations in the General Fund and in the Highway Fund are carried forward to a subsequent year only when authorized by law, otherwise the balances lapse at year-end. (p.13)

There are cases where it makes sense for funds to roll from one fiscal year to the next, and this can provide important spending flexibility for budget managers. But rolling ever-growing General Fund balances from one fiscal year to the next represents an obvious budgeting inefficiency, wherein legislators appropriate more funds than necessary to certain accounts. This can inflate taxpayer burden because the dollars are still taken and deployed if not actually spent. Also, it can starve underfunded accounts that could make use of the unspent resources.

That carrying balances have accrued, however, also presents an opportunity: to redeploy these funds more efficiently. Doing so would effectively increase resources for underfunded accounts without increasing revenue (i.e., taxes).

Just as this is not a complicated concept, it also is not a novel one. The FY 2022-2023 biennial budget included a provision to transfer approximately $84 million of unspent General Fund carrying balances into FY 2022-2023 accounts to meet funding needs. This is how the OSC described the latter action:

Additionally, [the FY 2022-2023 biennial budget] enacted ongoing savings initiatives that had been identified by departments during the FY 2021 curtailment process and transferred approximately $84 million into the GF from prior year unspent balances in various carrying accounts and $20 million that was available from the liquor operations fund.

According to the OSC, as of February 2025, state government was carrying General Fund balances of $420 million. Although I am not aware of any formal listing of carrying balances, my sense is that this figure remains in the $500 million range — roughly a 10% General Fund budget variance.

Since FY 2013, this is how the non-BSF component of the Treasurer’s Cash Pool (TCP) has grown. The large majority of this balance would be from carrying funds, and the orange line represents the variance in unexpended-to-budgeted funds.11

To the earlier points: (1) deploying the General Fund more efficiently would improve governance of Maine’s state budget, in general; (2) policymakers have utilized a carrying balance transfer as recently as the FY 2022-2023 biennial budget, so it should be practicable to do so again in the face of a potential FY 2026-2027 budget shortfall; and (3) taking that action to confront such a shortfall before considering tax increases would be a preferred approach.

Ensure MaineCare dollars are utilized to fund Medicaid-eligible services

A second inefficiency, which may exist in the General Fund budget, is using state-only funding for programs that MaineCare (i.e., with federal matching funds) would otherwise cover. Because Medicaid pays some of the lowest rates for medical care, providers often prefer direct state funding via contract rather than through billing Medicaid for services rendered — such as for substance abuse treatment.

The problem is that, if the state pays directly for a service without billing Medicaid, it assumes the full burden of payment. By contrast, when state government bills eligible services to Medicaid, the federal government funds roughly 60% or 90% of those payments, depending on the MaineCare member’s eligibility designation.12

Without insight into MaineCare and DHHS operations, it is difficult to know if there are MaineCare-eligible services funded with state-only dollars today. To the degree this is occurring, however, shifting Medicaid-eligible services to MaineCare funding would provide budget relief by reducing General Fund expenditures. If providers have concerns that they cannot deliver services at existing Medicaid rates, DHHS can adjust those rates accordingly.13

Given that policymakers have increased numerous rates in recent years, hopefully most of the latter are already sufficient. Regardless, state government should still come out well ahead while paying only 40% or even 10% of total expenditures on MaineCare services, for which state-only funding must cover 100%.

Focus on eliminating waste, fraud and abuse in MaineCare

A third area of focus for maintaining and improving General Fund efficiency is with respect to MaineCare administration. Enforcing eligibility standards as well as combatting waste, fraud, and abuse of the program are fundamental to effective governance of any state’s Medicaid program.

For eligibility standards, whereas the federal government provides substantial matching funds for state Medicaid expenditures, the Centers for Medicare and Medicaid Services can “disallow” any federal matching funds for expenditures on ineligible individuals. That action creates a liability for states, as they are required to reimburse the federal government for matching funds originally provided for the services in question.

With respect to waste, fraud, and abuse, with total annual Medicaid expenditures nearing $1 trillion nationally ($918 billion nationally in FY 2024), it is not surprising that the program would be subject to attempts to exploit vulnerabilities. Advancements in technology should make deterrence efforts increasingly effective, and Maine should be taking every practicable step to deploy cutting edge strategies and technology to that end.14

This is not to suggest improper administration of the MaineCare program but to highlight the degree to which technology should help (1) to ensure eligibility among service recipients and (2) to combat attempts to abuse and defraud state Medicaid programs in Maine as across the country. To the degree these efforts are already underway, great. Given the pace of technological change, they should remain ongoing. To the degree these efforts are not underway—or could be more robust—there is no time like the present to initiate or accelerate them.

There is no virtue in failing to act here. This work should not affect a single Medicaid-eligible Mainer. Instead, failing to act only rewards irresponsible (waste) or illegal (fraud and abuse) activity. Establishing (or advancing) a strong set of deterrents to those practices should limit inefficiency and unlawful activity and ensure that MaineCare remains focused on our state’s neediest and most vulnerable while preserving taxpayer dollars.

(3) UTILIZING NON-GENERAL FUND BALANCE SHEET ASSETS

In addition to General Fund carrying balances, Other Special Revenue Fund balances have accumulated on state government’s balance sheet over the past decade.15 These funds, often supported by fees that Mainers pay state government, reside in myriad smaller accounts that comprise the broader OSR account. What was a balance of $298 million in FY 2018 has grown to an average level of greater than $1 billion since FY 2022.16 Along these lines, it is important to understand the following points:

• OSR funds are not reserve funds. They are not designed to remain on hand for utilization during a revenue downturn. State government’s $1 billion BSF serves that purpose.

• OSR funds are generally for designated purposes. Whereas the Legislature can transfer funds in certain OSR accounts to the General Fund, that is not allowable or advisable in many cases. But, in certain cases, utilizing the funds for their respective designated purposes can relieve pressure on the General Fund. This budget relief is direct in situations where the Legislature has appropriated General Fund dollars for programs or other activities for which there are designated OSR funds.

• State agencies appear to be budgeting available OSR dollars but then failing to deploy them. A review of recent Annual Consolidated Financial Reports, which the OSC compiles, demonstrates that in FYs 2022, 2023, and 2024 (the FY 2025 report is not yet available) there were budget-to-actual spending variances in the overall OSR funds of 26%, 29% and 33%, respectively.17

These three factors—that OSR funds are not reserves; that they may be available to supplant General Funds; and that large amounts go unspent each year—combine to yield potential for budget relief. Indeed, even if there are no opportunities to appropriately supplant General Fund spending, I can see no argument against deploying OSR resources for their established purposes.

For perspective, these are two graphics I included in my earlier post. The first shows growth in OSR balances over the past decade, and the second reflects the inflated OSR budget-to-actual variances of recent years noted above.

Improving state government’s efficiency in deploying these resources—and putting a greater premium on cash management, in general—would have the effect of boosting funding resources without increasing taxpayer burden.

(4) DRIVING OPERATIONAL IMPROVEMENTS IN STATE GOVERNMENT

Turning to the fourth factor identified above, driving operational improvements in state government, this is a broader topic worthy of its own post. Due to that, and because identifying these efficiencies would likely produce only limited savings in the current biennium, I will only note several basic points here.

First, with the rapid and compounding technological advances of the 21st century, this work should be ongoing. Just because efforts that begin today are not likely to produce large savings in FY 2026-2027, that does not mean state government should delay those efforts.

Second, whereas the two obvious areas of savings are in personnel and brick-and-mortar space, I see no need for layoffs or a rush to close buildings. Instead, for the latter, making use of general attrition (such as in the case of retirements and other departures), should help match state government’s workforce to functional need. To that end, smart use of vacant positions should prove an effective approach to right-sizing state government for the present and future.18

Turning to brick and mortar, as with personnel, there is a distinct likelihood that state government will need less office space in future years. Along these lines, a good thought exercise is what a Bureau of Motor Vehicles office should look like in 2035. Will we need them at all? There is no need to force a reduction in state office space, but strategic reviews to consider what state government’s footprint ought to look like in future years should be initiated (if they are not already underway) and remain ongoing.19

Third, ensuring these efforts get underway (if they are not already) will mean that savings and service improvements arrive that much sooner. As technology continues to advance—not least with the onset of AI—governments at all levels will have increasing opportunities to improve efficiency in their operations. State government in Maine should be no different, and driving efficiency in Augusta should result in better service at a better value for taxpayers across our state.

SUMMARY THOUGHTS

As January’s legislative session arrives, it should become clearer whether (or to what degree) state government is running a General Fund budget shortfall. Without formal expenditure reporting, it is difficult for an outsider to offer anything more than informed speculation.

Regardless, there are several possible outcomes that will emerge soon enough. First, state government may have sufficient funding for the biennium, meaning the Mills Administration need not request supplemental FY 2026-2027 funding. As noted, living within the means of the existing General Fund budget would be the best outcome for Maine, so I hope the latter comes to fruition and would happily be proven wrong about a shortfall if it does. Second, by contrast, state government may already be projecting an FY 2026 General Fund deficit—and a larger one in FY 2027—meaning the Mills Administration would need to request additional funding in January.20

A third scenario is murkier. In this case, budget managers may project that state government has sufficient resources to fund FY 2026 operations but that FY 2027 is less clear. This scenario could, understandably, cause the Administration to withhold a supplemental budget request as the FY 2027 budget picture crystalizes. The danger of this approach, especially given the good reason to believe FY 2027 may contain a shortfall, is that addressing a budget deficit is easier over time than in a short, several-month window. It is the difference between a gradual turn and a sharper one.

Given that potential lack of budget clarity, my sense is that legislators should consider taking two actions. First, implementing the General Fund and OSR efficiency measures discussed above. Even if a shortfall does not materialize, Maine’s state budget will have improved that much more on net from advancing the good governance measures described. Driving efficiencies in the General Fund budget and ensuring OSR funds are deployed will only serve to benefit Maine tax- and fee-payers.

The second action would be for legislators to conduct diligent state agency budget oversight. This likely goes without saying. Nonetheless, calling for state agency leadership to testify as to the status of their respective budgets based on internal forecasting and to provide committee members with any significant budget updates through FY 2027 should generate important insight into the sustainability of current biennial budget funding levels.

Longer-term, policymakers should focus on developing state budgets that do not increase spending more than the combined rates of inflation and Maine’s population growth. If they need to exceed these spending growth levels in certain instances—due to broader trends in spiking healthcare costs, for example—the reasons for doing so should be clear and convincing. Instead, rapid advancements in technology should position policymakers to limit government spending growth and to deliver Maine taxpayers better, more effective government at a better value in the years to come. Thank you for reading and for your consideration and goodwill.

As an outsider to state government at this point, I offered several caveats in my post based on my lack of insight into Maine’s state budget. That is in keeping with my preferences for humility in policy writing and for inviting comments and further discussion. But my hedging also acknowledged a significant challenge inherent to state budget analysis — the fact that Maine state government does not have formal expenditure forecasting and reporting processes.

This was topical in the Press Herald piece, which included the following about projected MaineCare spending levels for the current biennium:

MaineCare Director Michelle Probert said last week she was still working on cost projections for next year, so it was too soon to say whether lawmakers will be asked to provide more funding.

Implementing formal public forecasting and reporting processes would ensure that cost projections—and budget-to-actual results—are readily available to lawmakers and the public at all times.2 Doing so would represent a major advance of good governance in Augusta and would be of particular benefit to lawmakers crafting and overseeing Maine’s state budget.

While best practice would be for state government to forecast and report expenditures across each of its agencies, doing so for MaineCare would be a good place to start for two reasons. First, because of how much funding the program consumes (~25% of Maine’s General Fund and growing); and second, due to the variability of MaineCare’s spending levels as an entitlement program.

REVENUE FORECASTING & REPORTING PROCESSES

State government has robust revenue forecasting and reporting processes that provide detailed revenue projections twice yearly and monthly budget-to-actual revenue summaries, respectively. Comparing these processes to the lack of similar ones for expenditures highlights the extent to which the latter is a deficiency in state governance practices.

Revenue Forecasting

In the case of state revenue, the forecasting process is prescribed in statute, administered by the Maine Revenue Forecasting Committee (RFC), and presented publicly on a biannual basis. Importantly, the RFC’s projections are binding for legislative appropriators, resetting budget levels with each report. The Committee’s reports are clear, detailed and publicly available. Each report provides narrative for key accounts as well as tables of past spending levels and projections for the current and next four fiscal years.

That level of forecasting precision and its extended timeline is foundational to Maine’s state budget process in that it provides policymakers with clear spending parameters and detailed insight into current and future resource levels. For members of the public, whose tax dollars fund state government, this is important information to have as we follow developments in Augusta and consider policy matters affecting our state.

Revenue Reporting

Official monthly revenue reporting complements state government’s revenue forecasting process. Maine’s Office of the State Controller (OSC) tracks current fiscal year revenue collections on a monthly basis. The OSC’s detailed revenue reports provide budget-to-actual comparison with RFC projections, enabling policymakers and the public to follow state budget performance from month-to-month — but again only on one side of the budget ledger.

Importance of MaineCare Forecasting

Having the same level of insight into expected MaineCare spending levels—and then monthly spending outcomes—would mark a considerable improvement in Maine’s governance standards. To understand why this matters so much, readers should consider contemporary budget events.

First, MaineCare appears to be underfunded for the current biennium. For more detail on this topic, please see my “State Budget Sustainability” post and the Portland Press Herald story cited earlier. In brief, after growing annually at average rates of 8.6% since FY 2018 and of 21.4% from FY 2022 to FY 2025, MaineCare General Fund appropriations increase program funding by 6.7% in FY 2026 (the current fiscal year) and then decrease funding (-0.7%) in FY 2027.

Here is how the three growth rates—the average from FY 2018 to FY 2025; the average from FY 2022 to FY 2025; and those currently appropriated—compare graphically.

The green line tracks MaineCare General Fund spending at its FY 2022 to FY 2025 average rate. The triangle it creates with the blue line represents a MaineCare General Fund shortfall of $781 million for the FY 2026-2027 biennium. The orange line tracks MaineCare General Fund spending at its FY 2018 to FY 2025 average rate. The triangle it creates with the blue line represents a MaineCare General Fund shortfall of $193 million for FY 2026-2027.

The blue line, which flattens and then turns down, represents program spending at currently appropriated levels. Of obvious note here is the fact that—to maintain funding at those current appropriations—nominal MaineCare General Fund spending would need to decline in year-two of the current biennium.

Prior to reading the Press Herald story, I thought it was possible that DHHS leadership had insight indicating that MaineCare spending growth is poised to decline sharply in the current biennium. That did not seem likely but was possible. Given that the PPH story had MaineCare’s Director saying that the program “was flat-funded in the current two-year budget and health care costs are expected to keep rising,” a steep downturn in MaineCare spending appears that much more unlikely. Having a formal, public MaineCare forecast would eliminate the need for external speculation as to the existence and degree of such a shortfall — much the way formal RFC projections eliminate the need for such speculation with respect to revenue.

Second, as to the importance of MaineCare expenditure reporting, it appeared to be a surprise to lawmakers and the media, in January, when the Mills Administration announced a $118 million MaineCare General Fund shortfall. Absent the unlikely scenario that the shortfall materialized entirely in December, formal public MaineCare expenditure reporting on a monthly basis would have eliminated any surprise.

Budget-to-actual revenue reporting enhances policymakers’ in-year management and oversight of Maine’s state budget and provides key insight that does not exist for expenditures. Had lawmakers known in advance of the legislative session that MaineCare was running well over budget, that foreknowledge might have framed a more productive legislative debate earlier this year. Such a debate could have focused on the root causes of MaineCare’s shortfall and identified longer-term program budget solutions rather than the one-year $118 million patch, which the Democratic majority ultimately enacted.

Concerningly, with the program’s structural budget challenges having gone unresolved earlier this year, it appears that a similar MaineCare shortfall situation is poised to play out again in 2026.

IMPLEMENTING A MAINECARE FORECAST

If the disparity between the forecasting and reporting of revenues and expenditures in Maine’s state government is stark, it should be easily enough resolved. First, Maine’s DHHS could make its internal MaineCare forecasting available to lawmakers and the public.

When I served as Deputy Commissioner of Finance for Maine’s DHHS, the Department had a robust forecasting process that gave us confidence in our expectations of program outlays for a given fiscal year and the next several to come. If that process (or a similar one) is still in place, DHHS could work with the Legislature’s fiscal office—the Office of Fiscal and Program Review (OFPR)—to make any necessary modifications for producing a formal, public report.3

Along similar lines, DHHS maintains internal weekly MaineCare “cycle reports,” which the Department could formalize and report publicly each month.4 This would have the practical effect of mirroring the OSC’s monthly revenue reports. Matched with a public MaineCare expenditure forecast, monthly program expenditure reports would produce important budget-to-actual reporting.

