Let’s clear up a couple of things about private activity revenue bonds. And let’s try to do it with facts, rather than opinions that create a problem that doesn’t exist.
The story in the Sun Journal about Gov. Paul LePage's plan to halt bond packages for hospitals and colleges shows how opinions and facts can become confused. Gov. LePage’s spokesman is quoted as saying about independent agency bonds: “'The state Constitution is clear’ when it comes to bonds ... no loans larger than $2 million can be issued without voter approval.”
Well, the Supreme Judicial Court of the state of Maine disagrees. In fact, in the 1971 court case Maine State Housing Authority versus Depositors Trust Company, the court says, quite clearly, that the debts of MaineHousing (and this would be true for the other independent agencies) are not debts of the state. It also states that independent agency bonds are not required by the Constitution to go to the voters because they are not on the hook for paying them back. The court clearly has already ruled on the Constitution and it does not agree with the governor’s opinion.
Later, the governor’s office says “What drives the lower interest (rate for independent authorities) is ‘Maine’s good credit rating’.”
Well, actually, the opposite is true.
MaineHousing, for example, has a better credit rating than the state. In fact, MaineHousing is rated as a stand-alone entity, meaning it asks to be rated without considering its relationship to the state. Why? Simply put: The state’s lower credit rating would actually drag the agency down.
I’ve heard it said that these authorities need more oversight. Considering that they are all in better financial shape than the state, I wonder if we should set other priorities before questioning these highly rated entities.
I can’t help but think the new administration is attempting to politicize the work that these independent agencies do.
These agencies are independent of the state so they can operate more like the private sector and with as little political influence as possible. They are responsible for their own operations. They do not rely on the state. MaineHousing, as the example I know best, pays no salaries and no operating expenses with state money. It earns a spread through its lending practices or is paid fees by the federal government to run federal programs such as LIHEAP and Section 8.
The agencies at issue were created decades ago to achieve a public purpose using private methods. The only other choices are to spend taxpayer money to help home buyers, renters, hospitals, colleges and universities, towns and students, or to not assist them at all. Are either of those good for the Maine economy?
MaineHousing’s First Time Homebuyer mortgages are made by more than 30 banks and credit unions throughout the state. Those MaineHousing mortgages are always available and account for about 10 percent of all mortgages made on homes costing less than $275,000 — about 1,000 MaineHousing mortgages per year. That averages out to $120 million of single family mortgages each year.
Now it seems the governor could stop them completely.
Multifamily mortgages and the associated subsidy programs are run by open competition. In the past decade, MaineHousing has funded the construction or rehabilitation of 3,500 units. The National Association of Homebuilders estimates that 1.16 jobs are created for every unit of rental housing constructed. That’s a lot of jobs. MaineHousing has funded 250 or more units per year in the past few years. Can the construction industry in this state stand to lose that many jobs?
It seems everyone loses with the governor’s position on independent agency bonds. Maine people in general, but especially students, contractors, Realtors, banks, credit unions, developers, hospitals, colleges, universities, municipalities, businesses looking for loans ... the list goes on and on.
And what does it solve? A problem that doesn’t exist.
Investing in the future is prudent and makes good economic sense. It may make a better sound bite to say that everything will be paid for with cash, but how many of us could have bought our homes without a mortgage?
There is an appropriate place for debt. Maine is a leader in many areas nationally. Being the first to stop investing in the future should not be the next “first.”
Carol Kontos is an associate professor of English at the University of Maine at Augusta, the former Senate chairwoman of the Legislative Committee of Oversight for MaineHousing and the Finance Authority of Maine, and the current board chairperson of MaineHousing.