By Christopher Cousins

An improving economy and rigid fiscal discipline under Republican Gov. Paul LePage have contributed to an all-time record for Maine state government: more than $1 billion in its cash pool.

The amount of money in the cash pool varies from day to day as revenues come in and expenditures go out, but State Treasurer Terry Hayes, an independent, said the average monthly balance has surpassed the $1 billion mark in all of the past seven months except August 2016. Hayes, a former Democrat who was elected in December to a second two-year term as treasurer, said that in addition to a slowly improving economy, the lofty balance is because of work by the Republican-controlled executive branch under LePage.

"There is a pattern that I can see that I believe is indicative of the fiscal benefits of policies that have been put in place under the LePage administration and the people who work for the governor," Hayes said. "There are multiple factors that contribute to this. The improvement in the economy is a big factor, but fiscal management has made a significant difference in what these numbers look like."

The cash pool? What's that?

The treasurer's cash pool is made up of all the revenues that the state receives. The bulk of those revenues flow into the General Fund, which supports most of state government. It includes money for entities ranging from the Maine State Housing Authority to the University of Maine System. Keeping all that money in one pool allows the state to maximize the interest it earns on investments and provides a financial backstop. If expenditures from the General Fund run short, it's Hayes' job to transfer from other areas of state government to keep Maine's finances solvent.

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.

Why does the balance matter?

Keeping the fund flush saves the state in interest payments. When the General Fund needs to borrow money, either internally or with a bank tax anticipation note, it costs the state interest.

It guards against downturns in the economy. The budget stabilization fund -- also known as the rainy day fund -- is the first place the treasurer turns to when the General Fund balance goes below zero. It is designed to avoid drastic cuts in services or tax increases to balance the budget when the economy goes slack. During the 2008 recession, the rainy day fund was depleted to less than $200,000 but since then has been built back up to a current balance of about $122 million. A supplemental budget bill approved Friday by the Legislature's budget committee will increase that balance to $157 million if it's approved by the Legislature, but that's still not nearly enough, according to Douglas Cotnoir, the state's financial controller. Cotnoir said the rainy day fund amounts to around 4.5 percent of the annual state budget when fiscal prudence says it should be in the neighborhood of 12 percent to 15 percent, or possibly more.

"It's about how many days of operations could this sustain," Cotnoir said. "The intent of that account is to help weather the storm when there is an economic downturn. It's to provide the state the opportunity to make the strategic policy changes that are necessary to match our appropriations with the anticipated revenue. We're starting to get there, but $157 million doesn't carry us very far in terms of even a mild recession."

How did this happen?

It results from initiatives that cut spending now and into the future -- including some very controversial ones. When the state budgeting process starts every two years, finance officials grapple with a concept called the "structural gap." This is the chasm between the cost of maintaining current services and expenses and the amount of revenue that is anticipated. During the era of Gov. John Baldacci, a Democrat, and when LePage took office in 2011, the structural gap was above $1 billion. LePage has led efforts -- and the Legislature has gone along, despite all the budget fights in Augusta over the past six years -- to trim the structural gap to $165 million this year.

"Some will say that's just because of a recovering economy and you've had improved revenues. That just loses the reality of the situation," Richard Rosen, LePage's finance chief, said. "If all it took was a recovering economy, then the question is, 'Why are 30 other states right now in the same recovering economy facing major budget problems?' The answer in many cases is because they've failed to confront proposals that would address some of the imbalances on the expenditure side."

There were a lot of difficult and controversial decisions. In 2011, LePage and the Legislature enacted a bill that addressed the unfunded liability in the state's pension system, which was on track to be $4.4 billion in the red by 2028. The deal eliminated cost-of-living increases for retirees for three years and capped them in perpetuity.

In 2013, after a protracted political fight, LePage and the Legislature agreed to a plan to pay Maine's hospitals nearly $500 million in accrued Medicaid debt, but it required a renegotiation of the state's liquor contract and dedicating that revenue to payments on a revenue bond.

Since LePage has been in office, Maine -- with Republican legislative support -- has enacted a number of welfare reforms that reduced access to food stamps, cash benefits for needy families and taxpayer-funded health care. As a result of some of those changes, Maine has reduced its use of federal funding, at one point letting $110 million allocated for the state in Temporary Assistance for Needy Families money build up unused. That money is drawn down from the federal government as needed so it does not sit in the state's cash pool. To some, it's an example budgetary austerity causing unnecessary harmful consequences.

"All of these cuts are unnecessary from the perspective of needing to balance the budget," said former Democratic Rep. Peggy Rotundo of Lewiston, a budget committee veteran who was term-limited out of office last year. "It's important to be fiscally responsible, but look at the how the number of hungry people in this state has gone up since this governor took office. The number of people in poverty has risen. I would argue that there is a way to be fiscally responsible and balance your budget without doing it on the backs of vulnerable people."

Credit where credit is due

There is no question LePage was the catalyst for many of those changes, but he didn't do it alone. His biennial budget proposals have been deeply altered by the Legislature, causing him to veto those compromises in 2013 and 2015. He has said recently he expects the same fate for his current budget proposal, which includes more social service reductions as well as deep income tax cuts. Democratic Rep. John Martin, the senior member of the Legislature and stalwart on the budget committee, said there is enough credit to go around.

"He can't do it without the Legislature," Martin said. "When he proposes and we agree, then we are jointly doing it. Still, I would agree that his pushing the Legislature has been helpful in moving the state in this direction."

Cotnoir said firming up the state's financial position is good for the state's credit rating, which saves the state significantly on borrowing when it improves, but also changes the dynamic when it comes to governing.

"Maine has recognized its economic reality and has built its revenue forecasts and its budget in relation to that economic reality," he said. "By doing that, it allows the state -- both the executive and legislative branch -- to step away from trying to fill budget holes as a priority and focus the attention on the strategic initiatives that will address the economic reality."

None of this is likely to quell political battles this year, as LePage calls for more cuts to balance his proposed tax cuts -- even in a fiscal year that is expected to end with a multimillion-dollar revenue surplus. While LePage and Republicans argue that cutting spending and taxes is good for Maine's long-term economic viability, Democrats and advocates for low-income Mainers will stand firm in their conviction that investing in programs that pull people out of poverty and support other social services is the best way to spend precious taxpayer money.

(c)2017 the Bangor Daily News (Bangor, Maine)