A second option for state government to implement a MaineCare forecast would be to mirror it on the revenue forecasting process. This is how the RFC describes the process of compiling its most recent report:

The economic variables in the CEFC forecast play a prominent role in the revenue forecast. Maine Revenue Services’ Office of Tax Policy (MRS/OTP) tax models must use the CEFC economic variables to help project revenue from the major taxes. Data related to non-tax revenue lines were provided by affected state agencies and reviewed by staff in the Office of Fiscal and Program Review and the Bureau of the Budget to produce consensus recommendations. The RFC reviewed MRS/OTP and other staff recommendations at its meeting on April 28, 2025, and agreed to those recommendations along with additional updates discussed at the meeting.

A similar process, with the Office of MaineCare Services, other DHHS offices, and OFPR informing a statutorily established MaineCare Forecasting Committee, could work well to formally project MaineCare spending levels.

A third means of establishing MaineCare forecasting would be to model it after processes already in place in other states. Utah’s Medicaid forecast, for example, provides detailed projections—both numeric and narrative—for that state’s current and coming fiscal year.

Vermont’s annual Medicaid report provides a similar forecast to Utah’s. In Vermont’s case, a state body called the “Emergency Board” oversees Medicaid Forecasting and reporting. According to state law, “Each January, the Emergency Board is required to adopt specific caseload and expenditure estimates for Medicaid and Medicaid-related programs.” Vermont state government’s FY 2025 year-end report to the Emergency Board offered the following description of that state’s Medicaid forecasting and reporting processes:

Legislative and Executive Branch staff have a long history of working together closely to interpret both short- and long-term trends on caseloads, expenditures, and revenues. The bullet points below provide a summary for fiscal year 2025 regarding Vermont’s Medicaid, Global Commitment Waiver (GC), Children’s Health Insurance Program (CHIP), and other related programs. This report also highlights a few issues to be aware of for the future. Detailed multi-year charts for overall program expenditures, enrollment, and year-end positions are included at the end. (My italics included.)

This process sounds very good and thorough. It would no doubt be worthy of review, were Maine policymakers to consider implementing formal forecasting and reporting processes for MaineCare.

Virginia and California each provide further examples of ways to forecast Medicaid. Virginia’s Medicaid forecast is limited to figures but provides thorough detail and extends through FY 2027. California’s Medicaid forecast, while brief and referred to only as a “post,” provides solid insight into expectations for spending and enrollment in the “Medi-Cal” program through 2029. The report’s summary begins with the following useful information:

This post describes our fiscal outlook for General Fund spending in Medi-Cal. Under our outlook, General Fund support grows from the 2024‑25 enacted level of $35 billion to $48.8 billion in 2028‑29—an average annual rate of growth of 8.6 percent.

Each of these forecasts is basic and straightforward. In the cases of Utah and Vermont, those states’ health agencies and their respective equivalents of Maine’s OFPR compiled the forecasts. In Virginia, their Medicaid agency did; and, in California, that state’s fiscal office authored their report. A Maine equivalent forecast, compiled jointly by DHHS and OFPR—i.e., by state government’s executive and legislative branches—would provide a wealth of key information to policymakers and the public.

SUMMARY THOUGHTS

I see no argument against forecasting state government expenditures formally and then reporting them officially throughout the fiscal year. For the reasons cited earlier—and highlighted by the Portland Press Herald’s story—implementing forecasting and reporting for MaineCare would be a good place for state government to initiate these practices.

Forecasting MaineCare is essential to developing sound budgets for the program. I know that from experience, and I benefited from having great confidence in the work that the DHHS forecasting teams did during the prior decade. Formalizing such forecasting practices, and reporting those outcomes publicly on a fixed basis, would give lawmakers a critical program oversight tool and provide them and the public alike with key insight into program spending trends and sustainability.

In a similar vein, formal monthly reporting of MaineCare expenditures would provide an important budget management tool, holding program managers accountable to their budgets and providing foresight with respect to potential shortfalls.5

As outlined above, state government has the tools at its disposal to implement robust MaineCare forecasting and reporting. Beyond Maine’s borders, other states have forecasting and reporting in place that offer examples of good processes, too. Regardless of specific approach, implementing formal forecasting and reporting for MaineCare would mark a significant upgrade to governance practices in Maine. Thank you as always for reading.

This post will be the first, I think, of two parts. Before writing more, I am interested to know if others see the same likelihood of a large General Fund budget shortfall that I do.2 Publicly available state spending and forecasting data for this kind of analysis has its limitations and leaves more room for misinterpretation than I would prefer.3

That said, I have been looking at the same figures for about a month and keep drawing the same conclusion. If I am mistaken, I will happily relent — it would be far better for Maine if state government was not on track to run a large General Fund shortfall. If am not, and it is, then I will add a second part of this post with ideas for resolving the shortfall. In the meantime, to paraphrase a memorable feature of late 20th century Maine public discourse: These are my thoughts, I welcome yours.4

FY 2026-2027 BUDGET LEVELS & PRIOR YEARS’ SPENDING GROWTH

General Fund appropriations for the FY 2026-2027 biennium account for less spending growth than state government has experienced in recent years. According to the Legislature’s Office of Fiscal and Program Review (OFPR), total General Fund appropriations for FY 2026 and FY 2027 are $5.807 billion and $5.846 billion, respectively.5

• Compared to projected FY 2025 total General Fund expenditures of $5.513 billion, this represents growth of 5.3% for FY 2026 and 0.7% for FY 2027.6

• Those rates compare to 7.2% annual average General Fund spending growth from FY 2018 to FY 2025 — and then to 11.6% average growth over the last three years.7

• To avoid budget shortfalls, this would appear to set the table for progressively large supplemental General Fund budget requests in the coming January and the following one.8

For perspective, this is how those annual General Fund spending levels and growth rates appear graphically over the years:9

If FY 2026-2027 General Fund spending were to grow at the FY 2018 to FY 2025 rate of 7.2%, total biennial spending would be $12.245 billion. If General Fund spending grew at the 11.6% rate of the last three years, it would be $13.018 billion. Side-by-siding these figures with the currently appropriated $11.654 billion yields the following shortfalls:

• 7.2% growth rate = GF spending $591 million > FY 2026-2027 GF appropriation

• 11.6% growth rate = GF spending $1.364 billion > FY 2026-2027 GF appropriation

MaineCare

FY 2026-2027 MaineCare General Fund appropriations account for 25.4% of total General Fund appropriations for the biennium. The FY 2026-2027 MaineCare funding level of $2.964 billion—as compared to reasonable program spending expectations—appears to be a primary driver of what could be a broader General Fund budget gap.10 These are the relevant data points:

• MaineCare General Fund expenditures grew from $774 million in FY 2018 to $1.393 billion in FY 2025, with average annual spending growth of 8.6% in those years.11

• For FY 2022 to FY 2025, MaineCare’s annual General Fund spending growth rate accelerated to 21.4%.

• By contrast, at $1.487 billion and $1.476 billion, the respective FY 2026 and FY 2027 appropriated MaineCare General Fund levels only account for program spending growth of 6.7% in FY 2026 and -0.7% in FY 2027.12

Here again, the annual MaineCare General Fund spending levels and their associated growth rates over the years—as compared to the respective FY 2026 and FY 2027 appropriated program funding levels and growth rates:

Aside from federally imposed work requirements, it is difficult to conceive of the catalysts that would drive such large reductions in MaineCare spending growth — particularly to the point that program General Fund spending would decline in FY 2027.13

Instead, two-year MaineCare spending appears poised to well-exceed the $2.964 billion FY 2026-2027 biennium funding level.

• If MaineCare General Fund expenditures keep growing during the current biennium at their three-year average (and the FY 2025 growth rate) of 21.4%, spending would be $1.692 billion in FY 2026 and $2.054 billion in FY 2027.14

• Combined, that would be a biennium total of $3.746 billion — about $780 million more than the $2.964 billion appropriation.

• Even if spending growth declined all the way to its FY 2018 to FY 2025 average annual rate of 8.6%, MaineCare General Fund FY 2026-2027 biennial spending would be $3.157 billion.15

The latter is still nearly $200 million greater than the appropriated level; and that would be with a significant decline in program spending growth. Here are the several FY 2026-2027 MaineCare General Fund spending growth scenarios graphically:

The orange and green areas account for the $780 million in additional spending (compared to the blue appropriated amount) mentioned above. And yet, the slope of the green area follows smoothly along the FY 2022 to FY 2025 slope of the blue.

VETTING GENERAL FUND SPENDING PROJECTIONS

It is difficult to view recent state spending trends and currently budgeted appropriations side-by-side without concluding that state government will experience a budget shortfall during the FY 2026-2027 biennium. The “front-loading” of the budget (i.e., with much more growth accounted for in FY 2026 than FY 2027) only adds to the problem because that budget structure could serve to mask a shortfall deeper into the two-year period.

Acknowledging my lack of insight into state agency operations, it would be better to see official budget forecasts with explanatory narrative before drawing final conclusions about a potentially looming shortfall. Unfortunately, whereas state government has excellent revenue forecasting and reporting processes, similar ones do not exist for expenditures.16

Formalizing General Fund expenditure forecasting and reporting would represent a major advance for good governance in Maine. Absent those processes, though, there is no reason why lawmakers could not request an expenditure forecast from the Mills Administration. A public report with formal vetting by the Legislature’s Appropriations and Financial Affairs Committee should unearth any shortfall or, alternatively, disprove its existence.

SUMMARY THOUGHTS

Returning to the above analysis, FY 2026-2027 General Fund appropriations appear to fall short of reasonably expected spending levels for the biennium. For MaineCare, recent years’ spending growth suggests that the program would need north of $500 million in additional General Fund to fulfill FY 2026-2027 spending obligations — unless program spending growth tapers considerably.17

Due to my limited vantage point, there may be valuable information I am missing. Also, I may be overlooking publicly available information that explains why General Fund spending growth would decline so much in the current biennium relative to recent years.

Those caveats offered, if a General Fund shortfall does exist, efforts to address it should begin as soon as practicable. Acting urgently offers the benefit of more time for budget changes to have their intended effect. It is the equivalent of the slight shift to a ship’s wheel to take a desired course rather than a large, abrupt one to avert an obstacle. Also, an urgent approach would take advantage of an experienced gubernatorial administration and a second-session Legislature. The alternative would be to require a new administration and many new legislators—coming off a likely heated election and already engaged in the FY 2028-2029 biennial budget process—to come together, first, to resolve a looming budget shortfall.

None of that would be ideal. But, before I get any further ahead of myself, I will wrap here to see if others see the prospect of a General Fund shortfall differently. Thank you as always for reading. I appreciate your goodwill and consideration.

Many have praised Coach Wooden’s wisdom for its folksy wholesomeness representative of his Midwestern roots. Among a host of reasons, the Coach’s wisdom appeals to me for its purity. The best advice is usually simple and straightforward. Coach Wooden’s famous adages read that way to me. They are lean, easy to remember, and unarguably wise. Some of my favorites:

“Failing to prepare is preparing to fail.”

“Make each day your masterpiece.”

“Things turn out best for the people who make the best of the way things turn out.”

“Success is never final; failure is never fatal. It's courage that counts.”

“The doer makes mistakes.”

There are many more good ones and many variations thereof, but those are a few I have taken to heart and done my best to apply over the years.1 If I had to choose a single favorite of Coach Wooden’s quotes, though, it would be the one at the top of the post. “Don’t mistake activity for achievement” applies to so many aspects of life. Government in Maine, which I have been writing about this year, is no different. Rephrasing the Coach’s guidance and applying it to governing principles: “Don’t mistake the activity of government spending for achievement in policy outcomes.”

THE ACTIVITY OF GOVERNMENT SPENDING

Citing government spending as an achievement is not unique to the Maine Legislature. Politicians around the world do so and have for ages. And yet, it is such a flawed way of defining success. Spending is an input not an outcome. In Coach Wooden’s terms, it is an activity rather than an achievement. That so many in the political audience and commentariat are so readily praising of this activity regardless of outcomes is surprising.

We would never do this in other walks of life. No one credits losing professional sports teams for having high payrolls — in fact they are often among the most criticized in sports. “How did you spend all that money and lose all those games?” At a restaurant, has any diner ever thought, “Well the meal wasn’t great, but at least I spent a lot on it and, really, that is the most important thing.” To the same end, few shareholders would credit a CEO for corporate investments that fail to result in an accompanying appreciation in the value of a firm’s shares.

When it comes to government, though, we are often are too willing to accept the reporting on inputs as a substitute for outcomes. We hear so much about “investments” but little about returns. The practice, citing robust spending levels and new funding initiatives, is so common that I am not sure we even hear it for what it is — a recitation of activity put forth as achievement.

At the 1964 Republican National Convention, just prior to launching his own political career, Ronald Reagan captured this phenomenon succinctly in his famous speech, “A Time for Choosing.”2 Of then-record levels of federal government welfare spending, he said:

So they're going to solve all the problems of human misery through government and government planning. Well, now, if government planning and welfare had the answer - and they've had almost 30 years of it - shouldn't we expect government to read the score to us once in a while? Shouldn't they be telling us about the decline each year in the number of people needing help? The reduction in the need for public housing?

The point is a timeless one and no doubt applies to Maine in 2025, with so much growth of state spending in recent years.

STATE GOVERNMENT OUTLAYS & OUTCOMES IN MAINE

In FY 2018, Maine state government recorded General Fund spending of $3.416 billion.3 For the recently completed fiscal year, FY 2025, that figure projects to $5.605 billion.4 The more than $2 billion in nominal growth equates to real, inflation-adjusted growth of $1.247 billion, or 28%, at a time when Maine’s population grew by about 5%.5

For all of this activity—real spending increases of nearly six times population growth since 2018—whether state government has recorded commensurate achievements is debatable. My most recent post, for example, focused on the contrast between increased state spending on public education and lower student test scores in recent years and a steep decline in state-by-state education rankings.

Considering state public education funding from a secondary angle, the effect that increases in the latter should have on property taxes, provides another example of achievement falling short of activity. In this case, the combination of increased state outlays for public education and revenue sharing should have the effect of easing municipal budget pressures and therefore reducing property taxes.

With respect to public education funding, state government and Maine’s municipalities combine to fund the lion’s share of public school expenditures. The significant increase in state public education funding noted above resulted from state government for the first time, in FY 2022, meeting its statutory requirement of funding 55% of Maine public school costs. With the state picking up a greater share of funding for public schools since then, the share that towns and cities are responsible for is correspondingly smaller than it was before, when the split was closer to 50-50.6

With respect to revenue sharing, the Legislature enacted this program “to stabilize the municipal property tax burden and to aid in financing all municipal services.”7 By statute, the program returns approximately 5% of annual state General Fund revenue to cities and towns across Maine for the purpose of doing so. Transfers from state government to Maine’s municipalities increased from $69 million in FY 2018 to a projected $276 million in FY 2025.8 Even accounting for inflation, revenue sharing transfers have tripled in less than a decade.9 This graphic demonstrates that growth:

The combined effect, then, of increased state public education funding and revenue sharing transfers should result in Maine’s municipalities having more flexibility in their budgets to reduce—or at least not increase—property taxes.10

WHEN GOVERNMENT ACTIVITY FAILS TO ACHIEVE

In a June 2021 editorial, on the eve of state government’s large public education spending and revenue sharing transfer increases, the Portland Press Herald expressed as much:

If the budget is approved, the state will for the first time fund 55 percent of K-12 education costs, a goal since 2004. That means tens of millions of dollars more for Maine schools – and for reducing the property tax burden in our communities.11

Also reducing that burden in the budget are the restoration of municipal revenue sharing to its statutory level of 5 percent in the second year; an expansion of the property tax fairness credit, and an increased reimbursement to cities and towns from the Homestead Exemption Program.

Despite these expectations, property taxes do not appear to be declining. Maine’s property tax burden ranks high among the states, and reducing that burden has remained a unifying (if illusive) goal among legislators in Augusta.12

In her January 28 State of the Budget Address, Governor Janet T. Mills seemed to both cite the large increases in public education funding and revenue sharing transfers as achievements and, at the same time, acknowledge the limitations of doing so.

First, the Governor stated:

As I mentioned, together we have made historic investments in education to boost our public schools and to fight property tax increases. In 2022, we also fully restored municipal revenue sharing to 5 percent for the first time in 13 years, sending more than $260 million last year alone to cities and towns across Maine. By contrast, in 2019, revenue sharing sent only $74 million to our cities and towns.

My budget includes a total of $561 million to maintain the required level of municipal revenue sharing. That's about $284 million a year going directly back to cities and towns in 2027.

That increase makes a big difference to our communities.

As Auburn firefighter Michael Scott said a few years ago, “Any additional revenue coming into the municipalities that doesn’t come straight from property taxes always makes it a little bit easier for the municipalities to figure out their budgets.”

But, then, in the speech’s next paragraph:

Now, with these large increases in funds coming from state government, I fervently hope that the towns, cities and schools find ways to better share and coordinate services and personnel, regionalize programs, save money, and reduce the burden on our property taxpayers.

