COVID-19 requires aggressive economic response from Congress

The state’s economy has fallen off the edge of a cliff.

The only question is how far the fall will be.

In a letter to Maine’s congressional delegation last week and in a call on Monday, Gov. Janet Mills made the case for additional federal aid for state and local governments, and she used some budget predictions to make her case.

But before we dive into the numbers, we have to get some housekeeping out of the way. Maine’s economy before the COVID-19 pandemic was strong. Unemployment was low, the balance in the state’s reserve accounts was growing and economic indicators were pointing in the right direction.

After passing a supplemental budget earlier this spring, the state was left with about $193 million in the General Fund and the state’s Budget Stabilization Fund was at $258 million, an increase of $50 million since the Mills administration took office.

“In short, Maine [s]tate government was financially prepared to respond to a ‘normal’ economic downturn,” Mills wrote in her letter to the congressional delegation.

Of course, this is no normal downturn.

The governor’s actions – to protect public health and save lives – did not cause the economy to falter. The blame rests with the pandemic and with a lackadaisical federal response. States were left on their own to devise response plans.

In Maine, thoughtful public safety tactics – combined with our state’s relatively rural nature and small population – saved lives, kept our hospitals from being overwhelmed and left us in a position where we are arguing about relaxing restrictions rather than who will be given access to a ventilator.

Mills didn’t cause the public health crisis or the follow on economic crisis.

The state’s Consensus Economic Forecasting Commission and the Revenue Forecasting Committee will meet in emergency sessions in June and July to make formal predictions on the COVID-19 impact on state resources.

In her letter, Mills uses what she described as a worst-case recession stress test to predict state revenue losses. But she also says that the COVID-19 crisis might go beyond even those projections.

Traffic – and thus revenue from fuel taxes – has plummeted. The state projects that highway fund revenue could be down $125 million or 24% over the next 18 months.

And the General Fund, which accounts for a host of critical services including health and public safety, education, environmental protection and a lot more, could decline by 17%. Towns and cities aren’t spared either, as families struggle to pay property taxes and vehicle taxes and fees.

A 17% reduction in the General Fund translates into a loss of revenue of about $725 million through June 30, 2021.

In a partial analysis, the Mills administration predicts that the total economic impact on the state could exceed $3 billion.

There is no amount of budget preparation or austerity that could have prepared Maine – or any other state – for a pandemic of the scale or reach of COVID-19. And there’s not enough cuts or new taxes possible at the state level that can help states rebound.

Only the federal government has the tools necessary to respond to the economic catastrophe and to spare families and businesses the worst of the impact.

The federal government must act – and act aggressively.

During the Great Recession, the American Recovery Act saved the US economy. Period. I will not entertain any argument to the contrary.

In fact, its fault was that it was not aggressive enough. Artificial austerity caused pain that was unnecessary and slowed the pace of America’s recovery. Let’s not repeat that mistake.

The US Congress and the president should go big with its response because here’s my prediction: Even the largest proposals probably won’t be enough when we look back on the federal response in the years to come.

The federal government can put us on a better road to revival or it can put the economy in a straightjacket. Seems like an easy choice to me.

David Farmer is a public affairs, political and media consultant in Portland, where he lives with his wife and two children. He was senior adviser to Democrat Mike Michaud’s 2014 campaign for governor.