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Paul Davis

Bond & Debt
By Senator Paul Davis
Feb 22, 2005 - 6:59:00 PM

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The Governor would like the state to issue $197 million in new bonds this year for a number of different projects across the state. While all of these projects may be worthwhile and all may be beneficial to our state, if we are to look at this responsibly and avoid financial crisis, this bond proposal needs careful scrutiny.

In presenting his proposal to the House and Senate Leadership, he explained the state would be retiring bond debt for a similar amount; so therefore, we should issue bonds in that amount. Itís that rationale I have a problem with.

Itís a little like having a credit card, paying off a portion of it, and setting out to ďmax-itĒ out again just because you can. I donít think many Maine people plan their expenditures and debt that way and I donít think the state should either.

Before signing on to new debt proposals, the Republicans in the Legislature researched the stateís debt, the actual debt, not just the debt youíre often told about during budget planning. What we found totaled $5.3 billion. That could cost each Maine resident $4,000 if he or she was suddenly asked to write a check for their share. Of course, not many of them could come up with it, so do we think the state could fulfill that debt in any realistic time period?

What should concern us are the unfunded liabilities on the books.

We make plans to repay bond debt, but we havenít made a sufficient plan to pay our debt to the Maine State Retirement System or to its health insurance for retirees, yet that obligation increases each year.

If you pay down your debt, eventually it goes away. Thatís not happening here.

Those two programs alone total $4.2 billion in debt. Ten percent of our general fund budget for 2006 is our contribution to the retirement fund and $160 million towards the debt. This debt payment is not counted as a part of the stateís overall debt but by constitutional amendment the debt to the retirement system must be paid by 2028.

The state is obligated to pay 100 percent of the health insurance premiums for state retirees and 40 per cent for retired teachers. In 1999, a reserve fund of was created to reduce the debt to this perpetual obligation. Then in 2004, the fund of $88 million was ďraidedĒ to finance a supplemental budget.

Add to these obligations loss of liquor revenues sold to fill short term funding gaps, and the governorís most recent proposal to sell the lottery revenues, unpaid obligations to Maineís hospitals for Maine Care totaling more than $200 million and a pending lawsuit to recapture those funds as well as a reduction in Medicaid reimbursements from the feds, Maineís financial picture looks pretty grim. Apparently Republicans are not the only ones who have that view. It prompted Wall Streetís Moodyís Investor Services to announced a possible drop in the stateís bond rating. If that happens, will we be able to sell our bonds efficiently and economically to fulfill another round of bond projects? Or might it be more prudent to reduce our bond obligations until we can reduce our debt?

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