January 5, 2009     Reported By: Tom Porter

President-elect Barak Obama has declared his top priority to be an economic stimulus package that can pull America out of its recession.  The $800 billion package will focus on providing assistance to low- and middle-income Americans in the form of up to $300 billion in tax cuts.  Obama also plans to strengthen the nation's infrastructure, and offer direct aid to states like Maine that are struggling with falling revenues.  The aim is to create and preserve up to 3 million jobs nationwide.  But what impact will the stimulus package have on Maine in particular?

John Mahon is director of the University of Maine's school of business.  "Remember he's now proposed two different stimulus packages. The first is of course aid to the states in infrastructure and things like that, and he's promised money for education.  But he now is also talking about a huge tax cut, bigger than any of the two tax cuts that George Bush put into place, and that will trickle down to every person who pays taxes in the state of Maine."

But not all analysts agree that tax cuts are the way forward.  "Right now is not the best time to be thinking about tax cuts. It's generally been shown that what we need is to increase spending and that tax cuts have less of stimulative effect on the economy during a recession than does increased spending," says Kurt Wise, fiscal analyst at the Maine Center for Economic Policy - a progressive think tank.  While no fan of the tax cuts, Wise does welcome other likely aspects of the package, such as "an increase for Medicare and Medicaid payments, which would put a good deal of money into the economy in Maine over the next couple of years if that went through, and that's on the order of hundreds of millions a year into the state of Maine.  So something like that for example would be crucial for helping Maine balance its budget and keep the economy rolling."

Maine is one of 27 states facing a budget shortall at the moment.  When the next two-year cycle begins in July, the Pine Tree State is forecast to have an $800 million gap in its finances. But, UMaine's John Mahon says money from the stimulus package will have only a limited impact on the state budget.  "Some of the money will help a little bit, for example the money in infrastructure - there's a shortage in the budget for road repairs and things like that. It will help close that gap.  But if you recall, a lot of the other shortfall is coming from revenue projections and tax projections that the state is receiving. It's not going to have an immediate direct impact on that - it will have some."

That's not to say however, that the package will not benefit the economy.  Laurie Lachance is the former Maine state economist and now directs the Maine Devlopment Foundation - a private non-profit whose aim is to stimulate long-term economic growth in the state. She's hopeful the package will offer some opportunity for Maine, where there's a long list of investments needed in road and bridges.  "And investments in roads and bridges helps to increase fuel mileage and helps the entire economy, because obviously our transportation system is the very foundation of our economy activity."

And, she says, certain sectors of the Maine economy could be poised for a rebound this year if the stimulus package has the desired effect.  "If interest rates come down and we're able to encourage some home-building and some construction comes out of the stimulus package, the combination of those two factors could help to bring some of Maine's industries back on line, whether it's our forest products  that create building materials or anybody who deals in real estate and construction."

According to Obama's proposals, some of the stimulus money will come in the form of direct aid to states.  UMaine's John Mahon says it's not yet been decided how federal stimulus money will be allocated.  But, when it comes to making its pitch for a federal hand-out, Mahon says Maine should emphasize its value to the nation as whole.  "So when you look for example at our capabilities in wind and offshore energy generation, that's where we have advantage that most other states do not have."

And, says Mahon, it's this aspect of the Maine economy that should get the attention of the administration, given the president-elect's stated aim to invest more heavily in alternative energy and so reduce America's reliance on foreign oil.  While there are obvious benefits to Maine from a federal stimulus package, Mahon still has mixed feelings about the proposal.  "The stimulus packages take a while to work out. We still have the upset in the markets, we still have other industries yet to line up at the trough for a bailout. I can't believe that anyone listening to the show tonight, doesn't believe that the automotive companies are going to be asking for more money in a couple of months if not shorter, and there are other industries now that are starting to say, 'we could use some money as well.'  At some point in time, even the printing presses of the United States government run out of money to print."

Barak Obama takes office on January 20th.  He says he expects an economic rescue plan to be approved by Congress by the beginning of February.