Maine cities and towns are likely to lose more than $124 million in revenue this year because of the COVID-19 pandemic, the Maine Municipal Association told state lawmakers Monday.

Three-quarters of communities in a recent survey said they would likely address the revenue shortfalls by cutting programs and tapping surpluses and unspent revenue from current budgets, said Kate Dufour, a lawyer with the association, which represents the state’s more than 430 municipal governments.

“Those are relatively short-term and short-lived responses, because when you start to deplete your surpluses and undesignated fund balances that’s not available in the next year,” Dufour told the Legislature’s Appropriations and Financial Affairs Committee. Nine percent of towns surveyed said they would look to both program cuts and property tax increases to make up the losses, she said.

Dufour noted that she had data from only 85 municipalities and that others were still completing the survey, so total lost revenue will probably be higher.

Dufour’s presentation came as lawmakers were examining the most recent revenue forecast, which suggests the state’s 2021 fiscal budget could be more than $422 million in the red. Much of the shortfall is from reduced sales taxes from hotels and restaurants that have been closed or partially shuttered during the pandemic.

Revenue from room and meal taxes was off by 60% in the final fiscal quarter, which ended June 30. That will further affect cities and towns, which receive about 5% of the total sales tax collected in Maine.

The decline in municipal revenues is wide-ranging, including reduced sales taxes, fewer fees collected for recreation programs or business and liquor licenses and lost motor vehicle excise tax revenue. Cities and towns may also lose money on investments during an economic downturn, and personal property and real estate taxes were lower.

The towns surveyed reported more than $8 million in pandemic-related expenses since March, Dufour said. Those included personal protective equipment for first responders, loans to small businesses, installing protective barriers for elections, restructuring spaces for social distancing at town meetings, costs for overtime and cleaning of city facilities, and public education efforts for residents and visitors.

“Elections and town meetings, as many of you know, were very difficult to conduct this year,” she said. “They were costly. Many communities experienced expenditures from overwhelming absentee balloting expenses, which was a good thing, but it did cost communities some additional funding.”

Many municipalities will be able to recover some of these expenses through federal CARES Act funding allocated by Gov. Janet Mills. The CARES funds will trigger matching grants from the Federal Emergency Management Agency for COVID-19 responses.

But Dufour said cities and towns are worried that the state will cut support by reducing state aid to education or trimming property tax breaks.

“That’s of grave concern to municipalities,” she said. “Just shifting burdens from all taxpayers to property taxpayers is really going to have an adverse effect on municipal well-being and the health of our communities.”

What the next COVID-19 relief package from Congress might look like also remains a question mark. The U.S. Senate recessed Friday without reaching a deal on another round of funding.

Maine State Economist Amanda Rector told lawmakers that the state’s Consensus Economic Forecast Committee projected a $422 million budget shortfall this fiscal year, assuming that Congress will approve at least another $1 trillion in aid that includes support for municipal and state governments, low-income households, and some level of enhanced unemployment benefits.

However, everything depends on the path taken by the virus, Rector said.

In response to a question from Rep. Drew Gattine, D-Westbrook, House chair of the committee, she said the recovery assumptions made by economic forecasters rely on uncertain factors.

“Certainly, we are very closely tied to the national and global economies, particularly in a situation like this where the recession has been triggered by a public health crisis that’s a global pandemic,” Rector said. “That means everybody is in a similar boat. We really do need some other parts of the world and the U.S. to be healthy to drive the economic engines globally. Maine cannot do that on its own.”

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