Measure growth, cut government, and grow the economy

It’s that time of year. No, not mud season (although it is that too). It is the time when the “Maine Economic Growth Council” — an organization established by law at the end of Gov. Jock McKernan’s tenure — releases its annual report known as the “Measures of Growth.” It takes a snapshot of certain measures of the Maine economy and rates the areas where our state is advancing, holding steady, or falling short. Since the report uses trailing metrics, the data is generally through 2017.

There is some good news. Our per capita income growth was essentially on par with national and New England statistics, while climbing above a group of 22 peer states. Our poverty rate dropped at a faster clip than both the U.S. and our region. And our national “entrepreneurship index” ranking jumped from 37th in 2016 to 6th in 2017. All of those positive indicators likely work together.

But, as is often the case with statistics, there is always more to the story. Our income growth rate is strong, but we remain — by far — the poorest state in New England. The “cost of doing business” is far above the nation, driven by an unhealthy mix of heavy tax burden, labor costs, and high energy bills. Meanwhile, our businesses and schools are not spending money on research and development. It is hard to increase prosperity if we don’t find new ideas, leading to new technologies, to create new markets.

The report paints an interesting picture of how we are doing. We don’t earn a lot and are taxed heavily. As others have noted, that creates a heavy tax burden: the numerator of taxes paid, and the denominator of income received. However, paradoxically, our labor costs — once you add benefits and productivity to wages — are above every state in New England except Massachusetts.

Gov. Janet Mills delivers her State of the Budget address to the Legislature on Feb. 11, at the State House in Augusta. (AP Photo/Robert F. Bukaty)

The information is a great opportunity for elected officials in Augusta to take a step back and look at the bigger picture. Resources are not unlimited; prioritization is necessary, if unpleasant. Is Gov. Janet Mills’ enactment of Medicaid expansion the best utilization of state dollars? Or is education spending more important? What about our roads and transportation infrastructure? We can always do better in each area.

Yet, as the report also shows, the tax base is pretty much tapped. Simply asking taxpayers to kick in ever-bigger amounts has yet to meaningfully close the gap between Mainers’ paychecks and those of our peers in New Hampshire or Vermont.

It leaves our state in a precarious position. There is a disconnect between the seemingly unlimited “wants” and the economically critical “needs.” To solve it will require leadership and a willingness to say “no.”

Mills has taken an unpopular position on the proposed CMP corridor from Quebec. She has rebuffed political allies in their calls for tax hikes. Yet, her budget proposal leaves no room for error; the slightest hiccup in the Maine economy will leave the tax coffers empty.

If a bump occurs, she will be faced with a decision. Either increase revenues — through taxes or otherwise — or curtail funding to some government account. With state employee unions lobbying for pay raises and the right to strike from their jobs, even the most mundane program will become a sacred cow in solidarity.

So, in the vein of hoping for the best yet preparing for the worst, Augusta should take some time to review the “Measures of Growth.” They should start thinking about the longer term when the economic cycle inevitably changes and tax revenues run short of rosy projections. They will need to measure the areas of need in Maine’s economy, measure the effectiveness of government spending, and decide where to cut back.

Or, more succinctly, they should measure twice, and cut once. It just might be the right step towards building a stronger economy.

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.