Treasurer's Blog: High Risk Dependence on the Feds

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Dear Friend,


Below is my most recent TREASURER'S BLOGPlease share it with your family, friends, and associates.  My speaking schedule is posted on the Treasury website, where there is also a place to invite me to speak to your group.  Thank you.



High Risk Dependence on the Feds


A sobering realization from the Washington fiscal fiasco is Maine’s high-risk dependence on the Feds.

Our state government collects approximately $3 billion per year of state taxes. It spends this money on programs and services for Maine citizens. Here’s a little secret… Washington sends ANOTHER $3.1 billion PER YEAR to Maine to make up the difference between our state tax revenues and what we spend on these programs and services. This stunning amount includes $1.8 billion for Medicaid/Medicare; $276 million for education; $245 million for transportation; and $310 million for labor costs.

From 2001-10, federal tax revenues flowing to Maine grew at an 8.4% annualized rate vs. 1.6% for our state’s General Fund. Barclay’s Capital ranks Maine as tied for the 10th most dependent state on federal funds for its expenditures.

So what? Washington is in trouble, that’s what.

The federal government is flat broke. This is the third year in a row with a $1+ TRILLION budget deficit.  Worse, fiscally reckless career politicians have saddled us with $14 TRILLION in debt, with no way to pay it off.  43% of federal spending is for Social Security, Medicare, and Medicaid.  These huge (and growing) entitlements are bankrupting our country.  The only way to close the black hole of overspending and debt in Washington is to reform these entitlements. Reform means less spending everywhere.

Guess what happens when the federal tax money to Maine begins to dry up?  Fiscal imprudence at the top flows downhill to affect us all.

For years, many of our elected officials in Augusta have said how foolish it would be to “leave federal money on the table.”  So, for example, they enrolled as many fellow Mainers as possible in our taxpayer funded health care plan for the disadvantaged, Mainecare (Medicaid). “Washington pays for two-thirds of the cost!” they argued.

During the past 35 years, this fiscally irresponsible policy has caused Mainecare spending to spiral out of control.  The program now enrolls 341,000 citizens, 27% of our population – the third highest enrollment rate in the country.  The program’s eligibility is so lenient that thousands of able-bodied middle income Mainers enroll in this safety net intended for the poor.  Today, state government can’t even afford our one-third of the Mainecare cost.

Governor LePage is wisely preparing for more state government spending cuts.  When the federal money to Maine likely shrinks, we must be able to balance our budget as required by the Maine Constitution.  Many of the new leaders in Augusta are private sector business people. Don’t expect budget gimmicks, like failing to pay our hospitals the funds they are due, in order to balance the State’s books.

To add gravity to the situation, upgrading Maine’s AA credit rating requires the following: (a) improving cash flow; (b) building financial reserves; and (c) further reducing public debt.  This all takes money.  Sadly, during the past 35 years, our elected officials in power have allowed Maine state government to become so dependent on money from Washington that our own credit rating is now at risk.

The new leadership team in Augusta has been on the job for seven months.  We’re clear-minded fiscal conservatives.  Our strategy is for state government to spend less, tax less, regulate less, and borrow less.  Putting these pieces in place will help build a business-friendly climate in Maine to attract capital investment and jobs.  The resulting increased tax revenues will help us pay our bills without taking on more debt, or relying on the feds.  And more jobs will help keep our kids here.

Washington might want to look north to Maine for fiscal guidance.


Best wishes, 


Bruce Poliquin

 Maine State Treasurer