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Sunday, December 29, 2002

In 2003, state's budget is key issue

Copyright 2002 Blethen Maine Newspapers Inc.

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In 2003, state's budget is key issue

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Five intertwined issues will dominate Maine's immediate economic future, affecting businesses and residents alike, according to a state agency charged with keeping an eye to the future.

The topics, listed by the Maine State Planning Office in its new "Maine Issues for the Future" report, include improving government efficiency, building a knowledge-based economy, reforming taxes, population trends and the state budget shortfall.

Each is a critical part of the state's future. And all five are intertwined with each other and with other aspects of the broader economy.

Still, the estimated $2 billion state budget gap definitely tops the list of priorities, said state economist Laurie Lachance. How the government addresses that shortfall will have enormous implications on commercial issues such as taxation, employment, economic development and government contracts.

"That's really going to shape the discussions of the Legislature and the incoming administration more than over the next six months," said Lachance. "It's truly going to be over the next two years as they try to struggle with this gap that appears to be over $2 billion. It's unfortunate; it's not the way for any administration to start. It places tremendous limits and tremendous pressure to come in and hit the ground running absolutely quickly."

The effort to cover the budget gap is interwoven with many other economic issues, especially tax reform and improving government efficiency, Lachance said.

Those two topics are intimately interwoven, said Godfrey Wood, chief executive officer of the Greater Portland Chambers of Commerce.

"I don't think there's any point in even thinking about tax reform until you think about restructuring the cost of services. It's the cost that drives the taxes," said Wood. "It's a huge issue for business, it's more of an issue for the citizens of the state."

Inefficiency comes from duplication of effort and lack of efficient purchasing among the state, local and county levels of government.

The culture of Maine communities taking care of services at a local level is deeply ingrained, Wood and Lachance said. But that commitment comes at a cost.

"It's not just about control. In many instances, it's about community identity, and that sense of a scale of community in which you operate, that you do have influence," Lachance said. "Unfortunately, it becomes a very expensive way to deliver certain services.

"From an economist's point of view, I do believe it is in the best long-term interest of Maine - not just short-term to solve this budget crisis - to wherever possible try to trim the costs of delivering government services. Some of that has to come from efficiencies in regional operating, it absolutely has to."

Wood and Lachance both advocate a comprehensive look at tax reform, rather than individual proposals such as the property tax referendum proposals that may come before voters.

Lachance has been working with former House Speaker Michael V. Saxl's advisory council on tax reform, and is impressed with the proposal that's emerged.

The plan generally reduces the high end of income taxes, removes the personal property tax on machinery and equipment, broadens the sales base and establishes a circuit-breaker program to keep Mainers' overall tax burden at a manageable level.

"At the least this is a proposal that has a lot of merit, and I hope that people do take it seriously," said Lachance. "As a package, if we can somehow prevent ourselves from peeling away pieces of it, it does achieve many good things on moving us forward."

Wood said his organization has also come up with a reform proposal, which leans toward a spending cap, rather than a property tax cap. And reforming the tax system could help businesses increase their spending on innovation.

"Our industries in Maine do not put a large amount of their income into R&D," said Lachance. "Some of that ties into other issues - when there are other costs of doing business that are a bit out of line, those investment dollars go someplace else."

But even as the state works to cut business costs, it also must remain focused on providing educational opportunities to its young people and reversing demographic trends that have led to too-slow growth in Maine's work force.

"We absolutely need to keep focusing on the post-secondary education piece, a strong K-12 and on to college," said Lachance. "That's half the puzzle. The other half is to create a business climate that's vibrant enough to attract the young workers and get them to stay."

Staff Writer Matt Wickenheiser can be contacted at 791- 6316 or at:

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