LePage: 2004 liquor contract an ‘abomination’ that needs to change

Posted March 11, 2013, at 5:05 p.m.

AUGUSTA, Maine — Gov. Paul LePage pitched his proposal Monday to repay Maine’s $484 million debt to its hospitals by borrowing against future proceeds from the state’s wholesale liquor business as a job creation package that will put Maine on a more stable financial footing.

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,” while providing a way to repay the state’s $186 million Medicaid debt to hospitals.

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.

“If we are going to be a prosperous state, if we are going to manage our finances responsibly and run our state like a business, then we must make the tough choices,” LePage told members of the Legislature’s Veterans and Legal Affairs Committee. “We must make the right decisions, and we must pay our bills. We cannot play politics with people’s lives. We cannot wait any longer.”

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.

“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.

Democratic legislative leaders have been hesitant to embrace LePage’s plan, saying in early February that the Legislature should consider the liquor contract and hospital debt repayment as separate items. More recently, Democrats questioned whether it’s constitutional to use a revenue bond to pay down the state’s hospital debt, citing a 2009 opinion from Attorney General Janet Mills. House Speaker Mark Eves, D-North Berwick, and Senate President Justin Alfond, D-Portland, laid out a hospital repayment of their own a half hour before Monday’s hearing that they said avoids the constitutional ambiguity.

But 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.”

LePage is seeking to renew a 2004 liquor contract that leased the state’s wholesale liquor business for 10 years to Maine Beverage Co. in exchange for a $125 million upfront payment and an annual slice of profits.

“I look at this contract as a fire sale,” he said, joking, “And frankly, you never called Marden’s.”

LePage formerly worked as general manager of Marden’s, a discount store chain.

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.”

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 said in statements supporting LePage’s plan.

The debt has been difficult to absorb at Northern Maine Medical Center, said Peter Sirois, the hospital’s CEO. More than 70 percent of the Fort Kent hospital’s patients are covered by Medicaid, limiting the hospital’s ability to spread its costs to the commercial market.

“I don’t think it’s fair for the residents of northern Maine not to have the standard of medical care because of this debt,” Sirois said.

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

“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.

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.

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