We Need Better Management, Not More Debt
Just over 4 months ago, tax payers approved a bond issue worth almost $72 million to fund transportation and infrastructure projects. In the two previous elections, voters have approved about $80 million in bonds, most of it also earmarked for transportation improvements. Add to that almost $700 million in so-called federal stimulus money for “shovel ready jobs”. Maine should have raised a lot of additional money for roads.
So this week’s announcement that leaders in the majority party in Augusta would propose another $99 million bond issue for, yes, transportation and infrastructure projects has many people scratching their heads.
The central question is whether Maine can afford to keep borrowing. We already spend millions every year to service existing debt and we certainly don’t want to pursue a course that puts Maine’s credit rating at risk. We can’t borrow our way to a prosperous private sector economy, so we shouldn’t be taking on additional risk without first reducing and prioritizing spending.
The more fundamental question is how this money is being managed. We know that the bulk of the “stimulus” funds went to cover social service programs. Instead of reforming these programs to bring expenditures in line with national averages, Augusta pumped in $300 million to fill the hole without making substantive changes to the programs. We also know that the Highway Fund has been continually raided to fill past budget gaps. Again, if Augusta had better managed those funds then, we wouldn’t be trying to borrow money to patch our streets now.
This year’s annual budget crisis has been particularly painful because the downturn in the national economy has exposed Augusta’s self-inflicted fiscal wounds. Maine came up almost a billion dollars short of paying for what it spends with revenue generated in this state. That’s incredible for a state our size. The borrowing and budgeting gimmicks aren’t going to work anymore. We have to address these problems at a core level – and that means making the tough decisions about what services Maine should be providing and what we can realistically afford.
More Anti-Job Growth Legislation from Augusta
As Maine’s economy continues to lag, Augusta should be encouraging job creation by permanently reducing the cost and complexity of doing business in Maine. However, some in Augusta are again trying to make it even tougher.
Under current law, workers who are laid off but receive compensation for accrued vacation time must wait until that time expires before receiving unemployment benefits. The rule prevents people from “double dipping”, i.e. being paid for vacation and receiving unemployment benefits at the same time.
Last week, however, the House passed a bill that would permit workers to receive unemployment benefits before their accrued vacation time has been exhausted. By allowing workers to “double dip”, employers will have to bear the higher cost of unemployment benefits, which are funded through unemployment insurance. The result could be increased job loss and slower recovery of our private sector.
Maine already has one of the worst business climates in the country. It has a punitive tax structure and a regulatory system that is incredibly complex and costly. Last year, the legislature raised the sales tax and will soon attempt to make employer “sick pay” mandatory. Now, Augusta is trying a backdoor increase in unemployment insurance.
All this adds up to an even worse business climate in Maine. It sends the wrong message to employers who are already here and discourages potential investors from coming to Maine. In short, it is a job killer.
Our next Governor must bring a new, positive attitude toward business formation and job growth to Augusta. He or she must send a strong signal to the State House that this is the sort of legislation which dampens our prospects for prosperity and should be soundly rejected.
High Taxes Hurt Maine Businesses
The news that Bumble Bee Foods will be leaving the old Stinson Factory near Gouldsboro is incredibly disappointing. After more than 100 years of service, the owners of the old cannery announced they would be closing its doors for good in less than two months. Bumble Bee says they were forced to shutter the plant amid concerns over federal limits on catching herring. According to a spokesperson, the plant was no longer economically viable.
There’s no doubt federal regulations are a chief concern, along with the down economy. However, Maine’s punitive business climate also contributes to a company’s decision to stay or head for a more competitive business environment. Maine lays one of the heaviest tax burdens in the country on employers and workers. Complex and costly regulations take a bite out of every business dollar and sap precious resources that could go to help businesses grow. The cost of health insurance is driving employers to other states with more competition amongst insurers.
The Governor has vowed to do everything possible to fill the commercial space and has suggested there are companies looking at the opportunity. But if it’s tough just to keep the businesses we have in Maine, it’s even more difficult to attract new ones here. Though our state government spends an average of $200,000,000 per year on economic development, we get very poor results. Something else is going on.
