Democrats to add hospital repayment to their liquor bill; LePage testifies on his own plan

Gerry Reid, director of the Maine Bureau of Alcoholic Beverages and Lottery Operations, testifies before the Veterans and Legal Affairs Committee on Monday at the State House in August.
Troy R. Bennett | BDN
Gerry Reid, director of the Maine Bureau of Alcoholic Beverages and Lottery Operations, testifies before the Veterans and Legal Affairs Committee on Monday at the State House in August. Buy Photo
By Matthew Stone, BDN Staff
Posted March 11, 2013, at 9:25 a.m.

AUGUSTA, Maine — Republican Gov. Paul LePage and Democratic legislative leaders Monday presented competing plans to repay Maine’s $484 million debt to its hospitals. Both plans would tap into proceeds from the state’s wholesale liquor contract but differ markedly in their repayment approach.

LePage was the first of dozens to testify Monday during a daylong legislative hearing on his hospital repayment bill and a competing proposal from Sen. Seth Goodall of Richmond, the Democratic Senate leader. The governor told the Veterans and Legal Affairs Committee that his proposal would improve on the state’s current wholesale liquor sales contract, which he called an “abomination” that is “very lucrative for the contract holder.”

LePage unveiled his plan in January to pay down the state’s debt to its 39 hospitals by taking out a revenue bond backed by the state’s future liquor profits. He said he would release $105 million in voter-approved bonds he has so far refused to issue once lawmakers sign off on his debt repayment plan. The hospital debt has accrued since 2009 for services hospitals provided to Medicaid patients but for which they haven’t been reimbursed by the state.

“If you send me the bill today, I will sign it, and I think in 45 days we could have the money in the hands of hospitals in addition to the other $100 million that have been approved for sale,” LePage told lawmakers.

A half hour before LePage testified, Democrats, who have been hesitant to embrace the governor’s proposal and critical of his decision not to authorize voter-approved bonds, unveiled their own plan to repay Maine’s $484 million hospital debt while also advocating for an expansion of the state’s Medicaid program and other health care system reforms.

The Democrats introduced an amendment to Goodall’s liquor renegotiation plan that requires an upfront payment from the contractor who wins the bid to operate the state’s wholesale liquor business. That payment would largely go toward repaying Maine’s $186 million share of the hospital debt, which would trigger a $298 million matching payment from the federal government, by Sept. 30.

“We’re asking private industry to assume the risk, not the taxpayers,” Senate President Justin Alfond, D-Portland, said at a Monday morning news conference. “By getting this upfront payment by Sept. 30, the state will save $5 million in interest payments.”

While Republican legislative leaders said they were encouraged to see a hospital payment plan from their Democratic counterparts, LePage criticized the Democrats’ plan as a repeat of the 2004 liquor contract arrangement that netted Maine a $125 million upfront payment for leasing the state’s wholesale liquor business to Maine Beverage Co.

However, Alfond and House Speaker Mark Eves, D-North Berwick, said their proposal overcomes constitutional concerns Democrats have raised about LePage’s plan. Citing a 2009 opinion from Attorney General Janet Mills, Democrats have questioned whether it’s constitutional to use a revenue bond to pay down the state’s hospital debt.

LePage said Monday he’s ready to vouch for the constitutionality of his proposal.

“Frankly, I believe there is no constitutional issue,” he said. “I’m willing to ask the law court to weigh in on it. If there is a constitutional challenge, I have no problem going to the supreme court of Maine to ask for their judgment.”

After LePage and Goodall presented their proposals to the committee, testimony switched to specific elements of the two plans.

Gerry Reid, director of the Maine Bureau of Alcoholic Beverages and Lottery Operations, said Maine could realize more value from its wholesale liquor business by negotiating more favorable contract terms for the state, lowering retail prices and allowing agency liquor stores a higher margin on liquor sales.

Reid told lawmakers he’s encouraged that three companies have confirmed an interest in bidding on the wholesale liquor contract.

“This industry’s got way more capacity than it needs,” he said. “That’s a good thing for us when we’re on the buying side. They want to use it. We believe they will be aggressive in competing for our business.”

Reid said the upfront payment contained in the Democrats’ plan would limit the state’s ability to lower retail spirit prices, a key part of the LePage administration’s plan to recapture lost liquor sales to New Hampshire.

“When the contract puts an upfront payment imposition on the bidder, they will ask for a guarantee on gross profit as our previous bidder did,” he said. “High consumer prices is the only way I can avoid bumping into that gross profit guarantee.”

A number of contractors who could benefit from additional hospital construction projects and the release of bond money, hospital executives, Lewiston Mayor Robert Macdonald, two of the interested liquor contract bidders, and Republican lawmakers spoke in support of LePage’s plan.

But Jim Mitchell, a lobbyist representing Maine Beverage Co., said LePage’s bill would remove the profit incentive that would encourage a contractor to grow the business because it proposes restructuring the liquor contract so the state pays the contractor a fee to operate the business.

“Those fee-for-service contracts, to align incentives appropriately, will not be simple,” he said. “They ignore instead the central advantage of what drives economic efficiency, the profit incentive.”

A number of agency liquor store owners Monday praised Maine Beverage Co. and its subcontractor, Pine State Trading Co., for improving the wholesale liquor distribution business since 2004.

John Menario, vice chairman of All Maine Spirits, another of the interested bidders for Maine’s wholesale liquor contract, recommended lawmakers combine elements of LePage’s and Goodall’s liquor plans. His company has the capacity to make the upfront payment that’s part of the Democratic plan, he said, but the company would likely have to borrow that money from an out-of-state venture capital firm.

“The venture capital market is going to require some level of control of the business and some level of profit,” he said. “That’s exactly why the time 10 years are up, $330 million would have left this state and a significant part of it would have gone to Wall Street.

“It would be a sad day if this state made the same mistake as it made 10 years ago.”

Rep. Jeffrey Evangelos of Friendship, an unenrolled lawmaker, urged legislators to table the bill until it’s determined what portion of the $484 million debt repayment would go toward paying six- and seven-figure hospital executive salaries.

“I really think that the issue of executive compensation needs to be part of this discussion,” he said.

But hospital representatives said they have provided a service for which they have waited patiently to be paid.

“We shouldn’t have to beg for an overdue bill,” said Jeff Austin, vice president of government affairs and communications for the Maine Hospital Association. “We kept our end of the deal. All we’re asking is that finally the bill be paid.”

http://bangordailynews.com/2013/03/11/politics/democrats-to-announce-hospital-repayment-plan-in-advance-of-hearing-on-lepage-bill/ printed on November 27, 2014