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“Reinventing Maine Government:” State budget is $1 billion over national average

“Reinventing Maine Government” is a new report that details how overspending on Maine government is contributing to the state’s poor economy. All of the usual suspects are there: overspending on welfare, education and health care; a state government and legislature that is far too big; a weak county system; enormous debt and immense unfunded liabilities.

But this report lays out these problems in an easy-to-read, well-researched manner that hits you like a slap in the face. We all know intuitively that Maine government spends far more than it should. The most revealing conclusion in the report shows that if Maine government just brought its spending down to the national average for similar rural states, it would reduce the budget by a billion dollars a year. A billion dollars!

Considering the Maine state budget is just over $6 billion, overspending by a billion dollars is a huge amount. From 2002 to 2007, the Baldacci Administration and the Democratic-controlled legislature continued to add debt, add to the government payroll, add to the welfare rolls, add to unfunded liabilities, add staff to schools, add, add, add, cost after cost. It’s at the breaking point.

These kinds of reports are often dismissed by Democratic legislators as Republican propaganda or right-wing misinformation. But this report was written by a truly bipartisan group—many of whom we consider to be supporters of big government. Commissioned by GrowSmart Maine, the report was complied by a group called Envision Maine, headed by Alan Caron. (See the report at www.envisionmaine.org.)

Authors of the report are Caron, David Osborne, Joshua Weinstein and Philip Trostel. Advisors include former governor Angus King and David Flanagan, former president of CMP.

As much as some of them didn’t like to admit it, the plain fact is that government overspending is crippling the Maine economy. In a nutshell, Caron states: “It turns out that whatever you care about—whether it’s jobs or people or the environment or social programs—the economy matters. A stronger economy is the only answer to our many problems.”

Envision Maine purposely released this report during the election season. The group wants to educate the public so that citizens can ask the candidates the hard questions: what will they do to reduce government spending and improve the Maine economy? The time for polite smiles and empty campaign promises is over. Our future depends on it.

Below are excerpts from the report.

The Economy Matters

This is part of a summary by Alan Caron, president of Envision Maine:

In category after category, Maine spends more on government than either similar rural states or the national average. In fact, we may spend as much as a billion dollars more.

The first step in a resurgence of Maine’s economy is to get our fiscal house in order. The cost of government—and, therefore, the cost of doing business and raising a family in Maine—is unsustainably high. And we’re getting a predictable result. Young people are leaving. Small businesses are struggling and tomorrow’s employers are going elsewhere.

Over the last generation, global forces beyond the state’s control have shrunk much of the industry that Maine has depended upon for 150 years, eliminating good jobs with benefits and putting stress on families and governments at all levels. All across the state, people have had to adjust. Now government must also.

We need government to do more with less so that we can free up resources, both public and private, for critical investments in tomorrow’s prosperity. Old structures that cannot meet our 21st century needs, that are inefficient and expensive, must change. Government also needs to help create the conditions that will make investments in the private sector grow and ensure that entrepreneurs and inventors can flourish.

If we don’t get the government piece right—and we haven’t for a long time—every strategy for prosperity that relies on additional public funding can only fail.

It turns out that whatever you care about—whether it’s jobs or people or the environment or social programs—the economy matters. A stronger economy is the only answer to our many problems.

The information and recommendations presented here, and the discussions that will follow, will be challenging.  Many people will resist confronting these unpleasant realities. Others, who are deeply invested in the current structures of government, will instinctively resist change, out of habit or fear.

We can expect that they’ll challenge the data in this report, its assumptions and messengers. But the facts will not change. There simply isn’t enough money to maintain the status quo and the way we’ve been doing things. Standing still is not an option.

We’re not trying to address every problem Maine faces in this report, or to answer every question on how change should happen.

We also don’t write this story with any joy. We are not “anti-government” people. We simply want Maine to flourish and the people of Maine to feel hopeful and confident about the future. Those who are looking for finger-pointing and partisan advantage in this report will be disappointed. We care less about scapegoats and party fortunes than we do about the people of Maine enjoying the better life they deserve.