That last paragraph is telling in so far as hope is not binding, and state public education spending and revenue sharing transfers each have been at record highs in recent years. Unlike education outcomes—where one could plausibly argue that investments take time to return—increased state K-12 spending and revenue sharing transfers should represent dollar-for-dollar budget replacements for Maine’s towns and cities. They should be driving down, or at least stabilizing, property taxes in real time.

SUMMARY THOUGHTS

This is not to argue against governments spending money. Also, there is nothing wrong with policymakers identifying and explaining spending initiatives, such as Governor Mills did in her speech. Government budgets spend money — conveying to the taxpayers the nature and objectives of state spending is part of good governance. But that spending needs to drive results.

Returning to Coach Wooden, I do not believe he ever addressed the topic of government spending. Applying the Coach’s principles to the latter, though, any investments—be they in the private or public sector—need to have returns. Otherwise decision-makers should redirect those outlays to more impactful ends. To make the most of government expenditures in our state, a better approach would be for Mainers—policymakers, stakeholders, the media, and taxpayers alike—to rebalance our collective focus as it regards inputs and outcomes.

Focusing on results is neither a conservative nor progressive approach — just a basic, commonsense one. While preference for how Maine policymakers allocate taxpayer revenue is philosophical, preference that they do so efficiently and effectively should be universal. The results from significantly increased government spending in Maine during the current decade should be cause for shifting gears in how we measure budget success. Acknowledging that government spending is an activity not an achievement would mark an important first step in doing so. Thank you for reading. I appreciate your time and consideration.

Following the “Commentary” post, a second one entitled, “Additional Commentary: MaineCare Spending & Maine’s State Budget,” focused on state Medicaid spending. Accounting for approximately 25% of Maine’s General Fund, MaineCare’s fiscal sustainability is critical to that of the broader state budget. The entitlement nature of the program makes MaineCare the most variable part of Maine’s General Fund budget and the one most likely to threaten its balance.2

For its importance to the state budget, however, MaineCare has not been the General Fund’s largest account over the years. General Purpose Aid for Local Schools, “or GPA,” has.3 For perspective, here are the expenditure percentages, on a five-year basis, for the two accounts and the remainder of the General Fund budget since the FY 1994-1995 biennium:4

The coming biennium, FY 2026-2027 is presented out-of-step with the rest of the graphic to highlight the elimination of the gap between proportionate General Fund outlays for GPA and MaineCare. While the portion of Maine’s General Fund budget dedicated to public education has declined, GPA spending has continued to grow during the current decade. This is due to significant overall growth in Maine’s state budget. Notably, the spending increase has occurred during a period of reduced enrollment in Maine’s public schools.5

GROWTH OF STATE PUBLIC EDUCATION FUNDING IN MAINE

In FY 2018, GPA spending was $987 million. By FY 2023, that figure had grown to $1.277 billion. For FY 2025, the GPA appropriation was $1.417 billion.6 Nominally, then, GPA has grown by $430 million since FY 2018, or by about 44%.

Considering GPA spending in terms of real spending per student (i.e., in 2025 dollars), the table below captures the three fiscal years in question:

With the combination of increased taxpayer spending on Maine public schools and declining enrollment levels, real GPA spending per student has increased by 19% since FY 2018.7

Of state public education funding levels, Governor Janet T. Mills noted in her January 28 State of the Budget Address:

Every child in Maine deserves a good education regardless of their zip code and regardless of their family’s assets.

In 2021, with that goal in mind, we met the state’s obligation to pay 55 percent of local education costs for the first time since the voters told us to do so in 2004. My budget includes an additional $156 million to continue this commitment, investing directly in our schools, teachers, staff, and students – and preventing the entire cost of public education from being passed onto the property taxpayers.

Now, I know that sounds like a lot of money, and it is. Fully funding education is the largest cost driver in state government, behind Medicaid. In 2019, the State paid nearly $1.1 billion towards the cost of K-12 education.

Having achieved 55 percent, that total now stands at $1.5 billion per year. It is a fact of life that these costs keep going up, but we have an obligation to our children to pay them.

That Maine children deserve a good public school education is indisputable. That Augusta should help Maine’s municipalities pay for this education is a long-agreed upon standard in our state. Despite this increased state spending, though, public education outcomes in Maine have not improved — in fact, outcomes appear to have declined precipitously during the current decade.8

DECLINE OF PUBLIC EDUCATION OUTCOMES IN MAINE

Two key indicators point to declining Maine public school outcomes: test scores and state-by-state public education rankings.

Maine Student Test Results - National Assessment of Educational Progress

After outpacing national averages in National Assessment of Educational Progress (NAEP) testing since 1992, Maine fourth graders fell behind the national average in both reading and mathematics in 2022 and 2024. Maine eighth graders also fell short of the national averages in reading in 2022 and 2024. After falling short of the average in mathematics in 2022, eighth graders met that average in 2024. In only one of the four areas, fourth grade math, were more than 30% of Maine students deemed “at or above proficient” — and the 33% in that category still ranked among the lowest in the nation. For perspective, as recently as 2017, at least 36% of Maine fourth and eighth graders were considered at or above proficient in the two categories.

Reporting in January on the 2024 test results, the Portland Press Herald headline stated “Maine 4th graders’ math and reading skills are among the lowest in the US.” From the article:

Maine fourth graders’ math and reading skills are among the lowest in the country and have dropped the most since prepandemic levels. That’s according to new data released Wednesday by the National Center for Education Statistics.

The paper continued:

The 2024 report card says just 33% of Maine fourth graders are proficient in math, one of the lowest proficiency levels in the nation. Compared to the rest of the country, those same students were also below the average for reading, with only 26% deemed proficient.

Given the effects the pandemic had on public school education, it is not surprising that test scores among Maine students would have declined. As the Press Herald quoted a Maine Department of Education official: “In Maine, as in all states, pandemic-related learning loss has impacted student performance.” The problem with that explanation is in the “all states” part of it because Maine students’ test results compare so poorly to those of their peers nationally.

To that end, in its story on the NAEP results, “Maine students score lowest in three decades on nation’s report card,” the Maine Morning Star noted:

The most recent test results paint a grim picture of academic performance for Maine students. In three of four testing categories, Maine students had the lowest average scores since 1992, when NAEP results were first reported.

The story added:

Fourth grade students had the lowest average reading score since 1992, and the lowest score in math since 1996.9 Eighth grade students had the lowest scores ever in both reading and math.

That also means 10% fewer students statewide tested at or above grade level in both math and reading compared to pre-pandemic NAEP scores.

“The fact that scores have been declining for a while is a concern,” said Amy Johnson, co-director of the Maine Policy Education Research Institute. “This is not just a one-time blip. National scores have also been declining, but Maine averages have fallen faster and are now below the national average in several areas. Fourth grade scores are particularly bleak.”

Even Maine Public Radio, which offered more sympathetic reporting of Maine students’ NAEP results, noted the following:

Student scores across the country saw large declines in 2022, but Maine is now one of only 14 states where students are performing significantly below the national average.

In sorting through the data, it is notable that testing improvement among students tracked with increased state public education funding from the 1990s through the 2010s. Here is per student—nominal (blue line) and real (orange line)—GPA spending on a five-year basis as compared to enrollment over the past 30 years.10

*The FY 2025 expenditure figure is projected.

During a January Education and Culture Committee hearing—in response to concerns about the NAEP results expressed by members from both parties—MDOE officials cited a number of reasons why national testing results may not capture Maine public school outcomes adequately. According to the Bangor Daily News, these included “a shift away from rote memorization” and “the fact that the national assessment may not pick up on how Maine is also focusing on workforce development by supporting students interested in trades and apprenticeships.”11

Even if this is the case, though, it is difficult to ignore the fact that the decline in test results among Maine students has corresponded with a similar decline in Maine’s standing in various state education rankings.

Maine Public School Rankings - Annie E. Casey Foundation KIDS COUNT Data Book

Each year since 2012, the Annie E. Casey Foundation of Baltimore has ranked education in the states as part of the Foundation’s broader review of overall child well-being in the United States.12 The review, the “KIDS COUNT Data Book,” relies on four key indicators: economic well-being, education, health, and family and community. On the whole, Maine scores well—17th in overall child well-being—if not at the top of the rankings. Over the years, Maine ranked reasonably well in education, too. We were 23rd in the initial 2012 rankings and had improved to 19th by 2018.13

And yet, after peaking at 18th in 2021, Maine’s KIDS COUNT education ranking began a multi-year descent to 41st in the recently released 2025 report. This places Maine in the KIDS COUNT-designated “worst” category of state education and further demotes our state from its “worse” category standing of 2023 and 2024, when we finished 34th and 37th in the rankings, respectively.

Not only has Maine’s ranking declined sharply since 2022 (22nd that year), the drop has occurred at a time when our New England counterparts have remained at the top of the table. In the 2025 KIDS COUNT education rankings, Massachusetts was first, Connecticut third, New Hampshire fourth, and Vermont ranked 12th. Even Rhode Island, with a middling 28th in the rankings, well-outpaced Maine’s 41st.

A view of the KIDS COUNT education rankings since 2012 demonstrates just how steep Maine’s decline has been and how far below our New England counterparts Maine has fallen in the rankings:14

With respect to state comparisons, I found two other datapoints in the KIDS COUNT education rankings noteworthy:

• Maine trails the entire Southeast, where property taxes—which fund the local share of education in most of those states—are generally lower.15

• Six states with no income tax at all are ranked above Maine: New Hampshire (4); Tennessee (14); Florida (19); Wyoming (22); Texas (31); South Dakota (39).16

KIDS COUNT represents, of course, only one set of rankings. But, to my knowledge, the Annie E. Casey Foundation is a respected, mainstream organization, and its methodology has been consistent over the period of time during which Maine’s education ranking among states rose from 23rd to 18th and then dropped to 41st. Also, other public education rankings appear to be in agreement with KIDS COUNT. U.S. News & World Report ranks Maine’s Pre-K-12 education 36th, as compared to Massachusetts’ second, Connecticut’s third, and New Hampshire’s sixth.17

Wallet Hub offers a third ranking to consider. Released in July 2024, it placed Maine better among the states in terms of education, 16th. That ranking, however, was based on school safety (3rd) and school quality (28th). School safety is critically important, of course; so ranking 3rd in that category should not be overlooked. Nonetheless, 28th in school quality is not where we want to be and again compares poorly to the respective first, second, and sixth positions of Massachusetts, Connecticut, and New Hampshire in that ranking.18

SUMMARY THOUGHTS & NEXT STEPS

The increase in state public education funding during the 2020s traces back to a 2004 referendum, which Maine voters approved, calling for state government to fund 55% of K-12 public education costs. This did not occur until FY 2022 but has been the case since. The Mills Administration has consistently highlighted meeting the statutory funding threshold, beginning with this statement upon enacting the FY 2022-2023 budget:

Governor Janet Mills today signed the revised Fiscal Year 2022-2023 biennial budget into law, making a historic investment in Maine public schools and keeping a promise from the Governor to meet the State’s obligation to pay 55 percent of the cost of K-12 education for the first time in the state’s history.

As the Governor’s Office stated, meeting this level of support for Maine’s public schools has been an important development for our state budget. By contrast, that outcomes in the schools have declined so much during the years that state government has funded 55% of public education costs is concerning.

I doubt it was causational—and local and federal funding play roles here, too—but I don’t think policymakers can ignore the significant divergence of state education funding and Maine public education outcomes. Not being an educator or education expert, I am wary of drawing firm conclusions about (1) why Maine’s student test scores and public school rankings have declined so much and (2) what should be done about it.

My lone suggestion, at this point, would be for policymakers to establish a commission to review public education outcomes and funding in Maine. The decline in those outcomes is both steep and extended, at this point, and is worthy of formal review. Whereas requiring a report or study by a state agency on a given matter can have the effect of kicking a problematic “can down the road,” a formal public commission would have an opposite and focusing one.

Establishing a Commission on Maine Public Education

Structured effectively—with membership including educators, parents of Maine public school students, policy experts, and other stakeholders—a commission would offer the benefit of an independent focus of diverse, interested parties on public education in Maine. Also, the Commission’s report—and public hearings and legislative debate on it—would provide a great deal of information and analysis to policymakers and Mainers on the whole about the status of public education in our state.

Since nearly every Mainer has a stake in our public education system, the opportunity to learn more about it would be timely and valuable. A commission is only one idea, of course. Educators and parents among others would no doubt have many additional good ones for addressing Maine’s public education challenges. The key point, here, is that the focus remains on restoring public school outcomes.

Importantly, policymakers should avoid the satisfaction trap of appropriating even greater levels of funding—absent other policy measures—in order to feel that they have addressed Maine’s public education shortcomings. In the words of the great John Wooden, that would be to “mistake activity for achievement.” The experience of increased state spending and declining public education outcomes in Maine, instead, suggests that more money alone is not the answer. Likely, policy reforms and redirection of existing funding streams would be more impactful than simply increasing funds to support more of the current strategies in Maine public schools. A broader legislative debate and statewide public discussion would only benefit the review process. Thank you for your interest and for reading this post. Please let me know if I can answer any questions or provide additional information.

Whether because Maine’s tax burden is already too high (and contributes to an increasingly high cost to live and do business in our state) or because raising taxes may fail to yield projected revenue outcomes, increasing taxes would be unwise. Indeed, reducing taxes to cut the cost of government for taxpayers across our state would make far more sense. Maine’s experience of two successful income tax cuts during the 2010s suggests our state is well-positioned to reduce income taxes again.

MAINE’S SUCCESSFUL INCOME TAX CUTS OF THE 2010s

The “Notes” post cited two examples of tax increases failing to achieve projected revenue collections — one recently in the U.S. and another ongoing in the U.K. An example of the opposite effect, of tax reduction yielding greater-than-projected revenue, occurred in Maine during the prior decade.

Income Tax Reduction in Maine during the 2010s

Governor Paul R. LePage entered office in 2011 committed to reducing Maine’s income tax burden. His Administration pursued major tax reductions throughout the Governor’s two terms in office, and the Legislature approved two significant tax packages during that time. Governor LePage signed the first one as part of Maine’s FY 2012-2013 biennial budget. He vetoed the second, in part because it did not go far enough in reducing taxes.2 Legislators overrode the veto, and both packages cut Maine taxes as follows:

• In 2011, policymakers reduced Maine’s top income tax rate from 8.50% to 7.95% and combined the 4.50% and 7.00% rates into a 6.50% rate. A zero percent tax bracket replaced the former 2.00% bracket and applied to the first $5,200 of adjusted individual earnings ($10,450 for married couples filing jointly). That zero percent tax rate itself only applied to income after a $6,100 standard deduction for individuals ($10,150 for married couples filing jointly) and personal exemptions of $3,900 for each taxpayer and dependent.

• In 2015, policymakers further reduced Maine’s top income tax rate from 7.95% to 7.15%—Governor LePage had proposed a top rate of 5.75%—and replaced the 6.50% rate with ones of 5.80% and 6.75%. They further increased the standard deduction to $11,600 ($23,200 for married couples filing jointly) and, in so doing, eliminated the need for a zero percent tax bracket.

According to Maine Revenue Services, the 2011 and 2015 tax cuts each reduced Maine’s individual income tax burden by approximately $175 million annually. In addition to reducing income tax rates, these tax reform packages eliminated Maine income tax liability for approximately 70,000 lower-income Mainers.3

Revenue Effects of Reducing Income Taxes in Maine - Exceeding Projections

During the years following the 2011 and 2015 tax cuts, individual income tax revenue routinely exceeded projections. With respect to timing, most of the 2011 tax cut provisions went into effect in January 2013. The Revenue Forecasting Committee’s December 2012 report (pp. 9-10), therefore, represented the final forecast prior to implementation of the 2011 tax cut.

In that report, the Committee projected individual income tax revenue of $1.413 billion for FY 2013; $1.386 billion for FY 2014; $1.438 billion for FY 2015; and $1.507 billion for FY 2016.4 In each of the four years, actual individual income tax revenue (p. 87) outpaced those projections: $1.521 billion for FY 2013; $1.406 billion for FY 2014; $1.521 billion for FY 2015; and $1.542 billion for FY 2016. Adding the four years together, actual revenue collections outpaced December 2012 projections by a total of nearly $250 million. Here is how these projections and results appear graphically:

The same outcome occurred following the 2015 tax cuts. The latter were in place by FY 2017. In this case, the March 2016 Revenue Forecasting Committee Report (pp. 10-11) projected revenue as follows: $1.480 billion for FY 2017; $1.557 billion for FY 2018; $1.635 billion for FY 2019; and $1.686 billion for FY 2020.5 Again, in each of the four years, actual individual income tax revenue (p. 87) outpaced those projections: $1.523 billion for FY 2017; $1.595 billion for FY 2018; $1.701 billion for FY 2019; and $1.835 billion for FY 2020. Adding the four years together, actual revenue collections were nearly $300 million greater than projections. Here is how these years appear graphically:

Whereas, the first graphic is reflective of an income tax cut taking effect in the middle of a fiscal year (FY 2013), the above charts one that took effect at the beginning of a fiscal year (FY 2017). Due to timing, the graphics have a different shape, but both reflect four years of Maine’s actual income tax revenue exceeding projections following the enactment of major tax reduction.

