Maine’s good name — our credit rating — is at risk, and along with it our ability to build a stronger economy.
In February, Fitch Ratings Inc., one of the most influential credit rating agencies, changed its outlook for Maine’s creditworthiness from “stable” to “negative,” putting the state on notice that our high AA+ rating is in danger of being downgraded. Fitch warned that their rating “is dependent upon the state’s ability to … meaningfully rebuild reserves depleted during the recession.”
Unfortunately, the Legislature’s Appropriations Committee is considering a bill, LD 849, that would jeopardize Maine’s credit rating by doing the very thing Fitch warns against.
The state’s credit rating drives our ability and cost to borrow for investments in roads and bridges, water systems, telecommunications, schools and research centers, and other public assets on which our economy depends. These are crucial investments that create jobs and a more competitive business climate.
The higher our credit rating, the lower our interest rates. Maine always has maintained strong credit ratings because of our low debt ratios and rapid repayment of general obligation bonds relative to other states. We pay in 10 years where other states take twenty. Maine’s historically good credit rating is in danger if lawmakers give final approval to LD 849.
Credit rating agencies such as Fitch, Moody’s and Standard & Poor’s evaluate Maine’s financial management practices and assign a credit rating. That rating tells the world whether the state is a good credit risk. Just like when you apply for a loan and your banker looks at your personal credit score, if your score is low, you either can’t get a loan or you pay more in interest.
Rating companies like stability and predictability. As with a home loan, they want to know that the state can pay off its debt (sufficient income to meet needs), that it has collateral for emergencies (reserves), and that it takes care of what it already owns (roads, bridges, buildings in good repair). But LD 849 would drain state revenues, making Maine unable to cover its obligations, and deplete state reserves.
Combined with deferred maintenance on much of the state’s infrastructure, LD 849 will make it very difficult if legislators want to maintain or improve the state’s credit rating.
LD 849 would reduce the amount the state puts into reserves at the end of the year and use that money to lower income taxes permanently. This immediately raises red flags for the rating agencies. Rating agencies don’t like “time bomb” tax cuts such as those being proposed. In September 2011, Moody’s pointed out that “tax changes leading to revenue reductions leave [Maine] vulnerable.” Lowering tax rates without a plan for how to replace lost revenue, as was done last year and is proposed in LD 849, is a poor way to do business.
Faced with lost revenue, there are two alternatives — cut services such as police protection, snowplowing and education, all of which threaten our families’ safety and make it harder for our kids to get good jobs; or shift the cost of providing these vital services to property tax payers. Either way, Maine loses.
Gov. Paul LePage has said repeatedly that the state can’t afford to finance construction needs and other economic investments, but the credit rating agencies disagree. In fact, they consider maintaining physical infrastructure to be good financial management. To do otherwise creates a backlog that the state never will be able to erase and undermines budget stability and predictability.
Standard & Poor’s said in an October 2011 credit report for Maine, “We view the lack of a formal and detailed capital planning process as a constraining factor,” meaning Maine does not do a good job of anticipating and meeting our needs for roads and bridges, clean drinking water and modern schools. The governor’s refusal to issue bonds is an extreme case of poor planning, particularly when interest rates are at historic lows and our ability to borrow is well-documented.
Maine cannot afford LD 849. It is a risky proposal that will undermine the state’s credit rating, resulting in higher interest rates and ultimately higher costs to taxpayers. It will jeopardize our ability to provide basic public services on which families and businesses rely. It will erode the quality of our schools, transportation system, communications network and other job-creating assets.
Instead Maine should take every opportunity to build its reserves and make badly needed improvements in roads, utilities, education and other key ingredients of a strong economy. It took decades to build Maine’s solid financial reputation. Let’s not ruin it with LD 849.
Jody Harris is a policy analyst with the Maine Center for Economic Policy.
Maine Center for Economic Policy is a liberal think tank, and the thoughts of this spokesperson do not seem to be on cue with the truth.
Whose “truth”? Are you saying the credit rating agency is lying?
Possibly the foderall she has espoused based upon her world view of the facts.
She was referencing a study not just her opinion!
This is the same think tank during the King and Baldacci years that used to have them send Kit St. John over to the state house. So he could have press briefings with King and Baldy telling us that having huge spending on Welfare is huge economic growth for Maine. Just more BS from these guys wanting us to continue the failed policies of the Democrats. That we should be continuing to borrow, tax , spend and grow Welfare to have Mainers be prosperous that businesses and jobs are bad for Mainers.
Maine has a spending addiction. You don’t cure an addiction by supplying a new batch of the same addictive substance. Maine needs to learn to stay within its budget. No more bonds!
The LePage / Tea Party policies will be a train wreck that will destroy Maine’s future. Government / public finance is not the same as “sitting around the kitchen table” as politicians like to say. That’s a good slogan, but a government is a business – it has options people do not.
LePage claims to be a businessman. Well, if he is, then he should know that you do not upset your bankers or weaken your business to the point you cannot get capital. But, he clearly missed this lesson and is intent on turning Maine into a backwater economy. Vote democratic!
“Vote democratic”. Only vote Democrats if you want to return to the destructive policies of the past. Liberals want to return to the policies of the lazy man because that way they can get all the entitlement handouts they want. Let’s reward folks who are too lazy to get away from the tv , the computer and the junk food. Let’s continue to punish Working Mainers and Business Folks those of us who go to work everyday and do things honest who don’t run to the Welfare, LIHEAP office etc. wanting everyone to feel sorry for them. I don’t think so. The Democrats are lucky they didn’t bankrupt this state with their agenda. They got it in such a mess its likely going to take more than 20 years to fix the problems they go this state in.
It’s his fiscal responsibility that will save the states economic standard , not ruin them. I don’t quite get where you get this opinion laden statement from.
“LD 849 would reduce the amount the state puts into reserves at the end of the year and use that money to lower income taxes permanently.”
If the problem is that the state does not have enough reserves, then cut spending further and put the money in the states piggy bank. Problem solved.
Hhmm,how about we reduce spending? Live within our means. Goverment should spend less when the economy is in a downturn..not spend more. Look what easy money has done to our college system..priced it out of sight. There is enough waste in our state goverment to offset the minor reduction in tax revenue this bill would affect. And, while they are at it, we should be charging a fee to all non-proffits based upon the number of paid employees for the use of all goverment services.