Overspending by Maine State Government

These are excerpts from the report that show how much Maine government spends above the national average for similar states.

As a percentage of our income, Mainers spend about 13 percent more for state and local government than the national average—and 16 percent more than other rural states, making us the 6th highest spender in the nation in that category. Unfortunately, that doesn’t mean that we get better results. In some cases, we simply spend more and get less.

If Maine spending were at the national level in just three categories, welfare and Medicaid, K-12 education and solid waste management, we’d save over half a billion dollars each year. At the national average, we’d spend $361 million less on welfare and Medicaid, $141 million less on K-12 education and $29 million less on solid waste.

When we compare Maine spending to other rural states the numbers don’t get much better.

The Cost of Government in General. As a percentage of income, Mainers spend 15% of their income on state and local government, which ranks us 13% above the national average and 16% above the average of the similarly rural states. In actual dollars spent, as opposed to a percentage of income, we rank 6th in the country.

In this measure Mainers spend $14.98 of every $100 they earn on state and local government. The national average is $13.21. We also pay 25 percent more than the New England average of $12.03.

From 2002 to 2007 the trends moved in the wrong direction, as Maine moved slightly further away from the national averages of state and local government payroll and expenditure. Like other rural states, Maine provides relatively more public services through the state government than through local governments.

State Government. State government payroll, as a percentage of income, is 36% above the national average, reflecting a surprising number of public services for which expenditures are higher than national or rural averages.

One possible reason why Maine state government payrolls and expenditures may be higher than in the rest of the nation is that Maine’s state government may be performing duties that are done by county or regional governments in other states.

In other words, Maine’s weak system of county government may force relatively more duties on to the state government.

Although this may help explain some of the instances where Maine’s state government seems to have higher-than-normal costs, it does not appear to be the whole explanation. In most of the services noted below, Maine’s combined state and local government payrolls and expenditures are higher than in most states—and those services are primarily the duties of the state government in Maine.

The Legislature. Maine’s state legislative expenditure relative to income is 132% higher than the U.S. average and 68% higher than the average of the similarly rural states. If Maine had the same legislative expenditure as a percentage of income as the average of the other rural states, $8 million would be saved.

Welfare and Medicaid. Maine clearly has a high level of welfare benefits (predominantly Medicaid) in comparison to the rest of the nation and to other rural states. Maine’s welfare and Medicaid spending, as a percentage of income, is 66% higher than the national average—and it grew slightly faster than in the rest of the nation from 2002 to 2007.

Maine’s spending per single-female family (the strongest predictor of states’ spending on welfare and Medicaid) is 69% higher than the national average, and it grew significantly faster than in the rest of the country since 2002.

It also appears that Maine has become unusually costly in administering these benefits. Maine was below the national average in public welfare payroll (the people and systems that deliver welfare and Medicaid payments) as a percentage of personal income in 2002. But in 2007 Maine was the second highest in the nation and 68% greater than the average.

Maine’s public welfare payroll increased 45.9% since 2002. Nationally it decreased 13.2%.

If Maine’s expenditure on welfare (including both administration and benefits) was the same as the national average, $361 million would have been saved in 2007.

Maine’s expenditure on health care relative to income is 125% higher than the national average and 80% higher than the average of the other rural states. If Maine’s health expenditure (netting out federal transfers) was the same as the average of other rural states, $184 million would have been saved (and the cost differential would be considerably larger if the national average was used as the benchmark).

Public Education. Compared to the rest of the nation, Maine spends a high amount on primary and secondary education, more than $1.9 billion in 2007.

Public education is by far the largest local government service. Nationally, 58.1% of total local-government payroll is in primary and secondary education. In Maine, primary and secondary education payroll is 71.4% of the total. In this ratio, Maine is 4th highest in the nation.