Revenue Effects of Reducing Income Taxes in Maine - Increased Revenue

In addition to consistently beating annual projections, individual income tax revenue increased considerably from the first tax cut in 2011 to the end of the decade. From FY 2012 (the last fiscal year before the first tax cut went into effect) to FY 2020, Maine state individual income tax revenue increased from $1.434 billion to $1.835 billion. Accounting for inflation, this represented a real revenue increase of $225 million, or 14%, during a time when Maine’s population increased by about 3%.6 With no other changes to Maine’s individual income tax rates since 2015, Maine’s individual income tax revenue is projected to reach $2.696 billion in FY 2025 — real growth since FY 2012 of 34% compared to Maine’s estimated population growth of 6.5% from 2012 to 2025.7

The graphic below shows annual individual income tax revenue and Maine’s top income tax rate during the prior decade. Counterintuitively, as the orange tax rate line drops, the blue tax revenue bars climb.

Notably, General Fund revenue increases were even sharper during this period. From FY 2012 to FY 2020, General Fund revenue grew by nearly $1 billion, from $3.015 billion (p. 87) to $3.969 billion (p. 88).8 Because sales and use tax is the second-largest component of the General Fund—and with revenue from the former having grown from $981 million in FY 2012 to $1.555 billion in FY 2020—that dynamic suggests income tax reduction may well have resulted in more spending among taxpayers.9

MAINE IS WELL-POSITIONED TO REDUCE INCOME TAXES AGAIN

There are at least two practical factors supporting income tax reduction in Maine. The first is simply a reflection of the above. Last decade, when Maine policymakers reduced Maine’s individual income tax burden, (1) revenue collections outpaced projections; and (2) real individual income tax revenue grew five times more than Maine’s population did during the same FY 2012 to FY 2020 period.

For both the 2011 tax cut and 2015 tax cut, individual income tax revenue declined during the first full year following implementation before rebounding in year-two and then advancing to new heights.10 With respect to the 2011 tax cut, most provisions of that tax package went into effect in January 2013 — the second half of FY 2013. It makes sense due to the timing of decision-making that FY 2014, the first full fiscal year that the tax reductions were in effect, would have been vulnerable to a revenue decline. By FY 2015, however, individual income tax revenue had rebounded by $115 million to $1.521 billion, beating the December 2012 projection by $83 million.

Indeed, even after upward revisions during the intervening years, FY 2015 individual income tax revenue still exceeded final projections. From the July 2015 State Revenue Report, the FY 2015 year-end report:

Individual income tax receipts were over budget for the month [of June] by $12.7 million, ending the fiscal year over budget by $21.5 million (+1.4%). The fiscal year positive variance is on top of a $51.3 million upward re-projection of individual income tax revenue for FY15 by the Revenue Forecasting Committee (RFC) on May 1st.

For the 2015 tax cut, its provisions were in effect by FY 2017, and individual income tax revenue declined by about $19 million that year. As with the 2011 tax cut, though, revenue levels rebounded in year-two — this time from $1.523 billion in FY 2017 to $1.595 billion in FY 2018. Similar to FY 2015 (year-two of the 2011 tax cut), FY 2018 came in over budget. From the July 2018 State Revenue Report:

Revenue was $11.8 million or 7.2 percent under budget for the month [of June] and $40.4 million or 2.6 percent over budget for the fiscal year. Withholding payments ended the fiscal year 4.9 percent over fiscal year 2017. Estimated payments end the year up 7.4 percent and final payments were down 1 percent.

From there, individual income tax revenue continued increasing to $1.835 billion by FY 2020 and then throughout the current decade. As noted earlier, the Revenue Forecasting Committee projects individual income tax revenue of $2.696 billion for this fiscal year.

There is an argument that individual income tax revenue would have grown even more had policymakers not reduced Maine’s income tax burden. Perhaps. But that would require each of the decisions that taxpayers made in the years following the tax cuts to have have been the same regardless of those cuts. In effect, the argument ignores incentives and the decisions that result — or, in general, that decision-making is always subject to circumstances.

Also, this argument forgets all of the money that went back into taxpayer pockets and the dynamic, beneficial effects of their deploying those funds. The individuals, families, and small businesses who retained more of their hard-earned money would have needed to do something with it. It is doubtful they put it under their respective mattresses. More likely, they spent it, invested it in financial markets or job-creating business ventures and expansions, or saved it in Maine’s banks — allowing the latter to make loans to other Mainers and Maine businesses.

With those and other growth drivers in mind, a key takeaway from the “case study” of Maine’s individual income tax reduction during the 2010s is that—at least in the case of measured reductions—revenue declines are likely to be modest and short-lived. Moreover, there is longer term potential for revenue to grow due to increased economic activity as compared to that under a prior, more burdensome tax regime.

The second factor supporting tax reduction is Maine’s ample Budget Stabilization Fund (BSF) balance. The BSF serves as state government’s rainy day fund. Building its balance has been a bipartisan achievement over the past two decades. Doing so was a priority of the LePage Administration, and the Fund’s balance has increased to record levels during the Mills Administration.

Among the important aspects of maintaining a robust BSF balance are (1) the obvious backstop it provides against potential future General Fund revenue shortfalls and (2) the less obvious but meaningful benefit a large balance offers to Maine’s credit rating. Taking those factors into account, policymakers should be judicious in deploying the BSF directly.

By contrast, there is no virtue in failing to consider creative opportunities to make use of the account on behalf of the Maine taxpayers whose income and sales tax payments built much of its large balance in the first place. One way to do so would be to consider the BSF as a form of insurance.

Skeptics of tax reduction often express concern that reducing a given state’s (or nation’s) income tax burden would harmfully deplete that state’s (or nation’s) treasury. While Maine’s experience during the prior decade should help assuage that concern, another important factor to that end is the “insurance” that a nearly $1 billion BSF balance effectively provides. This is a benefit the 2011 and 2015 tax cuts did not have when the BSF balance was a fraction of what it is today.11 Under the present circumstances, were revenue collections following a tax cut to fall short of projections, policymakers could deploy BSF revenue to fill any resulting budget gap and then “refund” the account with future surpluses. Notably, the BSF balance grew from $44 million in FY 2012 to $297 million in FY 2019 — or by more than six times.12

To be clear, this is not to say policymakers should drain the BSF to fund an individual income tax cut. They shouldn’t do anything of the sort. As noted, building the BSF balance has been a major bipartisan success of the past 15 years. It is an important component of our state government’s fiscal health, serving both as a backstop against economic downturns and in making state government more credit-worthy. If past is prologue, though, there should be limited (if any) need to draw from the BSF or, subsequently, to replenish it.

SUMMARY THOUGHTS ON NEXT STEPS

Returning to the discussion in the “Notes” post, if MaineCare’s projected shortfall in the coming biennium is as large as it appears to be, then restoring fiscal stability to the program (and Maine’s state budget) may not be seamless. Since doing so is essential to preserving fiscal balance, tax reduction efforts should follow—or be combined with—budget stability measures.

Regardless of whether these actions were combined, or if tax cuts followed such budget stability measures, policymakers should be well-positioned to reduce Maine’s income tax burden for the reasons noted above. In this time of increased (and increasing) costs to live and do business in Maine, one very practical reason for reducing state taxes is to counteract that costly and painful trend.

In the “Notes” post, I offered that serious tax policy proposals call for detailed research, broad analysis, and thoroughly vetted considerations. In that post, I was referring to proposals that would increase Maine’s income tax. The same would be true, of course, for proposals to reduce Maine’s income tax. Once our state budget is in order, however, past experience and present circumstances would appear to dictate that reducing Maine’s tax burden would be both feasible and timely. I hope policymakers in Augusta will consider serious measures to that end. Thank you for your consideration and goodwill. Please let me know if I can answer questions or provide additional background information.

The current legislative session is set to adjourn on June 18. Presumably, majority Democrats will approve a final version of state government’s FY 2026-2027 biennial budget by then. That may include adopting “targeted” tax increases, such as those that Governor Mills included in her biennial budget proposal, if not some broader-based ones. Since Governor Mills has ruled out support for broad-based tax increases, hopefully proposals to enact the latter will not proceed beyond discussion stages. Then again, that any tax increases—targeted or otherwise—would be necessary to balance Maine’s state budget is unfortunate and undue.

General Fund revenue, derived primarily from Maine state income and sales tax, remains at all-time high levels. From FY 2018 to FY 2025, the current fiscal year, General Fund revenue grew from $3.587 billion to a projected $5.605 billion.1 Even accounting for inflation, this $2 billion increase amounts to real revenue growth of 23% at a time when Maine’s population grew by about 5%.2 At this point, and with this growth, any state government budget problems are the result of excessive spending not insufficient resources.

More troubling than the prospect of narrow tax increases to finalize the FY 2026-2027 budget, though, is that the proposed MaineCare funding level for the biennium is unlikely to meet program spending demands. Absent cost-saving reforms or organic program enrollment declines, this leaves the potential for MaineCare spending overruns to drive substantial General Fund shortfalls in the not-distant future and the predictable calls for broad-based tax increases to address them.

With revenue at historically high levels, with costs to live and do business in Maine having grown so much—and with no guarantees that broad-based tax increases would actually produce enough revenue to close future, larger budget gaps—policymakers should be doing everything possible to avoid this outcome. A far better alternative to accepting a need for higher taxes would be to commit to a more sustainable fiscal course. Limiting annual General Fund spending increases to the combined rates of inflation and Maine’s population growth—and then returning any surpluses to Maine taxpayers—would be a good place to start and an approach that could serve Maine well.

BACKGROUND ON LEGISLATIVE DEVELOPMENTS

In March, majority Democrats approved an $11.320 billion “Part I” General Fund appropriations bill for the FY 2026-2027 biennium (LD 609). In approving the bill, legislators acknowledged that they would need to return to a “Part II” of the two-year budget to add funding for MaineCare in FY 2027 and for other program areas. For more detail on Part I of the budget, and legislative machinations surrounding the bill, I would recommend this comprehensive March 20 Portland Press Herald article.

Part I (LD 609) largely tracks Governor Mills’ FY 2026-2027 biennial budget proposal but does not contain some key funding initiatives the Governor proposed. These include:

• $122 million of FY 2027 MaineCare shortfall funding;3

• $285 million of additional MaineCare and non-MaineCare funding; and4

• a series of funding reductions and tax increases to balance the budget.

Based on the Revenue Forecasting Committee’s latest projections, legislators have $125 million remaining to meet the above funding needs. How to make more than $400 million in proposed funding fit into a $125 million box appears to be a key sticking point in approving the rest, or Part II, of the FY 2026-2027 biennial budget.

MAINECARE SPENDING GROWTH & STATE BUDGET SHORTFALLS

Regardless of how legislators finalize the budget, if they do so funding MaineCare at-or-near the General Fund levels currently under consideration, it is doubtful the two-year appropriation will keep pace with the program’s spending needs. Because MaineCare accounts for 25% of General Fund spending, program budget overruns could threaten overall state budget stability.5

The Part I budget included a supplemental FY 2025 appropriation of $118 million to bridge this year’s MaineCare General Fund shortfall. Continued pressure on program spending levels led Governor Mills to propose $122 million of MaineCare shortfall funding for each fiscal year of the 2026-2027 biennium. Even at the total proposed MaineCare General Fund level of $2.919 billion, however, that amount appears unlikely to meet program needs for the coming two-year period — absent cost-saving reforms or a significant decline in enrollment.6

Several relevant points to that end:

• In FY 2023 and FY 2024, MaineCare’s respective General Fund expenditures were $897 million and $1.149 billion. In FY 2025, my General Fund expenditure projection is $1.422 billion.7

• That would amount to General Fund program spending growth of about 26% annually since FY 2023.8

• If MaineCare General Fund spending grew at even half of that rate off the $1.422 billion FY 2025 base, program General Fund spending would be $1.606 billion in FY 2026 and $1.814 billion in FY 2027 — a $3.420 billion biennial total.

That $3.420 billion is about $500 million greater than the Mills Administration’s proposed $2.919 billion FY 2026-2027 MaineCare General Fund appropriation.9 Also, the $3.420 billion is $220 million greater than the $3.199 billion projection included in the Bureau of the Budget’s most recent Four-Year Revenue and Expenditure Forecast (p. 14).10

For additional perspective, this is how the divergent spending projections appear graphically:

The solid blue bars represent actual MaineCare General Fund expenditures (FY 2025 being a final appropriation). The shaded blue bars follow the present annual spending growth rate (25.9%). The lighter blue line tracks half of that growth — the 12.95% growth scenario; whereas, the darker blue line represents the Four-Year Forecast projection, and the orange line is the Governor’s proposed funding level.11

Reviewing this analysis, my sense is that the budget issues before the Legislature are twofold. First, the FY 2026 and FY 2027 respective baseline MaineCare General Fund levels of $1.338 billion, which the Governor’s budget proposal included (and the Legislature’s Part I budget adopted), are too low; and, second, policymakers have not accounted for enough program spending growth based on current trends. Effectively, the budgets (the Governor’s and Part I) start with too little funding and then fail to grow that funding enough — particularly for FY 2027.

Budget planners may feel that recent program spending increases have been so large that growth will level-off in the coming biennium. To go from average spending growth of 26% over the past two years (or even the 12.95% rate) to growth of less than 3% in FY 2026 and flat in FY 2027, however, would be a significant leveling.12

More likely, funding MaineCare at-or-near the Mills Administration's proposed biennial General Fund level, $2.919 billion, would result in continued program shortfalls and future supplemental funding requests. Should that come to pass, some policymakers are likely to turn to broad-based tax increases as the only remaining means—and the only means robust enough—to fund the ongoing program shortfall.

TAX INCREASES TO COVER GENERAL FUND BUDGET SHORTFALLS

As noted earlier, Governor Mills has ruled out her support for future broad-based tax increases. By contrast, other members of her caucus have not.

Legislative Republicans have remained consistent in their opposition to any future tax increases, and I agree with their stance. State government’s budget problems are not revenue-driven but rather the result of outsized, unsustainable spending growth, such as outlined in the MaineCare spending analysis above. Beyond that basic point, I am skeptical of the fairness and practicality of raising taxes in Maine to fund potential budget shortfalls.

Fairness of Increasing Taxes in Maine

In terms of fairness, Maine is already a high-tax state. While individual income tax rates have remained steady throughout the Mills Administration, many Mainers and Maine businesses are experiencing the burden of a 1% addition to our state’s payroll tax, which state government imposed on January 1. While categorized differently, payroll taxes are just another form of income taxation — only a more aggressive kind, since they tax gross rather than adjusted earnings.

Meanwhile, as the new payroll tax has taken effect, Maine property taxes have been rising at considerable rates for years. According to Wallet Hub, taxpayers in our state pay the fifth highest property taxes in the country, and this is at a time when state funding for Maine’s public schools and direct funding from state government to municipalities are both at all-time highs. Income taxes, likewise, remain high — the same Wallet Hub study ranks Maine’s income tax burden 16th among the states, just ahead of high-tax New Jersey and Maryland. In a separate 2022 study measuring combined state and local tax burden, the Tax Foundation ranked Maine 10th overall, higher even than Massachusetts (14th) and well-ahead of New Hampshire (35th).

With an already high overall state tax burden, then, it seems unfair to be considering any tax increases, let alone broad-based ones. To that point, with revenue levels in Augusta at historic highs, it is only reasonable for Maine taxpayers to question whether policymakers could make do with the resources already at their disposal.13

Practical Concerns about Raising Taxes in Maine

Setting aside philosophical concerns regarding high taxes and those related to Maine’s economic competitiveness with other states, practical elements of tax increases are important to consider, too. The reality of trying to fill a budget gap with an income tax increase, in particular, is that the actual revenue levels those increases yield do not always meet projections. In effect, it is possible that policymakers could close a future budget gap on paper only to see actual revenue collections fail to meet budgeted projections.

When that happens, a failure to consider taxpayer response to tax increases is often to blame. An effect of this can be the “scoring” of proposed tax measures—i.e., projecting their fiscal impact—on a static basis using simple math; whereas, in reality, taxpayer response to tax policy changes is always dynamic.

This phenomenon of revenue collection from a tax hike failing to meet projections is playing out right now in the United Kingdom. And it did in the U.S., as well, after Congress increased the top federal marginal income tax rate from from 35% to $39.6% in 2012. In that case, according to The Wall Street Journal, “income tax revenue fell $250 billion short of the Congressional Budget Office’s projections between 2013 and 2017.”

