BANGOR, Maine — As state Treasurer Bruce Poliquin sees it, if Maine doesn’t address its long-term debt now, the consequences for its ability to attract jobs and provide even basic government services will be dire.
Of particular concern is a $4.3 billion unfunded liability in the state’s pension system, Poliquin said Wednesday evening during a meeting of the Bangor City Republican Committee.
If allowed to remain unchecked, pension costs for state retirees will snowball to the point where they will crowd out the state’s ability to attract job-creating businesses, as well as its ability to provide such basic services as public education, road repairs and programs for those unable to fend for themselves, Poliquin warned. His hourlong talk drew about 40 people to Husson University’s Richard E. Dyke Center for Family Business.
Bangor was the latest stop in a series of appearances Poliquin has been making around the state to build support for Gov. Paul LePage’s six-point plan to create jobs in Maine. The plan calls for reducing government spending, lowering taxes, simplifying business regulations, cutting energy costs, lowering health insurance premiums and shrinking state debt.
If Maine can succeed in meeting those goals, its ability to foster job growth in the private sector will be greatly enhanced, Poliquin said, adding, “That’s the golden goose.”
But it was the state’s crushing debt load that was at the center of Poliquin’s talk.
Through a series of bar charts, graphs and other graphics, he painted a bleak picture for what likely will come about if Maine fails to address Maine Public Employees Retirement System pension costs, which now amount to nearly $450 million — $344 million of which is unfunded.
As it stands, those costs are projected to hit $849 million — $744 of that unfunded — by 2021, a level of debt that Poliquin says “is not fiscally sustainable.”
To that end, Poliquin is calling for reforms in the state pension program that will require some sacrifices on the part of current and future retirees, but that if adopted will result in “huge financial benefits.
“I am not asking that much, in my opinion,” Poliquin said.
While Poliquin said there would be no cut in pension checks for the estimated 40,000 state retirees now in the hopper, he said the proposed fix for the system calls for having retirees forgo cost-of-living increases for three years, after which future increases would be capped at 2 percent a year.
Another 30,000 current state employees would be required to contribute 2 percent more of their salary, or 9.65 percent, toward retirement, he said. In addition, the retirement age for new hires would go up from 62 to 65, he said.
“We think these are very reasonable and a fair set of reforms,” he said Wednesday, adding that if adopted, the reforms would eliminate the need for unpaid furlough days and mass layoffs.
Not only would the changes help sustain key state programs and services, they also would help Maine protect, possibly improve, its bond rating, which would reduce interest costs for loans.
In his remarks, Poliquin acknowledged that the proposed reforms have not been universally embraced but that based on the emails and phone calls to his office that the issue has generated in his office in Augusta show about 75 percent of those who have weighed in are in favor and about 25 are opposed.
According to published reports, however, the reform plans have sparked several protests in Augusta and have packed legislative committee hearing rooms.
Also Wednesday, Poliquin warned that some of the “high-risk” strategies others have suggested as alternatives for dealing with the pension problem could make the matters even worse.
Borrowing $4.3 billion to cover the unfunded pension liability would cost the state more in the long run because of the interest that would result. He called changing the two-year valuation cycle “a gimmick” that would be the equivalent of “changing the goals post because we don’t like the dimension of the field.”
As for extending the constitutional deadline for funding the pensions beyond 2028, Poliquin said that would be like refinancing a house to keep mortgage payments low but that would amount a higher payoff expense in the end.
Doing nothing, or allowing taxes to increase, will drive residents and business away, he said.