Expenditures per student in Maine are 8% higher than the national average, and Maine’s payroll per student is 18% higher than the national average. But per capita income in Maine is 11% below the national average.

Maine’s expenditure per student exceeds the average of the other rural states by 11%. If Maine’s expenditure per student were the same as the national average, it would create $141 million in annual cost savings.

After controlling for inflation, spending per student grew 9.3% in Maine, versus 8.9% nationally, from 2002 to 2007.

Compared to the national averages, Maine has 2.92 times as many school-district administrators per student and 1.73 times as many school administrators per student. In these measures Maine is respectively the fifth and second highest among the states.

Moreover, Maine is higher than all of the similarly rural states in school administrators per student, and higher than all but one of the other rural states in school-district administrators per student.

Corrections. Maine’s corrections cost per inmate is very high when compared to other states. Maine’s annual expenditure per inmate is about $93,500, while the national average is roughly $46,400. Expenditures per inmate are also more than double the rural-state averages.

Understanding how Maine spends so much can first be explained by this anomaly: while we have 67% fewer inmates than the national average, relative to residents, we spend just 25% below the U.S. average. If Maine spent at the national average in this category, it would save about $100 million.

Other and Un-allocable. This is a catch-all category that Maine makes great use of. It includes everything that isn’t in another category of spending. It is a budget category deserving of a closer look and a better understanding.

For every $100 we earn every year, we spend $1.18 on this catch-all category, which is just slightly below the New England average—but 62% higher than the national average.

If Maine had the same “other and un-allocable” expenditure relative to income as the national average, $205 million would have been saved.

Fire Protection. Maine’s fire expenditure relative to personal income is 10% greater than the average of the other most rural states. If Maine had the same fire expenditure relative to income as the average of the other rural states, by a conservative estimate $11 million would be saved.

From 2002 to 2007 Maine’s spending on fire protection increased 19%, while the national average increased 8%.

Sewerage. Sewerage costs are greatly affected by density and are generally higher in rural states. But Maine’s cost, when compared to the average of the other rural states, is 14% higher.

If Maine had the same expenditure relative to income as the average of the other rural states, $18 million would be saved annually. Spending on sewerage relative to income in Maine increased 14% from 2002 to 2007, compared to a 5% national increase.

Solid Waste Management. In the provision of solid waste management services, Maine is high relative to the rest of the nation. Expenditure as a percentage of income on solid waste management in Maine is 32% greater than the national average and 33% greater than the rural-state average.

If Maine had the same expenditure as a percentage of state income as the national average, $29 million per year would be saved.

An Action Plan for The Coming Decade

Only a stronger economy can allow us to meet our many needs, change the demographic direction of Maine as an aging state, and pull the two Maine’s together. All of the following recommendations are designed with that purpose in mind: to free up resources for targeted investments in tomorrow’s prosperity.

1.            END UNFUNDED LIABILITIES

Pay Our Bills on Time and Stop Adding More Unsustainable Obligations.

Resist any effort to change the pension plan payment due date of 2028.

For newly hired state employees, continue to allow early retirement with reduced benefits, but raise the eligibility age for full benefits to reflect our longer life expectancy.

Automatically enroll all state employees in the state’s tax-advantaged retirement saving plan, as an important supplement to traditional pension benefits, particularly for employees who still want the option of an earlier retirement.

Change accounting procedures and legislative practices so leaders and the public know the full cost and effect of long-term obligations, not only for pensions but for all new bills.

2.            A SMALLER, SMARTER LEGISLATURE

Limit the number of bills, shrink the legislature and shorten the sessions.

Allow no more than 5 bills in each two-year session from any single legislator, including co-sponsorships.

Reduce the size of the legislature by one-third to 25 Senators and 75 House members.

Reduce the length of sessions by 50%.

Impose lifetime term limits of 12 years on all Legislators.

3.            A FLATTER, LEANER, MORE RESPONSIVE STATE GOVERNMENT

Create a 21st century government by gradually replacing outdated hierarchical bureaucracy with a flatter and more decentralized structure.

