Pay off the hospitals, then collect the cash

Posted Sept. 24, 2012, at 1:01 p.m.

Since there is apparently a pot of gold at the end of Maine’s liquor contract rainbow, it’s not too early to begin thinking about how that money should be handled.

Maine Gov. Paul LePage is rumored to have his own plan, and we can only hope it’s different from the one offered in the early years of the John Baldacci administration.

In 2003, the newly elected governor was looking at a biennial budget with a $1.2 billion structural gap. That meant the budget needs for the next two years were $1.2 billion larger than projected revenues.

So Baldacci and the Legislature began looking for ways of closing that gap. There are only two ways of doing that without resorting to gimmickry: either raise more revenue or cut expenses.

Baldacci was adamantly opposed to increasing any broad-based taxes, so his administration focused mostly on cutting expenses and, to a lesser extent, increasing fees.

And, according to several sources, Maine lobbyist Severin Beliveau approached Baldacci with an idea: Sell off the state’s liquor control business, which at the time earned the state about $26 million a year.

That was the first plan, but state Sen. Peter Mills, now executive director of the Maine Turnpike Authority, was shocked by the suggestion.

The idea of selling off a reliable, monopolistic revenue stream struck him as “crazy” and “obscene,” he told the Sun Journal last week.

So, at the last minute, he submitted an amendment to the authorizing legislation turning the deal into a 10-year lease rather than an outright sale.

Looking back, that was a singularly good idea.

Everyone knew in 2003 and 2004 that the state would lose a bundle of money over time. In effect, the state dodged a tax increase that we have paid dearly for in lost annual revenue ever since.

Maine got $125 million and a slice of the annual profits, about $8 million last year, or an estimated $60 million over the life of the contract, for a total of about $185 million.

But the state could have earned around $280 million over that same time if it hadn’t sold the service. The opportunity cost of that original $125 million in bailout money was steep: just under $100 million.

With the contract expiring in 2014, you can bet the governor and the more wide-awake members of the Legislature are already thinking about how that money should be used.

We don’t know, but we can offer a couple of guidelines:

First, no privatization. The liquor profits are a golden stream of revenue that, as we have seen, is reliable through good times and bad. Contract with a firm to market and distribute the liquor, then pocket the profits on an annual basis.

While no one wants to encourage more boozing, profits have steadily increased for at least 15 years and likely will continue to do so.

Taking another big lease payment simply turns this asset into a 10-year cash cow for whomever happens to be governor at the time the contract comes up for renewal.

Second, before thinking about anything else, pay off the state’s $150 million Medicaid debt to the state’s hospitals — with the stipulation that the money must go back into care, not CEO compensation or parent-company profits.

Not only does that get the embarrassing hospital debt off the state’s books, but it would draw down another $300 million in federal matching money that could provide a $450 million boost to the state’s economy.

Once that’s done, let’s put the liquor money back where it belongs — in the state’s budget.

Sun Journal, Lewiston (Sept. 23)

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