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Maine banks have nearly $1 billion in reserve funds

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(The Center Square) — Maine is stashing away hundreds of millions of dollars in its reserves, which state leaders say bodes well for its long-term fiscal health.

In the past year, the state’s Budget Stabilization Fund — also known as the “rainy day fund — reached $968.3 million, a record high and the maximum allowed under state law. That includes more than $52.4 million added in the financial year that ended June 30.

Gov. Janet Mills boasted that the rainy day fund has “quadrupled” during her tenure in office — by $758.4 million or 361% — while balancing annual budgets and “making historic investments in Maine people to improve their lives and livelihoods.”

“Maine is better prepared today to withstand an economic downturn than at any other time in state history because of smart, deliberate financial choices by my administration,” the Democrat said in a statement.

Under state law, excess year-end state revenues from tax collections and other sources that haven’t yet been appropriated are swept into several accounts for specific purposes, a process known as “cascade.” The fund can reach a maximum of 18% of the previous fiscal year’s revenue.

In the current fiscal year, the Legislature has directed any excess funds not sent to the reserve fund to be deposited in several funds supporting highway projects, education and emergency disaster relief.

Mills said in addition to the $52.4 million distributed to the Budget Stabilization Fund at the end of the previous fiscal year, another $65 million of surplus funding is being distributed to MaineHousing to address housing insecurity.

Kirsten Figueroa, commissioner of Maine’s Department of Administrative and Financial Services, said the record level of reserve funds “is a testament to the fiscally responsible leadership of the Mills administration.”

“Having these funds set aside positions the state to meet its commitments to Maine residents in the event of a rainy day,” she said.

Republicans have criticized the Mills administration and Democrats for using federal pandemic relief funds to paint a “rosy picture” of the state’s finances. In 2021, GOP lawmakers feuded with Mills over $1 billion in federal aid used to bail out the state government during the pandemic.

Nationally, many states that saw their reserves nearly tapped out during the recession and challenged by the COVID-19 pandemic have brought balances back to healthy levels.

Collectively, state reserves total more than $134.5 billion by the beginning of the 2023 fiscal year, according to a recent report by The Pew Charitable Trusts, compared to $29.9 billion in fiscal 2007.

Those states could run government operations on rainy day funds alone for a median of 42.3 days, equal to 11.6% of spending, according to the report.

Maine could run at least 81.3 days, based on the amount of reserves it had at the end of the 2022 fiscal year, the report noted.

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