Engage state employees, managers, elected officials and the public in a transformation of state government from the ground up.

Measure and prioritize all functions of state government for value and efficiency, and eliminate outdated and unnecessary programs.

Remove unnecessary and outdated red tape.

Use competition to drive innovation and efficiency. Make service organizations accountable to their government customers.

Manage buildings and other assets more efficiently.

Constantly re-invest in improvements.

4.            FEWER COUNTIES THAT DO MORE

Create Eight Combined Counties, Professionally Run and More Representative, to Become the Regional Service Delivery Provider of the Future.

Replace the existing 16 counties with 8 New Counties.

Set up New Counties to provide more regional services.

Improve the professionalism of New Counties.  _ Increase the number of New County commissioners to 9, to make them more representative of county-wide interests.

Appoint, rather than elect, all county managers, officials and staff.

5.            INCREASe COLLABORATION BETWEEN TOWNS

Expand and accelerate regional cooperation and, where it makes sense, develop greater regional service delivery.

Help towns save money by sharing and regionalizing services, such as road maintenance, public safety, fire protection, valuation and communications. Investments need to be made to accelerate change.

Measure cost savings, then demonstrate them.

When new counties are organized to better deliver services regionally, they should become the preferred delivery mechanism.

6.            INNOVATING IN PUBLIC EDUCATION

Move Maine toward the national average on student-teacher ratios, further consolidate administration, evaluate performance and put all savings into the classroom.

Transform public schools through innovation and experimentation.

Move Maine toward the national average on student-teacher ratios.

Reduce administrative expenses with a new round of district administrative consolidations, but this time put the savings back into the classroom rather than the state’s general fund.

Evaluate teacher performance, rewarding good teachers by bringing their pay to the national rural state average and removing under-performing teachers.

Investigate the increase in non-teacher employment over the last decade and move the teacher/non-teacher ratio to the national rural state average.

Create a statewide standard for special education programs that brings Maine closer to a national average.

7.            A FULLY CO-ORDINATED SYSTEM OF HIGHER EDUCATION

Increase funding while coordinating overlapping systems, eliminating duplication and reducing excessive autonomy.

Maintain separate University of Maine and Community College Systems but create one Board of Trustees with authority to coordinate and integrate planning and development of the two systems.

Eliminate the current 40 year old funding formula that freezes campuses in yesterday’s economy and needs, in favor of a system that rewards excellence and results.

Establish a true University of Maine System rather than a network of largely autonomous campuses.

Provide increasing amounts of future funding directly to students, and let them indicate which campuses are best serving their needs.

8.            SLOWING THE CLIMB OF HEALTH CARE COSTS

Emphasize prevention, pay for health not sickness, increase competition and coordinate care.

Reduce chronic illness by focusing on changing personal behavior rather than just responding to the symptoms of that behavior. This recommendation applies to both government health care spending and the overall economy.

Use the buying power of the government to negotiate lower costs, spur more competition and produce better health, not more procedures.

Encourage coordinated care organizations that succeed by promoting health and preventing illness.

Angus King former Governor

David Flanagan former President, Central Maine Power

Mike Dubyak Chairman and CEO, Wright Express

Jill Goldthwait former Independent State Senator; Director of Government Relations, The Jackson Laboratory

John Porter President, Bangor Region Chamber of Commerce, former editorial page editor, Portland Newspapers

Timothy Hussey CEO, Hussey Seating

Chuck Lawton Senior Economist, Planning Decisions

Dick Woodbury Economist, National Bureau of Economic Research

Bonita Pothier Key Bank, Biddeford; Chair, GrowSmart Maine

Stephen Lubelczyk Citizens Bank

Tony Payne Executive Director, Alliance for Maine’s Future

Angus King III Vice President, First Wind

Fred Heimann CFO of SenSysnet; Vice Chairman, Maine Angels

(affiliations are for identification purposes only)

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