Governor Janet Mills last week announced her 11th-hour proposal for the state of Maine to borrow $239 million to fund a package of initiatives intended to grow the economy and address challenges facing Maine. The Legislature is scheduled to adjourn on June 19, pressuring negotiators to quickly achieve consensus and sprint to deliver the constitutionally mandated votes of at least two-thirds of the legislative members if they hope to place a bond package proposal on the ballot in November.
The Maine economy is performing well. State revenues are pouring into the treasury at a muscular 6 percent rate of growth and the Legislature seems poised to pass the largest two-year spending plan in Maine history.
Moody’s Investors Services and Standard & Poor’s Global Ratings recent reviews of Maine issued credit were something of a disappointment, however. Both firms continue to assign Maine’s future financial benchmark an outlook of “stable” rather than moving Maine to a stronger outlook of positive. Moody’s appropriately touted Maine’s healthy tax revenue performance, but also cautioned that if state government returns to severe structural budget imbalances and ignores Maine’s rapidly accelerating public sector pension obligations, a future ratings downgrade could result.
The state’s ability to borrow money to fund capital expenditures is a powerful economic stimulus and a valuable tool to deploy during an economic downturn when private lending contracts and people are facing job losses. But when economic conditions are robust, as they are now, this proposed level of public sector borrowing seems excessive. Borrowing money to raise revenue for current spending burdens future budgets with debt service obligations.
Many of the specific spending initiatives in the Governor’s borrowing package appear less targeted and strategic and more hodgepodge. Many of the spending ideas involve borrowing money to fund the ongoing operational costs of a program. Bonds should be for significant capital investments having a useful life that extends beyond the 10-year payment schedule to retire the bond.
Mills’ proposal includes funding for job training programs, energy efficiency grants, weatherization loans, technology grants, low-interest loans and expansion of child care options — all may support beneficial and enriching services. But as such, shouldn’t we be budgeting for them using current tax revenue rather than borrowing money that must be paid back — with interest — when times may be tighter?
Even the transportation package seems heavily weighted with day-to-day expenses such as maintenance, reconstruction, public safety and culvert replacement. All important, but more costly to do with borrowed funds and more appropriately supported without generating additional debt.
Last month, Governor Mills directed her administration to develop a 10-year strategic economic development plan to be completed by November. Before the economic plan steering committee has scheduled its first public-input meeting, the announcement of this proposed bond package pre-empts its yet to be developed recommendations.
The spending and borrowing recommendations should draw from and support the strategic plan, not the reverse.