Imagine you run a hospital, nursing home, community charity or college, and you need to borrow money to replace an aging wing or construct a new building. As a nonprofit in Maine, your facility would apply for a loan for the capital project through the Maine Health and Higher Educational Facilities Authority.
The quasi-state agency is overseen by a governor-appointed board, but it is not funded with tax dollars. The authority would group together your loan amount with those requested by other nonprofits to enhance the credit strength of all the borrowers. That allows the authority to issue tax-exempt bonds with far lower interest rates than individual nonprofits would secure if they went it alone. The borrowers — the educational and health care facilities — are responsible for paying the bonds back.
It was pointless and foolhardy for Gov. Paul LePage and former state Treasurer Bruce Poliquin, who is now running for the 2nd District seat in Congress, to have rejected pooled bonding in 2011 — and for LePage to continue to do so more than three years later. Under federal law, the governor must sign off on the agency’s bond packages. It’s a routine step. But in his first months in office, LePage said no. He wouldn’t sign.
By effectively shutting down the program, nonprofits are being forced to pay millions more in interest over time to access the national credit market, if they can afford it. The administration’s decision is pointless, helping no one and hurting many. It flies in the face of fiscal responsibility.
When MaineGeneral Medical Center built its new hospital in Augusta, it could have saved a great deal of money by obtaining a 4- or 5-percent interest rate on a 30-year loan through Maine Health and Higher Educational Facilities Authority’s pool loan program. Instead, on its own, MaineGeneral received a lower credit rating and a 7 percent interest rate. That means it will spend at least $42 million more over the life of the loan — and likely quite a lot more — on something that will never help patients and only help banks: interest.
Consider the Harold Alfond Foundations’ generous $35 million donation in support of the hospital, which is named the Alfond Center for Health for its benefactor. The gift doesn’t even cover all the extra, senseless interest the hospital must pay. Because the LePage administration blocked the pool loan program, who else will pay? Certainly some of the burden will be passed on to two government programs that ensure low-income, elderly and disabled Maine residents get care: Medicaid and Medicare, which pay the medical bills for a majority of patients at Maine’s large hospitals.
In the past, LePage and Poliquin have argued that the pool loan program could hurt Maine taxpayers if a borrower didn’t make a loan payment. But by saying so, they appear to not know how the program actually works.
First, in the 42 years of the authority’s existence, it has never lost money on a borrower. Since the pool loan program began in 1991, the authority has issued a total of $2.87 billion in bonds to 81 separate borrowers. But even if the agency couldn’t recover an outstanding loan, there are strong safeguards in place. It has a $120-million reserve account, funded with private money from bond proceeds. In addition, about $44.4 million has accumulated in a separate, additional reserve account, built up with fees and interest income.
If the authority’s reserves drop below a certain threshold and can’t be replenished, the governor would introduce a bill to the Legislature to ask for more money. But the Legislature is in no way bound to approve the request. The bonds are backed by the “ moral obligation” of the state, which enhances the agency’s creditworthiness but doesn’t mean the state is legally on the hook for payment.
When he was executive director of the agency, Robert Lenna testified before a legislative committee in 2011 that, for bond programs that use “the moral obligation reserve fund bond structure, there is no state liability. The state’s highest court has said so. The contracts with the bondholders say so. The national credit rating agencies say so. The pricing in the national tax-exempt bond market says so. There is no general obligation pledge of the state’s taxing power or revenues and no pledge of the state’s credit to pay these bonds.”
To suggest otherwise is simply incorrect. LePage has done this state a great disservice by cutting off nonprofits from low-interest loans. It’s difficult to take him seriously when he calls himself a fiscal conservative.