Maine and other U.S. states are even more dynamic environments because moving between them is reasonably seamless and a change in residency can shift a taxpayer’s obligations entirely. With increased migration to Maine in recent years, our state’s tax revenue environment may be more fluid than some policymakers realize. Some brief insight to that end:

• From FY 2018 to FY 2025, individual income tax revenue increased from $1.595 billion (p. 86) to a projected $2.696 billion (p. 11). Even considering inflation, that increase would be roughly 33% over a period of time when Maine’s population grew by about 5%.14

• For comparison, in the FY 2011 to FY 2018 period, individual income tax revenue grew from $1.415 billion (p. 86) to $1.595 billion — a real increase of 1% at a time when Maine’s population grew by about 1.6%.15

• As to this decade’s surge in General Fund revenue, one reason for it appears to be that many of those who migrated to Maine during-and-around the pandemic years were high-earners who brought a disproportionate share of taxable earnings to our state.

Maine’s State Economist indicated as much in a January 12 Portland Press Herald article, “How the pandemic ‘sugar high’ led to Maine’s budget crunch,” which examined the revenue windfall Maine experienced during the early 2020s.

State Economist Amanda Rector said the shift toward remote working, coupled with perceptions of Maine being a safe state with a lot of open space during the pandemic, compelled people to move and stay here.

“A lot of people were bringing with them good-paying jobs from out of state,” Rector said. “They were working here remotely so they had much higher incomes. That contributed to the really rapid income growth we saw. We also saw a lot of upward pressure on wages generally. And, of course, all of those folks moving here also brought a lot of demand for services and goods.”

If, as it appears, so many high-earners migrating to Maine in recent years has been a key driver in producing far more resources for state government than policymakers had at their disposal in the past, an important factor to consider is that high-earners are often among the most mobile taxpayers. This may be especially true of those who arrived in Maine more recently. Taking this fluidity into account, policymakers should proceed with care when it comes to tax policy changes and should take caution in banking on lofty static revenue projections that may not come to fruition in a dynamic world.

Two additional reasons to be skeptical about static revenue projections from a potential individual income tax increase—even just on top earners—are (1) the inherently variable nature of taxpayers realizing capital gains and (2) the fact that so many Maine small businesses pay taxes at the individual income tax level.

• Capital gains tax revenue can fluctuate a lot. Unlike wage earnings, taxpayers can often elect to take gains when they want to do so. A simple example of this is selling shares of stock. Maine, like many other states, taxes capital gains at the same rates as individual income, and growth in capital gains tax revenue is an important contributor to ongoing growth in Maine’s overall individual income tax revenue. In its May report (p. 3), the Revenue Forecasting Committee noted the following:

  Capital gains realizations are the main explanation for the strong 2024 tax liability growth; taxable IRA distributions and interest income also contributed. Capital gains are assumed to have increased by 30% in 2024, up from 15% in the December forecast.

  With capital gains being an important contributor to individual income tax revenue growth, disincentivizing taxpayers from taking those gains—or incentivizing them to take the gains elsewhere—would put continued revenue growth at risk.

• Many Maine small businesses pay their taxes at the individual income tax level. This can go unacknowledged when proponents of tax increases on high-earners make their case, but it is an important factor to consider in any proposal to increase Maine’s income tax burden. The last thing policymakers should want to do (and this speaks to economic competitiveness, as well) is implement tax policy changes that stifle job creation and other business activity of Maine’s economic engine, small businesses across our state. By virtue of math alone, raising taxes on these businesses would mean they have fewer resources to hire more employees—or even to keep the ones they have—and less capital to disburse into Maine’s economy. By extension, the negative implications for overall tax revenue (and the economic growth that fuels it) are not hard to imagine.

Serious tax policy debates call for more research, broader analysis, and more thoroughly vetted considerations than anything I am offering here. So please take this for what it should be worth: the points (1) that it seems unfair and unwise to raise income taxes when Mainers and Maine businesses are already facing other tax increases and when those have landed on top of costs to live and do business in our state that have increased so much; (2) that tax environments are dynamic and outcomes from tax increases (and reductions for that matter) are best projected accordingly; and (3) that “paper fixes” to budget shortfalls may not come to fruition in terms of actual revenue collections.

Wrapping this up, then, the broader points of concern are simple ones: that MaineCare’s funding challenges may be greater than current budget considerations suggest; that persistent, growing program shortfalls could contribute to larger General Fund budget gaps and inspire louder calls for broad-based tax increases; and that policymakers should be judicious when it comes to adjusting tax policy and, likewise, wary of relying on income tax increases to bridge future shortfalls. As an Augusta-outsider, I am hopeful that bipartisan budget discussions are farther along than I am aware; that MaineCare’s budget challenges are not as stark as I have speculated; and that policymakers are on track to return the program (and Maine’s General Fund budget) to sound financial footing. Thank you for reading and for your consideration and goodwill. Please let me know if I can answer questions or provide additional background information.

In reporting on Maine’s state budget, the media often references state government’s rainy day fund, formally known as the Budget Stabilization Fund (BSF). The broader state cash pool, of which the BSF is a component, rarely receives similar attention. For a pool of funds, however, that the Office of the State Controller refers to as having “the general characteristics of a demand deposit account,” the fact that it is carrying a balance of nearly $4 billion is significant and worthy of more attention.3

SUMMARY POINTS

• Composition of the TCP. The Treasurer’s Cash Pool is comprised of 116 individual funds. Balances from funds grouped into two accounts—the General Fund and the Other Special Revenue (OSR) Fund—accounted for about $2.7 billion of the total FY 2024 closing balance of just greater than $4 billion. Federal pandemic-era recovery funds were another $530 million of the total balance.

• Growth of the TCP. The TCP reached the $1 billion threshold in FY 2017. By FY 2022, it had grown to $4 billion. The account has remained at that approximate level since.4 As evidenced by the prior linked article and this one, a $4 billion state cash pool would have been difficult to imagine not long ago. The following graphic, which appears on the State Treasurer’s website (modified slightly with artistic license), demonstrates just how significant the TCP’s growth in recent years has been.

While part of the jump from the beginning of FY 2020 to the close of FY 2022 ($1.613 billion to $4.262 billion) was due to pandemic-era federal funding (~$1 billion), not all of it was. Further, as state government has expended those federal funds (the balance was $530 million at the close of FY 2024), the TCP balance has remained relatively steady.5 For a broader view of TCP growth, this graphic reflects account balances over the past 20 years.

• Growth drivers. Two areas of TCP growth stand out: (1) the non-BSF portion of the General Fund balance; and (2) the Other Special Revenue Fund balance.

• TCP General Fund growth. Part of this growth has resulted from an increased BSF balance. The latter represents funds that policymakers have specifically set aside to address revenue shortfalls. The other part of the TCP General Fund balance is comprised of non-BSF dollars. Most of these are funds in “carrying accounts,” which “carry” legislatively appropriated—but unspent—funds from one fiscal year to the next.6 Putting figures to these accounts, at the close of FY 2024, General Fund deposits made up $1.696 billion of the total TCP balance of $4.032 billion. Of the $1.696 billion, the BSF accounted for $968 million, and the non-BSF portion for $728 million — up from $86 million in FY 2017.7

• TCP Other Special Revenue Fund growth. At the close of FY 2017, OSR balances made up $388 million of that fiscal year’s total TCP balance of $1.110 billion. As of FY 2024, the former accounted for $1.025 billion of the total TCP balance of $4.032 billion. For years, state agencies have budgeted 15% to 25% more OSR dollars than they have spent. More recently, that level has increased to ~30%. With significant growth in OSR balances, increasing variance percentages have resulted in large OSR Fund budget-to-actual variances. According to the FY 2024 Annual Comprehensive Financial Report, state agencies had an OSR budget of $2.486 billion but only spent $1.660 billion of that amount, leaving a variance of $826 million (33%).8

• Why this matters. These are large balances for state government to be maintaining year-over-year. In the case of General Fund carrying balances, those represent unspent tax dollars sliding from one fiscal year to the next.9 With respect to OSR balances, those include accounts covering a broad spectrum of areas. In some cases—such as for professional and occupational licensing, environmental protection, and recreational registrations (e.g., for snowmobiles and ATVs)—the accounts are supported by user-fees, which Mainers and Maine businesses pay to state agencies. It is important, then, to ensure that fee revenue and other accruing funds are put to use on a timely and efficient basis.

• The opportunity it presents. Large unspent balances should provide state government with an opportunity to utilize funds or to repurpose or return them.

  • In the case of large year-over-year General Fund carrying balances, there may be an opportunity within the budget process to reallocate these funds from accounts that have underutilized them to areas of greater need. Given the large amount of carrying balances on hand (~$420 million at present), identifying opportunities to reallocate funds may help cover at least a portion of state government’s $450 million FY 2026-2027 biennial budget shortfall.10 Large carrying balances, year-after-year, could also provide a basis for reducing the taxes that produce the revenue fueling those balances in the first place.

  • In the case of large OSR balances, in certain fee-based accounts, state agencies should have an opportunity to put the revenue they are accruing to use through improved execution. Also, fee levels for accounts with large balances may be ripe for reductions. Lastly, where larger sums have accumulated in fee- and non-fee-based accounts alike, there may be opportunities for more substantial one-time deployments.

• Proposed review. Given the growth of the TCP, a review of state cash balances appears warranted. At a time when the respective costs of living and doing business in Maine have increased so much, more detailed attention to cash management in state government may provide an opportunity to reduce the cost of government in Maine without sacrificing the quality of services state government delivers.

GROWTH IN STATE CASH BALANCES

Growth in state cash balances has been a positive development for state government’s fiscal stability. During and following the financial crisis years, state government struggled with limited cash-on-hand and resulting liquidity challenges.11 Aside from the MaineCare funding issues currently playing out in Augusta, which amount to a political debate rather than a liquidity event, state government has not faced meaningful cash flow challenges in more than a decade. Indeed, each year since FY 2018 the Office of the State Controller’s Annual Comprehensive Financial Report has included the following statement (with a slight modification in FY 2024):

“[T]he State has seen record levels in its Treasurer’s Cash Pool and Budget Stabilization Fund, and has not required external borrowing in the form of TANs or BANs for cash flow purposes.”12

The latter speaks to the strength of state government finances in recent years. For perspective, this is a far cry from the note the State Controller’s Office included in its FY 2012 report.

There are several factors that adversely affect our General Fund Balance Sheet that we should strive to improve over the next several years. The largest cause for the current condition is the Medicaid liabilities for amounts owed to hospitals and the incurred but not paid liability that accrues at the end of each fiscal year which currently total $720.4 million of which the General Fund portion is $263.7 and the budgetary one-day borrowing used to balance the budget. This combined with the lack of significant reserves weakens the General Fund equity position.

The fact that the State Controller’s Office has commented in recent years on “record levels in [the] Treasurer’s Cash Pool and Budget Stabilization Fund,” as opposed to “the budgetary one-day borrowing used to balance the budget” and the “lack of significant reserves,” demonstrates just how far state government liquidity has come in little more than a decade.

BUDGET STABILIZATION FUND

Governor Janet T. Mills has frequently cited the Budget Stabilization Fund balance as an important accomplishment of her Administration. She has been correct to do so. Growing the BSF balance has been a bipartisan priority for years, something Governor Paul R. LePage championed, as well; and the account’s balance has grown to record levels under the Mills Administration.

I have more thoughts on the BSF, the policies governing it, and a practical means of activating it without sacrificing the important stability that the fund provides to state government. But that is not the point of this post and can wait for a future one.

TREASURER’S CASH POOL

Although its total balance is four-times that of the BSF (and contains the BSF), the TCP receives far less media attention. Whether from the media or policymakers, I have been surprised at how little interest there has been in the TCP over years, even as its balance has grown so much.

The following graphic is a compressed, more contextual version of the one above. Here, the blue bars reflect TCP fiscal year-end balances from FY 2014 to FY 2024, and the orange line depicts the TCP’s relative growth in comparison to Maine’s General Fund budget.

TCP Background

The Maine State Treasurer’s Office describes the TCP and its function accordingly:

Funds not immediately needed to pay state expenses are invested through the Treasurer's Cash Pool in commercial paper, obligations of the U.S. Government, CDs in Maine banks, money market mutual funds, corporate bonds, and repurchase agreements. The Cash Pool includes 116 funds, averaged more than $4.19 billion during FY 2024, and was managed with safety, liquidity, and yield in mind. More than $166 million in earnings from investments were distributed in Fiscal Year 2024 to participants in the Pool on a prorated basis.13

TCP Growth

As noted, the TCP has quadrupled since FY 2017 — from just over $1 billion to nearly $4 billion today. Some growth of the cash pool during the years in question makes sense because the BSF and federal pandemic-era recovery funds reside in the TCP. The former has increased considerably since FY 2017, and the latter did not exist then. That said, removing the growth of the BSF ($772 million since the close of FY 2017) and the remaining federal covid funds ($530 million as of 2024 fiscal year-end) would still leave a balance of approximately $2.7 billion — more than double the FY 2017 balance of $1.1 billion.14 Accounting for inflation, the latter would be approximately $1.4 billion in today’s dollars. This amounts to ~90% inflation-adjusted, apples-to-apples growth of the TCP during a period of time when Maine’s population grew by ~5%.

Notably, reaching a $1 billion cash pool balance was considered meaningful when it first occurred eight years ago. A Bangor Daily News story from February 2017, “Thanks mostly to LePage, Maine has a record $1 billion in the bank,” provides important context regarding this development and lends weight to the significance of having a cash pool four times that size today.15

The primary benefit of maintaining a sufficient cash pool balance is the liquidity that it provides. From the BDN story:

The average monthly balance of the General Fund portion of the cash pool was in the red — meaning state treasurers had to “borrow” money from other areas of state government — from the onset of the financial recession of 2008 through June 2015. Since then, it’s been in the black every month except March 2016, because — as is the case every March — the state paid tax returns before taxpayers who owe money made payments in April or later.

Suffice to say, a $4 billion cash pool was almost unfathomable when that account first reached the billion-dollar threshold in September 2017. The fourfold TCP increase seen in the graphics above has resulted largely from (1) growth of the BSF and other General Fund dollars held in the TCP; (2) growth of the Other Special Revenue Fund balance; and, (3) an influx of federal funds to address the pandemic.

According to the State Controller’s Office, General Fund, Other Special Revenue, and federal recovery fund balances accounted for more than three-quarters of the $4 billion cash pool balance at the end of FY 2024.16 For this discussion, the focus is on the first two listed funds: General Fund and Other Special Revenue.

TCP GENERAL FUND BALANCE

Of the total $1.696 billion TCP General Fund closing balance for FY 2024, $968 million was the BSF. That left a remaining balance of $728 million of non-BSF General Fund dollars. While policymakers have built the BSF balance intentionally, the non-BSF $728 million appears to be unintentional and largely comprised of unspent, carrying appropriations that accrue from year-to-year. Balances in these appropriations, which by law carry from one fiscal year to the next, have grown in recent years.

The graphic below depicts the evolution of General Fund balances in the TCP in recent years, with the blue portion of the bar representing the BSF portion of the General Fund that resides in the TCP, and the orange representing the non-BSF portion.

The data reflect non-BSF General Fund balances in the TCP—largely carrying funds—spiking in the current decade. Three points along those lines:

• It would be good to know if the same balances are carrying each year, or if they are different ones.

• With state government facing a budget shortfall for the coming biennium, policymakers should consider opportunities to reduce the budgets of routinely underspent accounts and to reapportion those funds to cover at least part of the deficit.

• As a matter of good governance, it would make sense for policymakers to review carrying privileges for certain appropriations. A “use-them-or-lose-them” policy may be a better approach, if there are some accounts that carry large balances year-after-year.

As to reasons for the large accumulation of funds, I think the situation is one of three things: either there is a simple explanation for the accrual of carrying funds and nothing to see here; or there is a major opportunity to reapportion General Fund dollars to benefit Maine’s state budget and Maine taxpayers alike; or it is some combination thereof.

Interestingly, the Office of the State Controller annually includes this statement regarding carrying balances in the Annual Comprehensive Financial Report (p. 45):

There are factors that adversely affect our General Fund Balance Sheet that we should continue to strive to improve over the next several years. The primary factors that have a significant impact on the State’s Financial Statements compiled and issued in accordance with Generally Accepted Accounting Principles as applicable to governments include… the demand from appropriations whose balances carry from year-to-year, which results in lower amounts accruing to the Unassigned Fund Balance of the General Fund.

Longer-term, carrying such a large amount of General Fund balances year-over-year suggests that some accounts are over-appropriated. Inasmuch, policymakers may be well-positioned to reallocate those funds to areas of need or simply to return them to Mainers in the form of tax reduction.

TCP OTHER SPECIAL REVENUE FUND BALANCE

As noted, a similar accrual of OSR balances has occurred in recent years — from $388 million in FY 2017 to $1.025 billion in FY 2024. For background, the Office of the State Controller defines the OSR Fund as follows:

This fund is used to account for revenue sources that are legally restricted to expenditures for specified purposes, including some major capital projects that are not accounted for in the Highway and Federal Funds (p. 23 ).

