In rebuttal: Governor's plan the best option

I am writing to address some statements made by Douglas Rooks in his column, “Hospital payback battle is sideshow to the main event: implementing Obamacare,” published March 17.

Rooks criticized Gov. Paul LePage’s plan to pay state bills to Maine hospitals with a revenue bond tied to the state’s liquor contract, saying it required borrowing to pay off the debt and complimented the Democrats’ plan for front-loading years of liquor payments to the state.

Rooks apparently does not understand the mechanism by which the governor’s plan would use the long-term cash flow of the liquor contract to collateralize the debt, a process known as defeasance.

The advantages of defeasing the debt include much lower borrowing costs and the debt would not appear on the state’s balance sheet, which would protect Maine’s credit rating. This is a widely used and highly respected financing mechanism utilized by pension funds, insurance companies and a variety of other large investors. It is likely that the revenue bonds would be issued with a 3-4 percent interest rate.

The alternative plan calls for the winning bidder to make an upfront $200 million payment to the state. Rooks feels that is a better deal for Maine. Perhaps he did not hear the testimony of those investors who would be asked to front the $200 million.

Those investors will also require a return on their investment. The last liquor contract is revealing, as the return on equity to those investors was in excess of 25 percent. Maine taxpayers can ill afford to pay the difference of more than 20 percent on a $200 million advance over 10 years.

Rooks further argues that implementing Obamacare is the real issue here and, surprisingly, he may be right. However, he seems to misinterpret the administration’s position. The Republican position on the Department of Health and Human Services budget has been consistent: we must live within our means.

Rooks calls Obamacare “fully funded” when, in fact, the federal government is borrowing 30 cents of every dollar spent and has a $16 trillion debt.

That is nothing short of ludicrous. The fiscal responsibility we demand in Maine needs to be demanded of the federal delegation.

The governor is in negotiations with the federal government regarding expanding MaineCare. It would be irresponsible not to negotiate on behalf of the citizens of Maine. And while this may run contrary to what he had previously stated, the governor is known as a very tough negotiator. I expect that he may be discussing all those expansions to MaineCare that Maine has previously made, and asking what the federal government will do for us.

I would not have it any other way.

Rep. Richard Malaby, R-Hancock

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Comments

CLAIRE GAMACHE's picture

Defeasance

Is that how our pension funds were ripped off for $73 trillion dollars in the financial meltdown of 2008? The problem with borrowing against future liquor sales is that the Maine taxpayer still owes the money if the governor's guess that we will be buying much more liquor in the next ten years turns out to be wishful thinking. He will be gone and we will be holding the bag. Why saddle the Maine taxpayer with all the risk? So the governor's friends can win the contract? " A bird in the hand is worth two in the bush" ;so they say. And this is borrowing to pay off a debt. It will in no way help to grow the Maine economy or the State of Maine general fund. Whereas borrowing to modernize our infrastructure would create jobs and generate tax dollars. And for the life of me I cannot understand why the legislature would give precedence to the governor's bonds over the ones that are already approved by the Maine voters.

Jason Theriault's picture

Ok, no

I generally don't side with LePage, but I don't see any issues with his plan.

Yes, we take more of the risk, but the problem with requiring the companies to come up with 200 million is that it kills who can bid on the contract, and it forces all the pieces to be lumped together instead of being able to get the best bids for distribution and warehousing, ect... So smaller Maine companies can't get in on the aciton, and you more or less limit it to the current company. And I bet we will do just fine with the liquor sales. And by keeping the risk, we also stand to make out if it does as well as it has, instead of the company running it.

Of course this will help the economy. Dumping almost half a billion dollars into the hospitals will allow them to expand, hire people and maybe even lower rates. They have been delaying improvements and expansions that will directly lead to new jobs.

I don't agree with holding up bonds, but I think you pass his plan, and then get the bonds out, and everyone wins.

The conflict on this seems silly.

Jason Theriault's picture

Really

Just want to point out that in the first paragraphs arguing against "Obamacare", you say:

Rooks calls Obamacare “fully funded” when, in fact, the federal government is borrowing 30 cents of every dollar spent and has a $16 trillion debt.

That is nothing short of ludicrous. The fiscal responsibility we demand in Maine needs to be demanded of the federal delegation.

Yet, the VERY NEXT SENTENCES talk about how LePage is doing a good thing negotiating for it to be funded by the fed for a decade!:

The governor is in negotiations with the federal government regarding expanding MaineCare. It would be irresponsible not to negotiate on behalf of the citizens of Maine.

Which is it?!? Is it ludicrous to implement "Obamacare" on the Federal Credit Card because of their mounting debt, or is it irresponsible to not try for seconds at the Medicaid buffet, getting the feds to pick up the tab???

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