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Maine's Credit Report

Borrowing money is easy whether you’re a government or a family. In both cases, it can be done wisely or it can make it harder to pay your bills. Fortunately, issuing bonds in Maine requires two things that slow the process down: a two-thirds vote of the legislature and voter-approval. Maine hasn’t approved any bonds since 2005.

Republican legislators announced their $200 million bond proposal a few weeks ago. They insist that bonds be used for bridges, roads, and other long-term infrastructure costs. The Governor then unveiled his $400 million proposal which included additional spending on economic development initiatives, higher education, and public land purchases.

In support of this position, Democrats cite a general borrowing rule that debt service should not exceed 5% of revenues coming into the state’s general and highway funds. Maine's current bonded-indebtedness percentage is around 3.7%. While Maine has an excellent track record of paying off its debt, quickly and efficiently, principal and interest payments cost at least $70 million a year.

The Appropriations Committee has settled on a $290 million package to be put before the voters in three stages over the next eighteen months.

A state's capacity to bond is really not that much different than a family's ability to incur debt. All things being equal, the higher a family's income (the revenues it has coming in), the more debt it can support. The issue, of course, is that not all things are ever equal among families. For example, a family that makes $60,000 a year but has $200,000 of outstanding college loans plus outstanding credit card debt of another $100,000 simply does not have the capacity to borrow the same amount of money to buy a house, for example, as another family making $60,000 a year and that is otherwise debt free.

The problem is that Maine has become like the first, debt-burdened, family. We have significant amounts of other debt that must be paid off, and this debt must be considered before making any decisions about borrowing additional money. Some of this debt is being paid off gradually. This includes about $3 billion that is owed to the Maine State Retirement System to pay for commitments made to state employees and teachers when they retire. It also includes a variety of other types of indebtedness such as voter-approved bonds and capital leases. This tax-supported debt stands at $797 million. State agencies such as FAME and the State Housing Authority issue their own bonds and pay them off with income they generate. This is another $4 billion in debt.

What it does not include, however, is a whopping $4.756 billion that the state has committed to pay for the health care of retired state employees and teachers. To pay for this obligation over a 20 year period, Maine would have to set aside a little over $350 million a year -- including this year, which is $350 million a year more than it is currently setting aside. If this amount is added to Maine's debt service as it should be, debt service would represent not 3.7% of revenues, but about 20% of revenues -- four times higher than the "5% rule."

Borrowing money certainly has its place in funding state government activities. But just like with a family, we need to look at the complete picture of Maine's outstanding obligations before we recommend an amount of money Maine can afford to borrow. And, when we look at this complete picture what we see is not pretty. Sure, our general obligation debt levels are not excessive, but our other obligations -- obligations Maine is legally required to meet -- dwarf our current means to pay them. We need to figure out how we are going to pay off this debt before we go borrowing even more money and saddling our children with a financial burden they cannot hope to meet.

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