As Finance Commissioner, I was concerned that the OSR Fund had begun carrying such large balances from one fiscal year to the next. Reviewing individual OSR accounts at the time with my team, we found that numerous accounts had maintained similar balances for each of the prior five years. Given the even larger OSR balances today, it appears that this dynamic has persisted. The graphic below depicts the large increase in the OSR Fund balance in recent years.

I no longer have insight into individual OSR account balances that I did when I was serving in state government. Along those lines, it is important to acknowledge that the OSR Fund is a broad fund comprised of myriad individual accounts; and there may be legitimate reasons why certain of those would accrue substantial balances for a time.

The consistently large budget-to-actual variances in the OSR Fund, however, are noteworthy. While the issue has intensified as the sums in question have grown larger, the fact that these variances have been north of 15% in each year since FY 2014 suggests that deploying OSR funds efficiently is a longer-running challenge for state government and one that warrants policymakers’ attention. Here, the pattern (and growth) of OSR variances is clear.

An important feature of good governance is efficient stewardship of public resources. If the data are providing a straightforward account of OSR Fund balance accrual, then policymakers in Augusta should work to ensure that state government has the appropriate structures and policies in place such that funds are deployed on a timely and efficient basis.

Utilizing OSR Balances

Acknowledging the increases in the costs of living and doing business in Maine in recent years, it seems more important than ever that state agencies use any fee revenue from Mainers and Maine businesses efficiently and effectively. If there are not enough ways to spend that fee revenue—as the growing budget-to-actual variances and the $1 billion total OSR carrying balance may imply—then state agencies should adjust or eliminate fees producing revenue for which there is less or no use. Where other large (non-fee based) balances have accrued in the TCP, policymakers should examine those accounts, as well.

One way to effect this would be to initiate a detailed review of the individual OSR accounts. Policymakers could request a public report to that end. I would suggest it include the following features:

• Justification for each fee charged to Mainers and Maine businesses. The fee could be the same level as today’s or a different one, but agencies overseeing the respective accounts should explain and justify their proposed fee levels.

• Justification for each fee charged to non-residents. Whereas state agencies should be charging as little as possible to Mainers and Maine businesses, they should be charging as much as the market will bear to non-residents. This, too, may result in the same fee structure in some areas as exists today. Regardless, though, the outcome should have a balancing effect of reducing the fee burden on Mainers as much as possible.

• Plans to deploy existing balances as soon and as efficiently as practicable. If there is no productive use for the funds in an account, then state government should return those funds to fee-payers; or, if not fee-based, pursue legislative approval to shift the funds to another area of need in the budget. Alternatively, if rigid policies are obstructing productive deployment of existing balances, policymakers should review those policies for adjustment or elimination.

To be clear, such a review need not (and should not) be adversarial. Nor should it be partisan. Instead, it should represent an opportunity for a focused reset and to engage state government fund managers as strategic partners. Maine has an excellent civil service. With respect to a lack of deployment of OSR funds, my sense is that it has as much (if not more) to do with structures that state government has created—e.g., burdensome rules and regulations—than any lack of initiative on the part of fund managers to put funds to work. Also, if there are good reasons why state agencies have not deployed funds that appear to be available, that would become clear in reviewing individual OSR account balances, as well.

CONCLUDING THOUGHTS

I referred to cash management earlier. When it comes to the latter, the private sector has advantages in terms of built-in incentive and accountability — the incentive to make a profit and generate return on investment and the accountability imposed by the market when this does not happen. Deploying cash strategically is fundamental to generating returns, and the fact that “Cash & Cash Equivalents” is the first line on corporate balance sheets is not accidental. That line-item is topical on the earnings calls of most publicly traded firms, in their shareholder presentations, and the like.17

State government, of course, does not operate on the profit motive, and nor should it. Then again, policymakers in the executive and legislative branches—through effective administration and focused oversight—need to create incentives and a spirit of accountability throughout state government when it comes to cash management and preventing large accruals of cash on state government’s balance sheet. Doing so will ensure that funds derived from taxes and fees that Mainers and Maine businesses pay to state government are utilized as efficiently and effectively as possible.

Returning to state government’s $4 billion cash pool, there appears to be a meaningful opportunity to benefit Mainers across our state with improved cash management practices. In an October 2018 budget recommendation document, which the LePage Administration prepared for the next gubernatorial administration, we included the following point:

Growth in the cash pool has resulted from sound financial management; efficiently deploying available, one-time resources is necessary to future good governance of our state.

At that time, the TCP balance had only exceeded $1 billion a year earlier. Still, excess non-BSF General Fund revenues were beginning to accrue and likewise OSR balances. In October 2018, when the Administration published the document, we did not know who the next Governor would be. We felt strongly, however, that putting underutilized state government cash to work for Mainers and Maine businesses would be of universal appeal. More than six years later, I feel the same way — if more intensely due to the amount of cash that has accrued on Maine’s balance sheet and how much more expensive it has become to live and do business in Maine.

Given the broad growth and evolution of Maine’s state budget in recent years, a detailed review of the TCP would be timely. With such large sums in the TCP now under consideration, even allocating or repurposing a small percentage of the fund would have a meaningful effect. Also, a commitment to regular review and revision of total resources state government needs to meet its broad mission of service to Mainers would be a welcome addition to the biennial budget development process — and a meaningful advance of good governance in Maine.

Having raised a number of questions—and having made a handful of recommendations—regarding state cash balances, I will close by noting again that, as an outsider to state government at this point, I may lack sufficient insight regarding the TCP to understand all aspects of its growth. Be it with respect to non-BSF General Fund or OSR Fund balances, growth in these accounts may be more straightforward than my naked eye can discern. If so, and if there is clear justification for it, great. Points raised; points addressed; let’s move on. If not, I hope policymakers will adopt the recommended measures (or devise their own) to study the accrual of these funds, put them to use, or return them to Mainers and Maine businesses accordingly.

Thank you as always for your consideration and goodwill. Please let me know if I can answer any questions or offer any clarifications. Likewise, if you think I have overlooked data, or misinterpreted any of it, please let me know in the comments section. I will do my best to respond.

While I am proud of the work, I write primarily from my two subsequent vantage points: (1) as State Finance Commissioner1 — a step removed from oversight of MaineCare finances but deeply aware of how important they are to keeping the General Fund budget in balance and, of course, accountable for any funding issues therein; and (2) as an outside observer (since 2019) with a similar awareness of how critical accurately forecasting and sustainably managing MaineCare program finances are to Maine’s overall state budget.

Acknowledging that this is not the brief (-ish) addendum to the Commentary post that I originally intended, a handful of summary points follow. The broader and more detailed analysis of program spending begins with the “Background Points” section. Thank you as always for your interest.

EXECUTIVE SUMMARY

Medicaid spending is a big part of state budgets — generally the largest after K-12 education, and that is the case in Maine.2 Maine’s Medicaid program, MaineCare, accounts for about 25% of all General Fund spending, meaning that state government uses roughly one-quarter of each income or sales tax dollar it receives to fund MaineCare expenses.3

Over the years, MaineCare has grown considerably. “All Funds,” meaning total program spending from all funding sources, MaineCare was a $1.2 billion program in 2000. In the current fiscal year, FY 2025, it will be about $5 billion.4

At times, such as in the late 2000s / early 2010s period, MaineCare shortfalls have been significant contributors to state budget instability. After a decade-long period of budget stability, MaineCare budget challenges are straining Maine’s broader General Fund budget once again.

Two primary reasons account for this. First, total program growth has accelerated. From FY 2018 to FY 2024, total program costs increased from $2.851 billion to $4.625 billion.5 Second, the rate at which the federal government matches Maine’s Medicaid expenses has declined from ~70% in the early 2020s to ~62% in the current fiscal year. The latter resulted, initially, from the end of a pandemic-era boost in federal matching funds that each state received; and, subsequently, the rise in Maine’s per capita income (which has an inverse effect on the federal matching rate) relative to the national average.6

That joint dynamic, then, of increasing total program costs combined with a declining federal cost-share of Maine’s total Medicaid expenditures has substantially increased MaineCare costs to the General Fund. Rather than approximately 20% of the General Fund budget, which MaineCare accounted for in FYs 2020 to 2023,7 that level is about 25% today — closing in on an all-time high.8

Since the state budget pie is always and only 100%, increased MaineCare General Fund costs are putting pressure on other parts of Maine’s state budget.9 Put simply, for each additional percentage of Maine’s General Fund budget that MaineCare consumes, another area (or other areas) must forgo a corresponding amount.

When windfall revenues—such as Maine experienced in the early 2020s—enable more spending across the board, it is easier for governments to mask (or negate altogether) budget cannibalization. As those revenues flatten, which has happened in Maine more recently, masking efforts begin to fail. The funding decisions become the traditional “either or” rather than the more recent but unsustainable “how much more?” The graphic below illustrates the problem state government is facing, as spending growth rates have spiked and revenue growth has declined.

The mix of expenditures (total General Fund and MaineCare General Fund) and revenue growth rates is out of alignment and unsustainable. While the rates of spending growth should moderate in FY 2026-2027—simply because they will not be growing off an artificially low base—the wide spreads in the graphic are concerning. A closer look at each of the lines in the graphic helps explain why.

• MaineCare General Fund expenditures growth (blue line). The line’s sharp turn upward is the direct result of total program costs increasing and federal funding for it decreasing. Continued biennial MaineCare General Fund spending growth of ~50% is unlikely because Maine’s constitution requires policymakers to balance our state budget. Nonetheless, what was a $1.608 billion General Fund program as recently as the FY 2018-2019 biennium is projected to cost $2.657 billion for the current one (FY 2024-2025).10 Further, if program General Fund spending growth declined to its All Funds biennial spending growth average of recent years (~18%), that would still outpace projected revenue growth by six times for the coming biennium (FY 2026-2027) and by three times for the following one (FY 2028-2029).11

• Total General Fund expenditures growth (orange line). The upward shift in the orange line shows the degree to which General Fund spending trends are influenced by MaineCare ones. From FY 2022-2023 to FY 2024-2025, total General Fund spending is expected to increase by $2.308 billion. Of that growth, 42% would be due to increases in MaineCare General Fund expenditures. For the coming biennium, 50% of the projected $1.02 billion General Fund growth would be due to increases in MaineCare General Fund expenditures.12 As with MaineCare spending, total biennial General Fund spending is unlikely to keep growing at its current level of ~26%. Even the 10.2% growth projected in the Four-Year Revenue and Expenditure Forecast (or the 9.8% in Governor Janet T. Mills’ budget proposal), however, still well-exceeds the 2.7% General Fund revenue growth rate projected for the FY 2026-2027 biennium.13

• General Fund revenue growth (green line). Maine General Fund revenue experienced massive growth in the early 2020s. From the FY 2020-2021 biennium to the FY 2022-2023 biennium, General Fund revenue grew by more than $2 billion, or by about 27%. That growth has stalled in more recent years, with levels of 1.5% and 2.7% projected for the current biennium (FY 2024-2025) and the coming one (FY 2026-2027), respectively.14

Although General Fund revenue growth is expected to return to 3%+ annually in the FY 2028-2029 biennium (6.2% for the two-year period), ongoing spending growth that exceeds the latter would yield longer term fiscal imbalance. Each biennia that the imbalance persists just compounds the problem.

A last summary point is more universal. As budget challenges (MaineCare and otherwise) mount in Augusta, there will no doubt be an increasing temptation among some policymakers to call for tax increases. Those should be rejected. State government does not have a revenue problem. Even with slower annual growth in recent years, General Fund revenue has increased from $3.6 billion in FY 2018 to a projected $5.6 billion in FY 2025, the current fiscal year. The problem is a spending one. MaineCare’s budget challenges offer more evidence to that end.

BACKGROUND POINTS FOR A BROADER DISCUSSION

Even with its outsized impact on state budgets, my sense is that understanding of how state Medicaid funding works is not widespread beyond budget and healthcare officials, policymakers and practitioners, and other program stakeholders. To that end, and stepping back for a broader discussion, some key points provide a good foundation for understanding Medicaid funding and MaineCare’s place in our state budget.

• Program Administration. While the federal government funds and administers Medicare, each state is responsible for administering its own Medicaid program (subject to federal oversight) and for funding a portion of it. The latter share for each state is no greater than 50%.

• Federal Matching Funds. Funding for state Medicaid programs is determined by a mechanism known as the Federal Medical Assistance Percentage, or the “FMAP” rate, and is designed to provide matching funds at levels set inversely to respective income levels in the states. In a July 2020 report on the FMAP, the Congressional Research Service summarizes accordingly: “Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes).”

• Maine’s FMAP Rate. Maine’s FMAP rate has typically fallen between 61% and 65%, meaning state government has covered the balance of 35% to 39% of total annual MaineCare costs through the years.15

• Enhanced FMAP Rates. During economic downturns, the federal government has often increased FMAP rates on a temporary basis. This occurred during the financial crisis years and during those of the pandemic, resulting in FMAP rates of ~75% in FY 2009 and FY 2010 and of ~70% for FY 2020 through FY 2023.16

• MaineCare Expenditures as a percentage of Maine’s state budget. Even with the federal government covering more than 60% of MaineCare expenditures, the program remains one of the largest line-items in Maine’s General Fund budget. In the current biennium, MaineCare was projected to account for 24% of General Fund spending (now likely 25% given the MaineCare shortfall).

• Medicaid Expansion. Acknowledging the complexity of this topic—and the extensive political debate in Maine and other states on it—the simple background is that the Affordable Care Act required states to expand their respective Medicaid programs. In 2012, the Supreme Court struck down that provision of the law, making expansion optional to the states. Maine expanded its program in 2019, enhancing enrollment eligibility, and growing the program from about 280,000 enrollees in 2018 to nearly 400,000 today.17

• Entitlement Program. MaineCare is an entitlement program, wherein eligible members are entitled to a range of medical services, and state government is required to fund those regardless of the appropriated MaineCare budget. Hence, the potential for funding shortfalls in the program and the corresponding premium any administration should place on forecasting it accurately.

Those are some key basics. By necessity, states deal with many complex policy and funding details in administering their respective Medicaid programs. So all things MaineCare can get complicated. Nonetheless, an awareness of the points above should be useful in understanding MaineCare’s significant impact on Maine’s state budget.

MAINECARE EXPENDITURES OVER THE YEARS

With the announcement of a $118 million MaineCare shortfall for FY 2025 for the current fiscal year, and with projected levels of MaineCare expenditures of 25% to 27% of the General Fund budget, Maine’s Medicaid expenditures are beginning to look more like prior budget “eras” than the most recent one.18 This is problematic because, even as state government has been operating in an extended period of budget stability where revenue outpaced expenditures, Maine is not that far removed from large, Medicaid-driven state budget shortfalls.19

For historical perspective, this chart depicts biennial MaineCare expenditures over the past three decades, beginning with the FY 1998-1999 biennium.20 The blue bars represent total MaineCare program, or All Funds, expenditures. The latter includes General Fund, Other Special Revenue Fund, and Federal Funds expenditures for each biennium.21 The orange bars represent the General Fund portion of Maine’s Medicaid spending for those years. The shaded bars for FY 2024-2025 are projections, as the biennium remains ongoing.22

The rising blue and orange bars on the left depict an initial period of considerable MaineCare growth. The middle period shows relative stability, with the slight spike in the blue bar in FY 2014-2015 resulting from the federal share of state government paying overdue bills to Maine’s hospitals in FY 2014 (more below). More recently, MaineCare’s renewed outsized growth is unmistakable in the rising bars on the right side of the graphic.

For additional context in understanding the current challenges that increasing MaineCare costs are presenting to General Fund budget stability, it is helpful to zoom in on the program’s General Fund expenditures for each of the three decades considered above. As a matter of serendipity, the decades separate pretty cleanly into three distinct MaineCare “eras.”

MaineCare 2000s

Noting the decade bleed of the late 1990s into the 2000s, this analysis picks up in FY 1998-1999.23 Without detouring into policy review, it is important to know that Maine entered into an initial period of Medicaid expansion in the early 2000s.24 Doing so had the effect of driving substantial increases in enrollment and expenditures in what was an already growing MaineCare program.25

From the late-1990s to FY 2006, MaineCare General Fund spending grew by more than 150% ($256 million in FY 1998 as compared to $658 million in FY 2006). After having consumed an average of 13.6% of total General Fund expenditures annually for the five-year period from FY 1994 to FY 1998, that figure had increased to 23.3% by FY 2006. Spending flattened in FYs 2007 and 2008, after which MaineCare General Fund expenditures declined precipitously during the financial crisis years of FY 2009, FY 2010 and FY 2011.

The graphic below depicts total MaineCare General Fund expenditures from FY 1998 to FY 2010 and the percentage of Maine’s General Fund budget dedicated to Medicaid annually during those years.

