STATE HOUSE

August 2, 2011

Debt pact likely to hurt Maine, a state dependent on federal funds

By Tom Bell tbell@pressherald.com
Staff Writer

BY TOM BELL

State House Bureau

The deal to raise the federal government's debt ceiling imposes sweeping spending cuts -- as much as $2.4 trillion over the next decade. Although it's uncertain which programs will be affected, Maine stands to lose more than most states simply because Maine is more dependent on federal money -- for social services and defense spending.

Only 12 other states rely more on the federal government, according to Federal Funds Information for States, a nonpartisan organization that records fiscal impact. In 2008, money from the federal government accounted for more than 24 percent of total government spending in Maine.

Because entitlement programs such as Society Security are protected in the deal, the cuts would hit discretionary budget items such as programs to help low-income people buy home heating oil and food. They also target federal grants for cities and towns to fund anti-poverty programs, said Ana Hicks, a policy analyst for Maine Equal Justice Partners, an Augusta-based legal service organization that advocates for the poor.

"There is still a lot of unknowns in the package, but we do have significant concerns that what's on the table could affect the state's economy and local communities, particularly programs and polices for people with low incomes," she said.

In addition, the deal calls for $350 billion in cuts to defense spending over the next 10 years. Moreover, it would cut an additional $600 billion automatically if a joint bipartisan committee is unable to reach an agreement on a second round of cuts.

Cuts of that scale would eliminate orders for large and expensive weapons systems, and Maine is vulnerable because of the oversized role that Bath Iron Works plays in the state's economy, said Charles Colgan, a professor of planning and community development at the Muskie School of Public Service.

"The question of the future of BIW in the current naval ship contract business is very much in the air and will be put more up in the air by this deal," Colgan said.

Still, because Maine's population is the oldest in the nation, a deal that protects Social Security and Medicare is good for Maine, said John Hennessy, advocacy director for AARP Maine.

He said many senior citizens are relieved that Congress appears to have reached an agreement that avoids default, because failure to do so would have damaged the economy and created so much havoc in financial markets that people's retirement funds would have been at risk.

Nevertheless, the agreement only allows Congress to extract itself from the immediate crisis and delay any hard decisions, said Gordon Smith, a lobbyist for the Maine Medical Association.

He said he worries that pressure to make cuts will cause Congress to abandon efforts to maintain reimbursement fees that the federal government pays to service providers for Medicare patients. Those fees are set to decline by 29.5 percent by the end of the year unless Congress intercedes.

Congress has protected the fees in the past, but it would be much less likely to do so because of pressure to make deep and widespread spending cuts called for in this deal, Smith said.

Well over 20 percent of Maine's population receives Medicaid benefits, he said. For many doctors in northern Maine, he said, almost all of their patients receive Medicaid or Medicaid benefits.

"If you're going to have real, deep reductions in federal spending, of course you are going to hurt states like Maine," Smith said.

Tom Bell -- 791-6369

tbell@mainetoday.com

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