There’s “good debt” and there’s “bad debt,” and we all know the difference between investing in a family home and taking out a payday loan to cover the rent.
The same distinction applies with government indebtedness, and there is a difference between issuing bonds to fix a bridge that will last for half a century, and deficit spending in Washington to cover payroll in government programs.
With the main piece of unfinished business for the Legislature a bond package that would go before the voters, it’s worth considering what kind of debt is being discussed.
The first question is whether Maine can afford to borrow the $79 million the governor has proposed or the $99 million recommended by Senate President Libby Mitchell, and still keep its financial house in order.
Considering how much has been cut from vital programs in the last two years, it may strike some as an odd time for the state to be taking on debt service payments. But according to state Treasurer David Lemoine, what has been proposed won’t break the bank.
ROOM TO BORROW
As previous bonds are retired, principal and interest payments would remain essentially flat over the five years within which the money would have to be spent, even with the proposed levels of borrowing. Since the money would not be drawn all at once, payments would be distributed evenly over time.
Maine ranks 33rd among the states based on tax-supported debt per capita and 28th on debt as a percentage of personal income. Those figures put the state in good stead with the major bond rating agencies, which have maintained Maine’s AA rating. Moody’s made some news earlier this year by giving the state a “negative” outlook on its financial future, but that had a lot to do with when it took Maine’s fiscal temperature.
Looking earlier this winter on a nearly $400 million budget shortfall, Moody’s found that Maine “has yet to implement corrective measures to restore balance. Although a supplemental budget has been proposed to close the gap, lack of timely action to balance the budget that leads to further erosion of financial position and liquidity could lead to a downgrade.”
Since that report was issued, the Appropriations Committee has unanimously recommended a budget-balancing proposal that calls for no new taxes or some of the borrowing gimmicks that have been used by some other states in crisis. The package appears to be headed for strong bipartisan support and should be signed by the governor well before the statutory date for the Legislature’s adjournment, so Maine should expect to keep its solid bond rating.
The real question for lawmakers, then, is not whether the state could issue the bonds and afford to pay them back. It can.
But the better question is what should it spend the money on? Is Maine considering investing in its future or just paying the bills?
While it’s called a “jobs bond,” short- term job creation should not be the deciding factor. What’s more important is the potential for long-term growth built on investing infrastructure.
Gov. Baldacci’s proposal focuses on two areas, transportation and energy. It would call for $31 million in highway and road projects, $9 million in port and harbor improvements and $17 million for environmental and energy projects. Another $17 million would go to purchase the rail line between Millinocket and Madawaska, which serves important industrial needs.
PORT IMPROVEMENT
Included in the governor’s bond package is a proposed $8 million to build a deep-water berth in Portland Harbor to complete the Ocean Gateway facility that had to be scaled back because of high construction costs in 2005. The berth would increase the city’s capacity to host large cruise ships as well as provide a platform for ship repair and other deep-water activities that attract good jobs.
With interest rates low and construction companies willing to pare back their bids to get business, now is a good time to invest in infrastructure.
Lawmakers should look at this bond package as an opportunity to take on some “good debt.”
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