To attract businesses and create jobs, we should first get our fiscal house in order. That means making the tough choices to provide only the state services we can afford and then lowering taxes to encourage economic growth. As long as spending remains out of control and taxes stay high, businesses will continue to move to more competitive states.
States Facing Economic Hardships Ahead
Over the weekend, the National Governor’s Association held its annual meeting to discuss the challenges the states face and the tactics governors might employ to resolve their respective issues. The news coming out of the meeting didn’t start off on a positive note:
On the recession’s front lines, governors are struggling to chart the road ahead for states staggered by unrelenting joblessness and cut-to-the-bone budgets even as Washington reports signs of economic growth. ‘‘The worst probably is yet to come,’’ warned Gov. Jim Douglas, R-Vt., chairman of the National Governors Association, at the group’s meeting Saturday. He called the situation ‘‘fairly poor’’ in most states, adding that it ‘‘doesn’t look too good.’’
This sentiment is a stark contrast to assumptions Maine’s state government made about the trajectory of our economy over the next year. The tactics Augusta is using have only deepened our problems. Already our elected officials have borrowed tens of millions of dollars from future budgets in the hope that things will turn around before long. Few now predict that will be reality. Our economy faces the very real possibility of staying sluggish for the foreseeable future.
The first step to getting back on track is to ask ourselves what services Maine state government should be providing its citizens. We can’t be all things to all people and expect our taxpayers and businesses to pay for it all.
The most glaring example is Maine’s Medicaid program, MaineCare, which has become a middle-class entitlement. In some cases, the program is two and a half to three times as generous as most other states. MaineCare was intended to help the most vulnerable. Now, many with middle incomes are receiving benefits. Programs like MaineCare should be brought in line with national averages, and be reformed so they are not magnets for individuals coming from out of state to take unfair advantage of our taxpayers.
Once we decide what we should be providing, we need to make the tough choices about what we can actually afford based on realistic revenue projections. Our current crop of elected officials have been making decisions based on a two- or four-year election cycle, which is why our budget is riddled with borrowed money, waste, and gimmicks like furlough days and a “payroll push”.
While we can’t change the legislature overnight, we can hire a competent manager as our next Governor who will appoint other professional managers to run government departments and agencies. It will send a strong signal to Augusta and the people of Maine,that our state will no longer follow business-as-usual. Mainers are demanding that experienced, qualified managers be put in charge of state finances.
And finally, when our fiscal house is in order, we should lower taxes on families and businesses. This will provide a direct incentive to all Mainers – employers and workers – to stay in Maine, raise their families, and build their businesses here.
Most families and successful companies adhere to similar principles of fiscal responsibility. Our state government should be making the same responsible choices.
Washington Preventing Reform of Programs
One of the largest problems facing our state is the need for better management of our social service programs. Solving this problem is certainly daunting given the current economic and political landscape. The downturn in the economy has increased the number of people looking for assistance, and handouts are the currency that keeps politicians in business. The prospect of Augusta reforming a system in such deep financial trouble is remote.
However, a few recent articles show that Washington has as much, if not more, responsibility to bear for our dilemma as Augusta.
This week, the Portland Press Herald reported that Maine has spent more than $617 million in federal stimulus money, the majority of which has gone to MaineCare - Maine’s Medicaid Program - unemployment benefits, entitlements, and other social services. The Bangor Daily News reported last November that because Maine took stimulus funding to cover these social programs, Washington can severely limit our ability to reduce spending or make significant structural reforms.
In short, even if our state legislature could agree on what to cut, the federal government has prohibited them from doing so without losing federal funding in other areas. The primary weapon wielded by the federal government is last year’s stimulus bill, the American Recovery and Reinvestment Act, which passed by just one filibuster-proof vote in the U.S. Senate.
Reducing what Maine spends on our social service programs to national averages would be a major step toward getting our fiscal house in order. It would reduce the incentive for people outside Maine to take advantage of our generous taxpayers, and ensure a reliable safety net for those who truly need it. Unfortunately, the politicians in Washington have severely limited the ability of Maine’s next Governor to make the necessary reforms.
