To borrow, or not to borrow? Bond plans face uncertain future in Maine

Posted March 07, 2011, at 7:55 p.m.
Last modified March 08, 2011, at 12:19 p.m.

AUGUSTA, Maine — Gov. Paul LePage has said he doesn’t support new bond packages at this time, but lawmakers from both parties have submitted about two dozen proposals for consideration by the Legislature.

The proposals range from repairing rail lines to funding research and development, money for seafood marketing to borrowing for drinking water and waste-water projects. For the most part, these would be what are called “general obligation” bonds, which are long-term loans that are repaid by taxpayers through the state’s general fund.

And while both Republican and Democratic leadership in both houses say there’s a willingness to at least consider bond proposals, they also acknowledged that it’s still relatively early in the session, and any borrowing conversations are still nascent.

Senate President Kevin Raye, R-Perry, said there’s an increased awareness “about the problems related to the state’s debt” and that resulted in a “restrained atmosphere” in terms of bonding.

“You won’t find anyone here that thinks there will be a robust bond package of the type that was seen under the previous majority,” said Raye. “I do think there is an openness in both houses of the Legislature to a modest level of borrowing — as long as it is focused on those sort of basic infrastructure issues that are important for the long-term health and well-being of Maine people.”

Raye declined to speculate on what may be a palatable level of bonding.

Speaker of the House Robert Nutting, R-Oakland, said his position on bonds has always been that they’re a tool to pay for things that have a long life, such as bridges and treatment plants. The governor’s budget uses money from the general fund for projects, in lieu of bonding, Nutting said.

“My understanding is the governor and his administration are not in favor of bonding,” said Nutting.

Given that, said Nutting, he’s not opposed at looking at a bond package to forward to the governor and then voters. But any bond package’s repayment schedule would need to work within the budget, he said.

The Legislature needs a two-thirds majority to pass a bond proposal. The governor can sign it,  let it pass without his signature, or veto it. The first two options would send the bond package out for voter approval. The Legislature can override a veto with the same two-thirds majority needed to pass the package in the first place. But, notes House Minority Leader Emily Cain, D-Orono, “there’s a big difference between putting through something and voting to override a veto of your party’s governor.”

In addition, LePage, as a party leader, could attempt to use his political capital to ensure the Legislature never got the two-thirds majority needed to pass a package in the first place.

Cain, who has put in a proposal for a $40 million bond for capital improvements at the University of Maine System to support science, technology, engineering and math, said her caucus is fully behind talking about bonding this session.

“I can’t predict the governor, but the reality is the Legislature has a right to its own process and its own responsibility and obligation to consider all of the options available to us for economic development,” said Cain. “One proven method of job creation and sustainable foundation building is investment in our state through bonds. We have an outstanding and clear track record when it comes to transportation funding, school projects, research and development, as well as conservation.”

Senate Minority Leader Barry Hobbins, D-Saco, said he believed there would be a need for some bonding to leverage federal highway and water infrastructure grants. In a recent conversation with U.S. Transportation Secretary Ray LaHood, Hobbins said, he learned the Obama administration was considering a $30 billion infrastructure funding program that would require a state match. Not bonding, said Hobbins, could lock Maine out of competition for those funds.

“There is a need, as part of the blend and mix, for bonds,” said Hobbins. “I think the governor’s intentions are honorable, but just to say no to all bonding is short-sighted. That really has a ripple effect over the economy.”

LePage spokesman Dan Demeritt said the governor’s budget proposal has no provision for new bonds.

“He’s opposed to new bonding right now,” said Demeritt.

The governor is aware that some legislators have proposals in, said Demeritt, but LePage feels the state has too much debt now and “ultimately, it’s not something he favors.”

“The governor has his opinion; the budget is a deliberative process,” Demeritt said.

Demeritt said LePage would look at any proposal and communicate his intentions directly with legislative leaders.

Sen. Christopher Rector, R-Thomaston, said he shares the governor’s concerns on the rate of state borrowing.

“That said, one of the things we have done is tried to recognize that growth in our economy is going to come from innovation,” said Rector, who, as Senate chair of the Labor, Commerce, Research and Economic Development Committee, has a $50 million R&D bond proposal in.

Past bond investments in R&D have leveraged private and federal funds, he said, and have helped grow Maine’s innovation economy.

“Now is not the time to turn our back on that entirely,” he said.

Rep. Richard Cebra, R-Naples, House chair of the Transportation Committee, has sponsored a “placeholder” bond for transportation project funding, and is signed onto a bond his co-chair, Sen. Douglas Thomas, R-Ripley, has in for development of a port on Sears Island.

The placeholder is just that — a piece of legislation that will allow the Legislature to consider bonding for projects, if needed. The governor has proposed using $20 million from the general fund for highway fund projects, said Cebra. Cebra also said he believes the highway fund contributes too much to the state police, as well.

Overall, said Cebra, the state has not made transportation enough of a priority for funding through traditional means, and has relied too much on bonds. Bonds may be a useful tool, particularly on long-term capital projects where there’s leveraging of other funds, he said. But he said he didn’t believe there would be any bonding this year.

Thomas agreed, and said he didn’t foresee bonding for two years. He said he put in the bond package for Sears Island to get the conversation started. It would likely take several years to get moving on a port for the island, he said, and he envisioned any bond debt payments to be made by a firm leasing the port.

Industry groups such as the Associated General Contractors of Maine are concerned about what a dearth of bonding will mean for their members.

“This view that all debt is inherently bad, or that debt isn’t a tool, flies in the face of the experience from everybody from the small homeowner who has a residential mortgage to some of the world’s largest corporations — all of which use debt in one way or another,” said John O’Dea, executive director. “It’s how the economy works.”

His members may take a big hit, said O’Dea, as the governor also has declined to sign off on so-called agency bonds issued by groups like the Maine State Housing Authority and the Maine Health and Higher Educational Facilities Authority. Those bonds never went before voters in the past, but LePage has decided that they must, going forward. That debt is not serviced by taxpayers, but rather through groups that use the bonds, such as hospitals, schools and housing developers.

O’Dea said his group is meeting with legislators and with executive branch officials to “make sure they fully understand the impact this is going to have on the business community in Maine.”

“It’s a very serious impact,” said O’Dea. “The impact, quite frankly, will be measured in tens if not hundreds of millions of dollars worth of economic activity.”

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