The major decline in MaineCare General Fund expenditures at the end of this period resulted from the financial crisis and its effects on Maine. After reaching a decade-high General Fund revenue level of $3.087 billion in FY 2008 ($4.452 billion in today’s dollars), revenue declined to $2.811 billion, $2.755 billion, and $2.944 billion in the following three fiscal years. Facing General Fund shortfalls, state government limited payments to Maine hospitals for Medicaid services as a means of preserving cash flow. This Portland Press Herald story, “Maine’s debt to hospitals approaches $500 million,” summarizes the situation well; wherein, state government accumulated significant debt to Maine hospitals over a several-year period beginning in 2009.26

The decline in MaineCare General Fund expenditures at the end of the decade reflected in the graphic above resulted from those suspended payments as well as an enhanced FMAP rate (74.35% and 74.86% for Maine in FYs 2009 and 2010, respectively) enacted by Congress in response to the financial crisis.

MaineCare 2010s

As a candidate in 2010, future Governor Paul R. LePage committed, if elected, to paying state government’s debt to Maine’s hospitals as well as to reinstituting timely payments to MaineCare providers. He accomplished both objectives.27 More broadly, Governor LePage and DHHS Commissioner Mary Mayhew committed to returning MaineCare to sound financial footing. They did, and in so doing—along with implementing granular program forecasting measures—significantly enhanced state government’s budget stability during the 2010s.

The following graphic covering the 2010s demonstrates the effect of (1) restoring payments to the hospitals; (2) establishing a level of MaineCare expenditures that state government could afford; and (3) increased spending due to Medicaid expansion in FYs 2019 and 2020.28

As noted, the steadiness and predictability of MaineCare expenditures throughout most of the 2010s was a key factor underpinning Maine’s overall state budget stability during those years.

MaineCare 2020s

After an extended period of stability, the percentage of Maine’s General Fund budget dedicated to MaineCare has increased sharply in recent years. As discussed, part of this has been due to overall cost increases in the program, and another part has resulted from a declining FMAP rate.

The following graphic depicts MaineCare expenditures during the 2020s. Note: this is the same format as the graphics above. Expenditures are grouped by biennia (rather than annually), however, as projected totals for the current biennium and the next one are readily available in the Four-Year Forecast (pp. 13-14).29

With respect to total program growth and the FMAP rate:

• First, total MaineCare spending has increased throughout the decade. From FY 2020 to FY 2024, All Funds MaineCare spending (i.e., including federal funds) increased by more than $1.3 billion, or 41% — and an average annual growth rate of 9% for the four-year period. If FY 2024 All Funds expenditures of $4.625 billion increase by the same 9% rate in FY 2025, MaineCare’s total annual spending would be north of $5 billion for the first time.

• Second, after an increase during the early years of the pandemic, Maine’s FMAP rate has declined since FY 2023. From ~70% during FYs 2020 to 2023 to ~61% for FY 2026, the rate will be down by ~13% (or nine percentage points). This resulted from two reductions. First, as expected, the federal government discontinued the enhanced FMAP period following the end of the pandemic, reducing Maine’s FMAP rate from 69.49% in FY 2023 to 62.65% in FY 2024. Second, Maine’s FMAP rate has declined since then as a result of per capita income growth in our state in recent years. From 62.65% in 2024, our FMAP dropped to 62.06% in FY 2025 and will drop to 61.29% in FY 2026.30

The dual dynamic of increasing total program costs and a declining federal payment share of it, then, is the impetus for the sharp upturn in the orange line and shaded blue bars in the graphic above. The two reflect a greater percentage of Maine’s General Fund budget dedicated to MaineCare and increased MaineCare General Fund spending, respectively. The result is that, comparing today—and the foreseeable future—to the beginning of the decade, state government is now paying a larger portion of the costs of a much more expensive program.

REALITIES OF MAINECARE SPENDING GROWTH

Two realities are clear when it comes to MaineCare spending growth during the 2020s. The first is that program spending growth at the current rate is unsustainable. The second is that the program’s current budget challenges were predictable.

Unsustainability of MaineCare Spending Growth

To the first, Medicaid expansion was always going to be a costly proposition. That is not to reenter an old debate but simply to acknowledge an important fact. Even though the federal government covers 90% of costs for the expansion population, 10% of a large amount is still significant, and the latter has held true for MaineCare expansion. In the first year of Maine’s Medicaid expansion, FY 2019, MaineCare General Fund expenditures increased by nearly $60 million, or 7.7% — a sharp upturn from average annual growth of about 1% during the prior six years.31

While the enhanced FMAP rates of the next four fiscal years depressed General Fund costs of the program, total MaineCare costs increased throughout the period. From FY 2020 to FY 2024, MaineCare All Funds costs rose from $3.280 billion to $4.625 billion. As noted above, that represented a 41% expenditure increase in just four years. Even accounting for the high inflation of those years, it was still a real spending increase of about 16% over four years during a time when Maine’s population grew by 3%.32

Since the enhanced FMAP rate was always set to decline, increasing total program costs by about 9% annually during the pandemic ensured that by mid-decade—i.e., when the enhanced FMAP ended—MaineCare costs to the General Fund would rise considerably. They did.33

The graphic below shows this dynamic over the course of the post-MaineCare expansion period. The key dynamics are the steadily rising blue bars (MaineCare All Funds spending) and the declining green line (Maine’s FMAP rate), which results in the rising orange bars (MaineCare General Fund expenditures).

The mix of program dynamics driving today’s MaineCare expenditure levels are clear in the graphic. Total program costs were increasing throughout this period (~9% annually); for a time, FY 2020 to FY 2023, the enhanced FMAP meant that the federal government paid for a greater portion of Maine’s Medicaid costs than it typically does; then, when the federal match returned to its historical level, state government was left paying for far greater MaineCare expenditures from the General Fund than it had in the recent prior years. Notably:

• In the graphic above, because they are competing with far taller blue bars, increases and decreases of the orange ones are somewhat understated.

• The jump, however, represented by those orange bars from FY 2023 to FY 2024 is 28%. For the first time, in FY 2024, MaineCare was a billion-dollar-per-year General Fund program ($1.149 billion).34

With the accompanying decline in General Fund revenue growth over the past several years, this has amounted to a major shift in trends from the beginning of the decade to the present seen here:

I include this graphic again because it conveys so clearly just how starkly these key growth rates have diverged. Continuing into the coming biennium at anywhere near these rates would be a big problem for Maine’s state budget.

On the positive side, because of the lower bases off of which FY 2024-2025 biennium spending (MaineCare General Fund and total General Fund) grew, rates of growth for both accounts should decline organically in the coming biennium. That effect is evident in this graphic:

The outlook in this scenario improves markedly. Here, spending growth is based on the Four-Year Forecast projections — i.e., if policymakers simply confirmed, for FY 2026-2027, the statutory funding levels already in place. The convergence of spending and revenue growth rates, of course, would be an improvement over the present and certainly a positive development.

On the negative side, even at those reduced rates, that level of expenditure growth would still be higher than forecasted revenue growth and therefore unsustainable.

Further, based on (1) the broad departure from recent-year growth rates that the above scenario would represent; (2) the FY 2027 General Fund expenditures growth rate issue covered at length in the Commentary post — it is unrealistically low; and (3) a confusing note regarding MaineCare spending included in the Governor’s budget proposal (more below), I am skeptical that even these still-too-high rates of growth could come to fruition within the current budget structure.

Predictability of MaineCare Spending Growth

In its January 12 story, “How the pandemic ‘sugar high’ led to Maine’s budget crunch,” the Portland Press Herald noted the following regarding the projected budget shortfall for the coming biennium:

The deficit is driven mostly by increased spending to pay for laws that were passed when revenues were flush. Those built-in cost increases, totaling more than $1.1 billion over the next two years, are now projected to outpace revenue growth, according to the governor’s budget office.

The reference is to the beginning of the current decade when General Fund revenue rose dramatically over a several-year period, and the Press Herald’s observation is an important one. I would add a further point to complete the picture. Not only were revenues flush during those first few years of the 2020s, state government was—temporarily—responsible for a lesser share of Medicaid expenditures than it typically is. And yet, the enhanced FMAP was always going to end.35

Unfortunately, rather than acknowledging the uniqueness of the period (a revenue boom combined with temporarily reduced funding obligations in a major cost center of the budget), policymakers added other ongoing spending to the General Fund. All of that comes full circle to where state government is today — revenue growth that has returned to modest levels and far greater MaineCare costs (~$1.5 billion more annually than when the decade began) for which state government is responsible for a larger share.

CONCLUDING THOUGHTS

The steady, sustainable growth of MaineCare spending during the 2010s would be a welcome trend at this point. With (1) a large FY 2025 program funding shortfall to patch, (2) funding challenges in the coming biennium, and (3) outsized program spending growth rates, policymakers in Augusta should be focused on returning MaineCare spending to sustainable, predictable growth levels. Addressing the first two points is essential to meeting Maine’s constitutional balanced budget requirement. It would be a good start, but leaving the third point unaddressed would be budgeting malpractice and would negate those other accomplishments.

The Governor’s budget proposal includes a MaineCare spending level of $2.919 billion, or $280 million less than the statutory level of $3.199 billion included in the Four-Year Forecast. Credit to the Governor and her Administration for attempting to bring expenditures closer to a sustainable level. Having said that, my concerns follow:

• The Governor’s proposed rate reductions are controversial (hospital-affiliated healthcare providers and behavioral health services providers have both raised strong objections) and will be difficult to implement. Those rate reductions will likely require legislative compromise, meaning less savings.

• The proposed tax increases represent a revenue solution to an expenditure problem. Given the massive General Fund revenue gains of the early 2020s, state government really should be able to live within its current revenue means rather than taking more from an already overburdened Maine taxpayer.

• The proposed spending downshift would result (at best) in a 9.8% two-year program spending growth rate — and that would still outpace projected FY 2026-2027 revenue growth of 2.7% by nearly four times. Also, MaineCare General Fund spending of 25% of the total General Fund budget would remain at a record level.

• Lastly, there is a difficult-to-parse note on p. 24 of the budget proposal. I may be misinterpreting it but have returned to the note numerous times, at this point, without definitive conclusion. It may be fine. On the other hand, it may point to more underlying MaineCare budget pressure than the topline $2.919 billion budget proposal otherwise suggests. The full note is longer and appears in footnote 9, but the segment of interest is here (with my italics for the sake of italics):

  The biennial budget for 2026-2027 includes $122 million in General Fund per year to stabilize the program and bridge the shortfall. In FY26, this results in appropriations exceeded [sic] the established limitation. The biennial budget includes language to notwithstand the limit for the one year.

  Since the Governor’s budget proposal is $280 million less than the statutory level of $3.199 billion, I don’t understand the need for the $244 million “to stabilize and bridge the program.” As I said, there may be a clear reason for it. If so, great. It would be far better for Maine if MaineCare General Fund spending growth did not continue at an outsized rate and if a 5% annual growth rate were indeed in range for the coming biennium. But I don’t understand the $244 million shortfall bridging structure.

More broadly, in a pre-MaineCare expansion environment, the LePage Administration argued that rejecting such expansion was critical to keeping MaineCare spending at a level where it (1) did not cannibalize other parts of the state budget or (2) require broad-based tax increases to cover future spiraling costs. Those standards were for a different debate than the current one over the biennial budget. And yet, since Mainers were assured those things would not happen if state government expanded MaineCare, the standards themselves remain important ones to uphold as policymakers seek solutions to current program funding challenges.

Program spending. Considerable early 2020s revenue growth likely negated a MaineCare percentage rate cannibalization of other General Fund spending — that is because there was so much more General Fund revenue to go around. Future modest revenue growth levels, however, will not have the same insulating effect.

Taxation levels. As noted throughout, tax increases should be unnecessary. Republican legislators are right to oppose those increases. Even more, any broad-based tax increase to address MaineCare spending growth would be particularly unfair. Many Mainers who voted in favor of Medicaid expansion, which appears to be a large driver of MaineCare spending growth, did so with the understanding that the federal government would pay for the lion’s share of it — that expanded coverage would basically be free to Maine. To then face tax increases as a result of that goodwill would be an unfortunate bait-and-switch at a time when policymakers have already raised the cost of government on Maine workers at all income levels.

Next steps. A better course would be a detailed review of program spending, wherein legislators work with the Administration and program stakeholders to understand cost drivers and potential mitigation strategies for areas of outsized spending growth. Any successful effort to that end will be deliberate and transparent. It would be better if it were bipartisan. And it should avoid temporary, patchwork solutions that are easier to implement but only address a fraction of the problem and delay the same predictable (and likely greater) future budget challenges.

Medicaid expansion. This is a meatier topic and worthy of its own extended post. That said, any review of MaineCare designed to return the program to sound financial footing needs to study the early returns of program expansion. There are a number of different angles to determine the success or failure of this initiative, and this brief entry, as we have already run long, is not meant to be that. There are at least three areas of expansion, however, that warrant attention:

• Enrollment has exceeded projections. MaineCare has grown by about 120,000 members since 2018, as compared to pre-expansion estimates of 70,000. The “continuous enrollment” standard of the pandemic years may account for some of this growth, so this figure will be an important one to watch.36

• Program spending growth appears largely due to expansion. Given MaineCare General Fund spending grew by less than 1% on average during the six years prior to expansion—and the program now funds healthcare for about 40% more Mainers than it did during those years—it is fair to conclude that expansion is a primary driver of real MaineCare spending growth in recent years.

• Reductions in the uninsured have been limited. Since expansion, Maine’s healthcare uninsured rate has dropped from 8% to 5.9%. In the five years prior to expansion, that rate dropped from 11.2% to 8%. Whereas MaineCare enrollment has increased by ~120,000, the number of uninsured in our state has dropped by 27,000. A question policymakers should ask in response to that development is, “has expansion simply shifted many formerly privately insured Mainers to the MaineCare rolls?”37

In reviewing the broader program, policymakers should seek to ensure that MaineCare runs as efficiently and effectively as possible. Among arguments in favor of expansion, proponents claimed that the latter would yield cost savings for the program. As MaineCare spending increases put pressure on the broader state budget, policymakers should ensure that those projected savings are maximized.

Thank you for reading. Please do not hesitate to ask questions or offer insight in the comments section. MaineCare finance is a reasonably complex topic. In my experience MaineCare policy is even more so. Given that the program accounts for about one-quarter of Maine General Fund spending (and growing) and, likewise, covers nearly one-third of Maine’s population, it is essential that state government get MaineCare as right as it possibly can — both in managing the program’s finances and in serving the nearly 400,000 enrollees who rely on it for their healthcare.

First Things: Timing, Focus & Recommended Reading

I wrote the large majority of this piece prior to the January 10 release of Governor Janet T. Mills’ budget proposal for FY 2026-2027, the upcoming biennial budget period.2 Rather than integrating commentary on the budget proposal into what is largely a retrospective analysis, the latest current event I reference here is the Mills Administration’s January 7 memo to legislators, framing the Governor’s then-forthcoming budget proposal. There will be ample time for review of that proposal. Legislative activity with regard to it will dominate the legislative session in the coming weeks and months, and my preference for a commentary piece on the budget is a focused one that has the benefit of diligent review and reflection.3

Also, on January 12, the Portland Press Herald published a story by Randy Billings covering some of the same ground I address on state budget growth — “How the pandemic ‘sugar high’ led to Maine’s budget crunch.” The latter focuses on General Fund revenue growth and features insightful commentary from two of my former colleagues in state government, Associate Commissioner for Tax Policy Mike Allen and State Economist Amanda Rector, on factors that drove enhanced revenue growth earlier in the decade. If you are reading this post and have not read the PPH piece, I would recommend it. While I may draw different conclusions than it does in certain areas, the story is revealing in many regards on the topic of revenue growth in recent years. Moreover, I agree with (and expand upon below) the following point included in the story regarding state government’s current budget shortfall:

The deficit is driven mostly by increased spending to pay for laws that were passed when revenues were flush. Those built-in cost increases, totaling more than $1.1 billion over the next two years, are now projected to outpace revenue growth, according to the governor’s budget office.

JANUARY 2025

As mentioned, the Mills Administration recently sent legislators a budget memo, highlighting a $450 million FY 2026-2027 budget gap and acknowledging a $118 million MaineCare shortfall in FY 2025, the current fiscal year.4 The latter was new (to me anyway); the former was known, but it was noteworthy that the Administration took to highlighting the gap, even though the Department of Administrative & Financial Services (DAFS) had announced it months earlier. I interpreted this approach as confirming the notion that Maine policymakers will face challenging budget decisions during the current the legislative session.

At the root of those challenges is the fact that General Fund spending has increased considerably in recent years, and—even amid projected record high General Fund revenue—the current rate of spending growth is unsustainable. After years of General Fund expenditures growth that exceeded the combined rates of inflation and state population growth, policymakers will need to curtail the rate of spending growth to keep Maine’s state budget in balance.5

DECEMBER REVENUE FORECAST

In November, Governor Mills made a statement in response to the Revenue Forecasting Committee’s latest report that illustrates the point of spending increases driving state budget challenges.6 Reacting to the Committee’s favorable report, which increased projected revenue for the coming biennium by more than $200 million, the Governor said the following (as quoted by the Portland Press Herald):

“These projected revenues should not be seen as an opportunity for significant new spending… As my administration has consistently warned, this next budget is going to be tight, and rather than create new programs, these revenues should be used to meet our existing obligations, like 55% of education, municipal revenue sharing, and health care.

