SCARBOROUGH — Mainers are enjoying summertime activities and paying scant attention to the news. But quietly, economic developments are turning in our favor and demonstrating the payoff from Gov. LePage’s commitment to fiscal responsibility. Maine taxpayers and workers will emerge as the winners.
Let’s start with the state’s improved credit standing. In June, rating agencies issued their outlooks for Maine’s creditworthiness. Standard & Poor’s Rating Services assigned its AA rating to our long-term bonds, while Moody’s Investor Services affirmed its Aa2 rating and upgraded its forecast of Maine’s debt from negative to stable. The agencies cited several major factors that influenced the strong ratings, including repayment of $748 million in MaineCare’s hospital debt; substantial public pension reform; and measures to control costs in the MaineCare program, which provides “free” taxpayer-subsidized health care to more than 300,000 state residents.
The analysts also recognized Maine’s May unemployment rate of 5.7 percent, the lowest since 2008, when the Great Recession began smothering the economy. Over the last year, the Maine economy has generated some 9,900 private-sector jobs, and we have an additional 8,000 jobs at the Maine Career Centers’ Jobs Bank (https://gateway.maine.gov/dol/mjb/jobseeker/jobseekerwelcome.aspx).
Another important factor was the governor’s insistence that the “rainy day” fund, the Budget Stabilization Fund, be replenished to $60 million. This was accomplished through efficiencies and identifying unspent funds in other departments.
Moreover, budgeting improvements were summed up by acting Commissioner Richard Rosen at the Department of Administrative and Financial Services: “Our responsible revenue forecasting model has allowed Maine to avoid the budget shortfalls and subsequent rating downgrades that have troubled other states.”
Ordinarily, credit rating reports hit the news one day and are largely forgotten the next, but this time, the benefits of improved credit ratings are clear and will last for years.
When the LePage administration initially authorized the issuance of bonds this year for several projects, it expected that we could afford to finance about $80 million in long-term obligations. However, we have now sold $127 million in long-term bonds at the same carrying costs as the original projection. The primary reason: Our upgraded credit standing allowed lower interest rates. Indeed, one huge batch of newly sold bonds yields interest of 0.925 percent. This unexpected influx of nearly $50 million means hundreds more Mainers will be working on important improvements such as repairing our roads and bridges.
An important development that will affect Mainers’ pocketbooks came from the 1st Circuit Court of Appeals, which recently upheld Maine public pension reform, enacted in 2011 by Gov. LePage.
For years, irresponsible state legislators made a habit of “borrowing” from the pension fund, the same way the federal government “borrows” trillions of dollars from the Social Security trust fund. They knew that when the bills came due, they would be long gone from office. Basically, they left a smoldering stink bomb on the State House floor and walked out the back door. The 2008-2009 stock market crash was also devastating to the fund’s investment returns.
When the LePage administration took office in 2011, the governor inherited an enormous $4.1 billion debt in the fund that our retired state employees and teachers depend on for their pension benefits. Rather than ignore the problem, the governor and his legislative allies tackled it head on.
The governor’s first state budget included reforms to ensure the system’s long-term sustainability. While increasing the retirement age of new hires from 62 to 65, lengthening the vesting period and freezing state employees’ pay for two years, the retirement benefits remained steady and employees’ contributions didn’t rise.
After suspending the cost-of-living adjustment for three years, it will be capped at 4 percent on the first $20,000. However, pensioners have received one-time, noncumulative COLAs each of the years during the suspension period.
These reasonable actions helped secure our vulnerable pension system and saved Maine taxpayers more than $338 million in their first two years and will yield billions in savings over the next 15 years. All told, the reforms slashed the retirement debt from $4.1 billion to $2.4 billion, a 41 percent reduction.
I sympathize with the plaintiffs in their court challenges to the reform. After all, no one wants their pension COLA capped. But these changes will help bring the system toward long-term solvency and protect benefits for current and future workers. It is easy to fixate on and sometimes chuckle over the frankness of our governor’s comments, but the fact is he remains focused on steadily doing the important work of restoring fiscal sanity to state government.
— Special to the Press Herald
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