Legislative budget writers on the Appropriations Committee learned today that Maine's economy took its sharpest decline in more than 50 years, as employers slashed their work forces to offset the drop in consumer orders. But a University of Southern Maine economist also says the worst of the recession is probably behind us and that employment should rebound by next summer. In the meantime, lawmakers must retool a state budget to prepare for a shortfall that could reach nearly a half-billion dollars over the next 18 months.

University of Southern Maine Economist Charlie Colgan attempted to raise the spirits of lawmakers on the Appropriations Committee by telling them that the good news in Maine's economy is that the worst of the recession is probably over. "The bad news is that the worst was really bad."

Colgan serves as chairman of the state's Consensus Economic Forecasting Commission, a panel of economists that makes recommendations to the state revenue forecasting committee, which, in turn, advises the Legislature on what the state can expect for future tax collections.

Colgan says a revision of projections by the economists showed how sharply they were off on income estimates for the first quarter of this year. "The effects on the income tax revenues, and to a certain extent on retail sales, really have been out of proportion to previous recessionary periods," he said. "Prior to the revision, it was expected that wages and salaries in Maine had fallen by about a 1.7 percent annual rate in the first quarter. The actual decline was 17 percent in the first quarter alone. That's like everybody in Maine taking a 17 percent pay cut over a year."

"October's probably going to be as bad, or worse, than September was, and I think we're going to hear about a real turnaround not until next summer," says Sen. Bill Diamond, a Windham Democrat whoc o-chairs the Appropriations Committee, which has been meeting this fall to identify $30 million in budget cuts that will become effective next summer.

Diamond says the panel was making progress toward that goal when revenue collections began a steep decline in September. Gov. John Baldacci is preparing for an additional $200 million in cuts to offset those revenue losses, but Diamond says that will not be enough.

"The $200 million that the governor talked about initially with the agencies is probably considerably less than what's really going to be needed to finish up this budget," Diamond says. "So we've got two tasks: The good news is we're making good progress on finding the $30 million we were charged to do -- we should have that done by the middle of December; and then we jump into the task of finding whatever the amount is -- whether it's $300- or $350 million -- to balance out the new supplemental budget."

State Rep. Emily Cain, an Orono Democrat, pressed Colgan on whether her panel should prepare for any additional unpleasant economic surprises beyond a decline in income and sales tax collections.

"Is there any other particular piece you think we should be watching for? Those two make up well over half of our state revenue, but from the business sector and from the particular specific sales end, is there anything out of this information you think we should be keeping an eye out for as that second forecast approaches?" Cain asked.

"I think now, where in the spring, all of the risks were on the down side -- that is, if I was wrong, if we were wrong in our forecasts, the chances were much greater that it was going to be worse than that it was going to be better," he responded. "I think now we're in a situation where, for example, with consumers and with employment, there's maybe a 50-50 chance that if we're wrong, it'll be higher, rather than lower."

A error on the positive side would be welcome change for state lawmakers who have already approved state shutdown days and some employee layoffs to keep Maine's budget in the black. Colgan says there will be no significant rebound in the state's economy until the outlook for new jobs improves -- and that's not anticipated until next summer.