“Come January, I intend to introduce a lean budget proposal that will honor these existing commitments to the greatest extent possible, with any new investments seriously limited.”

I did not find much ambiguity in the Governor’s statement, and credit to her for setting clear, realistic expectations for the biennial budget debate well before it was underway. Nonetheless, it is important to understand how state government arrived at this point—i.e., where budget conditions are so tight even as revenue has grown so much—as well as to consider remedies to the situation and productive next steps.

STATE BUDGET GROWTH: FY 2018 to FY 2025

My sense is that state budget growth may be more significant than most Mainers are aware. The graphic below reflects total General Fund expenditures (blue bars) and annual expenditure growth rates (orange line) from FY 2018 to FY 2025.7 Please note that, in this case, the orange line’s trajectory shows that the rate of expenditure growth, rather than actual expenditures, declined from FY 2024 to FY 2025 after having increased annually from FY 2021 to FY 2024. The figures on the left y-axis represent dollars in thousands, meaning “6,000,000” equals $6 billion and so forth.

Of note:

• What was a $3.4 billion General Fund budget in FY 2018 has grown to nearly $5.4 billion in FY 20258 — an increase of about 58% in expenditures over that period, or 23% when adjusted for inflation,9 and with an average annual growth rate of 6.88% over the seven-year period.10

• Maine’s population has grown by about 5.4% since 2018, meaning growth of state government spending—even accounting for inflation—has outpaced population growth by more than four times.11

• Whereas state government’s spending growth has been greater than Maine’s population growth, spending growth has roughly tracked economic expansion. According to the Office of the State Economist, Maine’s GDP grew from $64.8 billion as of Q3 2018 to $97.9 billion as of Q3 2024, representing growth of 51%. The State Economist’s latest Maine Economic Indicators report further shows the Q3 2024 figure chained to 2017 dollars for a real GDP level of $77.8 billion; so that would be real growth of about 20% over that time period. The periods in question are slightly different due the chained 2017 dollars, but it is reasonable to conclude that real GDP growth nearly matched real General Fund expenditures growth of 23% during that time period.12

Putting the three points together, my takeaways would be the following: (1) economic growth in Maine produced sufficient revenue to support the spending growth of recent years; (2) nonetheless, spending growth has been significant and is unsustainable at the 6.88% average annual growth rate of the FY 2018 to FY 2025 period; and (3) to have had this much economic growth, and its accompanying General Fund revenue growth, without broad-based tax relief is regrettable for a high-tax state that has experienced such significant increases in costs of living and doing business in recent years.13

The chart below shows General Fund revenue growth during the same FY 2018 to FY 2025 period.14

One obvious takeaway is the graphic’s confirmation that GDP growth did indeed fuel revenue growth. Like General Fund expenditures, General Fund revenue increased a great deal in a short period of time. To that end, it is remarkable that, after years of recording General Fund revenue and expenditures in the $3 billions, both only lasted one year in the $4 billions (FY 2021 for revenue and FY 2023 for expenditures) before advancing into the $5 billions, where they are today — really a dramatic evolution of Maine’s General Fund budget.

In recent years, however, the rate of General Fund revenue growth—as depicted by the plunging orange line after FY 2022—has declined considerably compared to the rate of General Fund expenditure growth. Several other noteworthy points with respect to revenue growth:

• From FY 2018 to the projected FY 2025 level, General Fund revenue grew by $1.993 billion, or about 56%. When adjusted for inflation those figures were approximately $974 million and 21%, respectively.15

• Extending the view over 15 years, when Governor LePage took office in January 2011, state government was on its way to recording General Fund revenue of $2.944 billion for that fiscal year. Updated to FY 2025 dollars, the latter figure would be $4.221 billion rather than the actual projected figure of $5.581 billion,16 reflecting real growth of 32% (i.e., accounting for inflation) during a period of time, FY 2011 to FY 2025, when Maine’s population grew by about 6.4%.17

• Returning to spending growth for the FY 2018 to FY 2025 time period, the figure of $4.386 billion reflects FY 2018 expenditures ($3.416 billion) updated to FY 2025 dollars.18 Adding another 5.4% to account for population growth over the seven-year period would increase the latter figure to $4.623 billion. Given the $5.581 billion General Fund revenue projection for FY 2025, there is an argument that state government should be running a surplus in the neighborhood of $1 billion because spending $4.623 billion this year would have accounted for inflation and Maine’s population growth from FY 2018 to FY 2025.

As with any analysis, context matters here. During the time period in question, there were important considerations, for example, about how Maine would fund voter-approved MaineCare expansion and at what level state government would fund Maine’s public schools and the Municipal Revenue Sharing program.19 Election results in these years assured increased General Fund spending in each of those key budget areas. And yet, returning to the point above when considering GDP expansion in Maine, to have had so much revenue growth—nearly $1 billion in excess of that needed to account for spending increases related to inflation and population growth—and not return more of it in the form of tax relief strikes me as a missed opportunity to meet closer in the middle, at least, of spending growth and reducing the cost of government to Mainers than policymakers ultimately did.20

State Budget Revenue & Expenditure Trends

Another theme from the graphics above is that General Fund revenue and expenditure trends are shifting. From FY 2015 to FY 2024, revenue outpaced expenditures on an annual basis. FY 2025 is murkier, but pre-adjusted projected General Fund revenue, $5.581 billion, still exceeds the FY 2025 appropriation of $5.393 billion.21 Overall, that is a good place to be. There are indications, however, that spending pressures may begin to overwhelm revenue realities in the coming biennium. Inasmuch, the recently announced $118 million MaineCare shortfall for the current fiscal year offers evidence to that end.

When it comes to Maine budget trends, two opposing things may be true at the same time: (1) on the positive side, while revenues flattened in recent years (after massive early decade growth), the Revenue Forecasting Committee (RFC) is projecting a return to roughly 3% growth from FY 2027 to FY 2029; but (2) on the negative side, there may be so much spending growth built into the state budget at this point that even relatively strong revenue growth is not enough to keep up with committed expenditures.

For years, in prior decades, state government struggled to achieve budget stability. During the last decade, we have had it. With so much new revenue flowing into the General Fund, there is no reason that should change. Nonetheless, spending commitments that outpace future revenue would undermine Maine’s hard-earned fiscal balance.

STATE BUDGET OUTLOOK

Turning to the coming biennium in more detail, DAFS currently projects FY 2026 and FY 2027 General Fund spending levels of nearly $5.8 billion and $5.9 billion, respectively. At those levels, there would be a biennial General Fund revenue shortfall of $434.5 million over the two-year period. These figures come from the Four-Year Revenue and Expenditure Forecast with my update to the latter one pursuant to the RFC’s recently revised projections.22

Structural Gap Background

The Four-Year Forecast represents an important point in the biennial budget process. DAFS issues this report every two years in the fall, several months prior to the seating of a new Legislature and legislators’ subsequent consideration of the Governor’s two-year budget proposal. The Four-Year Forecast weighs statutory spending commitments against revenue forecasts for both the General Fund and the Highway Fund. Any shortfall of projected revenue against spending obligations, such as the one noted above for the General Fund in FY 2026-2027, is termed a “structural gap” in state budget parlance. There are two significant factors regarding the timing of the Four-Year Forecast and any potential structural gap it reveals:

• At the end of September, when DAFS releases the Four-Year Forecast, administration budget writers have several months to make any necessary adjustments to the Governor’s budget proposal before it is due to the Legislature in January; and

• The revenue figures in the Four-Year Forecast receive an update when the RFC issues its December report—i.e., the one the Committee issued last month—revising its March projections.

Another important point is that the Four-Year Forecast operates with the assumption that policymakers will meet all existing statutory funding obligations in crafting the budget. Since the Legislature can amend existing statutory spending, and thereby alter future funding obligations, any projected structural gap needs to be considered with that in mind.

For more background on the FY 2026-2027 structural gap, this Bangor Daily News piece from the fall offers helpful context for understanding the nature of the projected shortfall itself and some of the political debate that emerged following DAFS’ issuance of the report in September.

Structural Gap Significance

Reviewing the report, two things struck me as particularly relevant regarding the structural gap. First, although the Legislature has the ability to change statutory funding obligations, reducing obligations (i.e., projected spending) is not a seamless process. More, given that General Fund expenditures have only been moving in one direction—and at an elevated rate in that direction no less—in recent years, pivoting to reduce spending commitments may prove that much more difficult.

Second, with all of the revenue growth Maine has seen in recent years, it is hard to conceive of state government having any structural gap at all at this point. Over the course of just several biennia, General Fund revenue has increased from approximately $7.4 billion (FY 2018-2019) to approximately $11.2 billion (FY 2026-2027 projected), or by nearly $4 billion. And yet, the DAFS report projects nearly $11.7 billion in spending for FY 2026-2027 — and that spending level may be understated.23

Projected General Fund Expenditures Growth

Digging into spending projections for the FY 2026-2027 biennium—again, based on statutory expenditure obligations as stated in the Four-Year Forecast—the expected spending growth is notable in that it declines significantly in the second year of the two-year budget period. After projected General Fund spending growth rates of 17.95% in FY 2024, 6.25% in FY 2025, and 6.99% in FY 2026, the Four-Year Forecast only projects spending growth of 2.24% in FY 2027. The projected decline in the growth rate appears similarly abrupt when compared to annual expenditure growth since FY 2018 of 6.74%.24

There may be good, justifiable reasons why spending growth declines so much in FY 2027. As an outsider to state government at this point, I do not pretend to have any pertinent insight here other than what the publicly available budget data reveals. Accordingly, General Fund expenditure growth may really be poised to decline to roughly 2% in FY 2027. If so, great. Renewed spending discipline coupled with robust revenue growth is a recipe for budget success.

Still, an organic reduction in the rate of growth that steep seems unlikely. More likely is that policymakers would seek, at some point, to add to FY 2027 projected spending levels such that expenditures more closely reflect the FY 2026 level. For context, increasing FY 2027 spending growth from the currently projected 2.24% to 6.99%—i.e., matching FY 2026 growth—would add $274.1 million to the structural gap, more than erasing the gains (approximately $202 million) from the RFC’s revised forecast.25

Practical Implications of Excessive Spending Growth

The three graphics below further illustrate the effects of potentially understating FY 2027 spending growth. The first two capture General Fund revenue and expenditures from FY 2010 to FY 2027. The first of those, directly below, takes its expenditure projections from the Four-Year Forecast (i.e., spending that is currently in statute). The inversion of the orange and blue lines in FY 2026 and FY 2027 is the current structural gap of $434.5 million — not what we want, but not insurmountable.

The second graphic, here, uses the Four-Year Forecast’s FY 2026 figure but increases FY 2027 growth from the report’s 2.24% to 6.99%, matching the projected FY 2026 figure.

In this case, a $708.6 million structural gap materializes.26 This much larger shortfall would move the state budget into more challenging territory.

Taking the high spending growth scenario one step further, this is how the above graphic would look extended through FY 2029 (i.e., through another biennium after the current one) with the same 6.99% General Fund expenditures growth projection for FY 2026 applied to FYs 2027, 2028, and 2029, respectively. The revenue projections come from the latest RFC report, which projects General Fund receipts through FY 2029.

There is a reasonable argument that the above scenario is extreme. Roughly 7% spending growth year-on-year for four years is indeed extreme. And spending pressures may not come to that at all. FY 2026 may be the last year of General Fund expenditure growth rates at or near that level. The problem is that, as noted earlier, the 6.99% FY 2026 projected growth rate essentially equates to that of recent years and to the 6.88% average annual growth for General Fund expenditures from FY 2018 to FY 2025.

Since the graphic above simply extends spending growth at those recent levels, and then uses official RFC revenue projections, it represents a fair estimate of how, unaddressed, state government finances could look by the decade’s end — with a General Fund structural gap of $1.746 billion in the FY 2028-2029 biennium and a budget deficit of about $1 billion in FY 2029 alone.27

To close on this point, I don’t think that will happen mainly because it can’t happen. Maine’s Constitution requires a balanced biennial budget, so policymakers would need to address the projected shortfalls before they snowballed as they do in the last scenario. The way policymakers would address future shortfalls, however, remains in question. After so many years of elevated General Fund expenditure growth, “bending down the curve” of state government spending will require changes in the approach to budgeting and a firm commitment to fiscal discipline.

While that may prove challenging, the alternative should be a nonstarter — continuing to enact General Fund expenditure levels at rates of growth that forecasted General Fund revenue levels can no longer support. Doing so would almost certainly result in a return to earlier, messier state budget eras in Augusta, where policymakers struggled to close substantial funding gaps. It could lead to circumstances, as well, in which there are calls for broad-based tax increases as the only way to avert large, impending budget shortfalls.

Projected General Fund Revenue Growth

Turning (more briefly) to projected General Fund revenue growth, the Mills Administration has repeatedly warned the Legislature about flattening revenue. It makes sense to express caution, in general, and to manage resource expectations among lawmakers. That said, I think it is important to acknowledge two key points when considering future General Fund revenue growth.

• First, General Fund revenue grew so much during the early part of the decade (by $1.4 billion, or 36%, from FY 2020 to FY 2022) that the new revenue levels of greater than $5.5 billion annually should be sufficient to fund state operations. (See the earlier point about a potential $1 billion revenue surplus had General Fund expenditures grown by the combined rate of population growth and inflation since FY 2018.)

• Second, after a period of flatter revenue growth from FY 2023 to FY 2026 (average annual growth of approximately 0.7%), the RFC projects annual revenue growth to return to a 3.1% average rate from FY 2027 to FY 2029.

By FY 2029, the RFC projects revenue growth of 3.4%, which would nearly match the average annual General Fund revenue growth rate of 3.7% for the FY 2011 to FY 2020 period. State government ran revenue surpluses in eight of those ten years (and six consecutive ones from FY 2015) and amassed a combined revenue surplus of $907.5 million for the period. Notably, Governor LePage’s signature tax reduction plan became law during that 10-year period, as well.

All of that is to return to an important point for policymakers to acknowledge as they begin debating the next biennial budget: at this point, when it comes to budget imbalance, limiting spending growth—as opposed to attempting to increase revenue from higher taxes or fees—is the better approach. Between historic General Fund revenue growth in the first two years of the decade and a return to modest growth in the last three, state government should remain well-positioned from a revenue standpoint. To address the structural gap in the coming biennium—and any other near-term shortfalls—the Legislature should look to the expenditures side of the state government ledger.

CONCLUDING THOUGHTS

The current legislative session in Augusta, challenging though it may be, presents an opportunity for an important shift in state budgeting practices. As discussed above, General Fund revenue growth has returned to more modest levels than the historic growth rates of the early 2020s that supported a significant expansion of General Fund spending. There can be debate about whether or not that much expansion of state government was the right course (I have my doubts), or if Maine should have returned more revenue to the taxpayers (I think so). By contrast, there should be far less debate about whether the state can keep spending in the second half of the 2020s as it did in the first half.

For my part, I would encourage policymakers to look back to the prior decade for ideas as to next steps and a new direction for the state budget. The 2010s in Maine saw a return to state budget stability under Governor LePage’s leadership, with (1) General Fund revenue consistently outpacing General Fund expenditures by mid-decade and (2) a prioritization on tax reduction.

To the first, policymakers need to rein in spending growth to a rate that is sustainable absent extraordinary revenue growth — aiming for a level that does not exceed the combined annual rate of inflation and population growth would be a good target. To the second, even with General Fund spending having grown significantly since the 2010s, future spending discipline combined with continued revenue growth should yield opportunities to reduce Maine’s tax burden. Further, with the ever-increasing productivity benefits of technology, state government should be able to enhance its efficiency in the years to come and, in so doing, shift more resources from bureaucratic support to programmatic activities — and ultimately to produce overall savings by spending tax dollars more efficiently.

With the costs of living and doing business in Maine having grown so much in recent years, one (albeit often overlooked) place policymakers could help their fellow Mainers would be in reducing the cost of government to families and businesses across our state. Whether it is in the form of taxes or fees paid to Augusta, Mainers spend a good deal on government operations and services. While it would not address all of Maine’s challenges with respect to cost of living and doing business increases, reducing the cost of government would no doubt help.

Thank you for reading this far. Please do not hesitate to ask questions in the comments section or to raise points I may not have considered. A favorite aspect of my time in state government—and likewise one I have missed the most—was the opportunity to discuss with my colleagues matters such as I have written about here, to debate ideas with them, and to collaborate on analyses and proposals. I frequently benefitted from having policy and program experts examine my reasoning and arguments on a given topic affecting state government; and, likewise, I enjoyed the opportunity to do the same of theirs. I learned a great deal from all of it. Thank you again for reading and for your consideration and goodwill.