Mainers are a big-hearted, fundamentally decent people. We have a small enough population that fixing our problems shouldn’t be as tough as other states. With better management of how we provide essential social services, we will reenergize Maine’s independent spirit. We don’t need Washington standing in the way of that goal.
More Budgeting Gimmicks from Augusta
The current administration announced last week a plan to borrow $3 million from next year’s budget to restore “longevity pay” – automatic raises to workers who have been in state government for more than 15 years.
Well, that’s not exactly what they announced.
In political-speak they announced something called a “payroll push”. It’s a budgeting gimmick that “pushes” $3 million in payroll costs on to next year’s budget in order pay for the automatic raises this year. The administration is claiming this financial shell game “results in a net savings”. That doesn’t pass the laugh test. Taxpayers aren’t saving anything. The payroll checks will still go out as planned. The administration is borrowing from future budgets to pay for the raises.
Apart from being another example of poor fiscal management, it also highlights two additional problems with business-as-usual in Augusta. First, the budget gimmick is intended to hide the real purpose of borrowing the money. In effect, the administration is borrowing money to pay for the automatic raises, but they call it a “payroll push” to give the appearance that it’s about covering the cost of current salaries. That’s dishonest.
Second, it’s an obvious political payoff to a favored constituency. Rather than stand up for what’s best for the long-term prosperity of all Maine citizens, administration officials are bowing to political pressure applied by a group of preferred individuals.
Such examples only strengthen the call for proper management of our state. Good private-sector managers approach these financial issues in a way that career politicians from Augusta or Washington do not. Skilled managers are focused on the success of the overall enterprise and not just what will make their friends happy. Only an experienced and competent manager can provide the leadership and long-term vision - free of political calculations - that will build a prosperous and sustainable economy in Maine.
If the Governor is serious about saving money by cutting payroll, perhaps he should start at the top.
Maine’s Next Fiscal Crisis
Even if our state legislature somehow finds the will (and the money) to close a $438 million budget hole this year, a much greater fiscal challenge lurks just over the horizon. Maine tax payers owe more than $8 billion in unfunded liabilities from just two programs, the State Employees’ Retirement Fund and the Retiree Health Plan.
While there’s no such legal mandate for the Health Plan, the Maine Constitution requires the Retirement Fund be fully funded by 2028. As a result, our state government must escalate its annual payments from approximately $200 million this year to $700 million by 2015, based on the most recent actuarial projections.
Right now, the Health Plan – which comprises almost two-thirds of the total unfunded liability – has essentially no money to invest and grow and help pay down its “mortgage”. Current health benefits for state employees are being paid year-to-year “out of pocket” from the General Fund. The Governor recently raided a $70 million deposit that was earmarked for the Retiree Health Plan and, instead, used the money to address the current budget crisis. According to the actuarial data, payments of roughly $100 million per year for the next 25 years are required to make the system solvent.
Our state government is facing the very real possibility of having to find almost $1 billion per year to prudently fund these two programs in the near future. Worse, there is little evidence of any kind of management plan to deal with this fiscal threat. Hardly anyone in Augusta is even talking about it.
As I continue to travel the state and meet with voters, this kind of gross fiscal mismanagement has Mainers shaking their heads. How have our politicians created such a financial mess? Who’s been minding the store?
Now more than ever, Maine’s next Governor should be a competent manager who not only understands these difficult fiscal issues, but who also has the experience to successfully deal with them. Career politicians from Augusta and Washington have shown they are unwilling to address these issues until it’s too late. Maybe they’re too busy looking at the next election. The voters of Maine have an opportunity to elect a Governor with the qualifications to put our fiscal house in order, and move Maine closer to building long-term prosperity and creating jobs. They should take it.
Video: “In and Around Augusta” Interview
I’ve just posted a recent interview with Connie Brown on “In and Around Augusta”. It runs roughly 20 minutes and allows me a chance to delve deep into the economic and fiscal challenges our state faces. I would appreciate any feedback you might have about the interview.
In other media news, I’ll be on WLOB’s morning show with Ray and Ted on Monday, February 15 at 7:15 am. I hope you are able to listen in.