2006 Maine State Government “Gravy Train” Update

Read the full report | Recently, the Bureau of Economic Analysis (BEA) released new 2006 employment data and revised 2004-2006 personal income data. Chart 1 shows that a significant gap still exists in Maine between public and private sector compensation. In 2006, average Maine state government compensation was 21.3 percent higher than average private sector compensation—$48,080 versus $39,629, respectively. Table 1 shows that this compensation gap was the 8th highest in the nation in 2006.

Chart 1 also shows that benefits are the primary driver of the compensation gap with an average benefits package, in 2006, that was 92.9 percent higher for state government employees versus those in the private sector—$12,979 versus $6,727, respectively.  This substantial gap in benefit levels is unsustainable. In fact, the Maine Office of the State Controller recently estimated that the state retiree health care plan is already running a $2,297,000,000 “actuarial accrued liability.” Table 1 shows that this benefits gap was the 5th highest in the nation in 2006.

The BEA revisions resulted in a lower compensation gap than was reported previously. While some of this was due to lower compensation estimates, the most surprising, and disturbing, revision was an increase in reported state government employment.  Pre-revision data showed state government employment of 26,248 in 2005. The post-revision data showed an actual increase of 1,683 to 27,931 state government employees in 2005. Initial data for 2006 showed another increase of 177—to 28,108 state government employees. A forthcoming Maine Heritage Policy Center study will explore the employment situation in more detail.

Overall, Maine does not have the largest compensation gap in New England. Vermont has the highest compensation gap in the country at 39.1 percent. However, on the other end of the spectrum, New Hampshire has the lowest compensation gap in the country at –9.7 percent. Massachusetts was ranked as only the 40th highest compensation gap in the country at –2.5 percent.

In 2006, if Maine’s policymakers had simply lowered the compensation gap to the national average of 3.3 percent, the savings to Maine taxpayers would have been up to $200,366,421. Essentially all the money collected from either the gas tax ($229,066,000), or the cigarette tax ($154,825,000) or the corporate income tax ($188,016,000) in fiscal year 2006 was spent maintaining this compensation gap. By closing the gap, policymakers could eliminate any one of these taxes.

About the author

J. Scott Moody is the Chief Executive Officer of MHPC. Scott has over 15 years of economic policy research and economic modeling experience from his work with The Tax Foundation and The Heritage Foundation. He has authored and co-authored over 150 published articles and books. He has testified twice before the House Ways and Means Committee of the U.S. Congress.