“If it ain’t broke, don’t fix it.”
That’s a pretty good rule to follow.
For decades Maine’s independent state economic development authorities have issued billions of private activity bonds to finance affordable housing, business growth, hospital and school expansions, college tuition loans, and many other public purposes allowed by federal law. This privately raised capital has improved the state, helped its residents and created tens of thousands of jobs.
These economic impacts did not cost the state a nickel and added no state debt. Revenue bonds are not a debt of the state. They are debts of the issuing agency and are repaid by revenue generated by borrowers. And not one authority has defaulted on a single bond.
In MaineHousing’s case, they sell mortgage revenue bonds to investors and use the proceeds to make mortgages through local banks. As the mortgages are repaid, the investors are repaid.
Recently, the governor said that economic development revenue bonds must go to referendum just like general obligation bonds the state sells to finance road and bridge improvements, or he won’t approve them. He believes it is required by the state constitution. The Supreme Judicial Court of Maine disagrees. In a 1971 case, the court held that the MaineHousing bonds are not a state obligation and do not constitute a loan of the state or create state indebtedness.
Because they are not a state debt, MaineHousing’s bonds don’t belong on a referendum ballot. In fact, sending revenue bonds out to referendum could have the opposite effect. Bonds approved by the voters may be deemed full faith and credit bonds because they were treated as if they were.
MaineHousing is Maine’s largest issuer of revenue bonds. Since inception in 1969 they have sold more than $6 billion in bonds without a problem. In the past 10 years, they have financed more than 12,000 homes for first-time homebuyers and constructed or rehabilitated more than 3,500 affordable apartments.Their bond debt, today at $1.5 billion, is basically the same as in 2001 because they retire bonds at approximately the same rate as they sell them.
We have been through the worst economic period since the Great Depression, yet MaineHousing’s bonds retained their excellent AA+ rating, a better rating than bonds backed by the full faith and credit of the state. At the nadir of the housing slump, MaineHousing was one of the very few places you could get an affordable mortgage, which really helped our economy.
MaineHousing and the bankers, Realtors, and developers who use bonds need regulatory certainty. They need to know that financing is available when it is needed, and that MaineHousing can time its bond sales to take advantage of optimum market conditions. These programs already have less red tape than most; let’s not add more.
Revenue bonds are one of the few economic development tools the states get from Washington. Maine taxpayers pay for these bonds through their federal taxes. Limiting their use would put Maine further behind and we would score even worse in business climate rankings.
In a typical year MaineHousing will raise $30 million in private capital to finance new affordable apartments and $100 million to finance homes for more than 1,000 first-time homebuyers. Do we want to jeopardize that economic benefit, putting our fragile housing market at risk?
The Legislature created MaineHousing and other independent authorities to finance economic development using revenue bonds without cost to the state. They are independent to keep the work apolitical. The federal government limits the amount of private activity bonds that can be issued and the Legislature limits and allocates these bonds. Within those bounds, subject to various authorities’ boards of directors and legislative oversight, and consistent with the Supreme Court’s opinion, the authorities manage their businesses to benefit Maine people.
If we treat these bonds like state bonds, then Maine will indeed have a problem that needs fixing.
Carol Kontos is an associate professor of English at the University of Maine Augusta, the former Senate chair of the Legislative Committee of oversight for MaineHousing and the Finance Authority of Maine. She is the current board chair of MaineHousing.