LEWISTON – Investor uncertainty created by a potential tax cap will cost the city $153,125 in its latest municipal bond sale.

The 1-percent tax cap question on the November ballot forced the city to buy bond insurance for the first time, said City Administrator Jim Bennett.

“I just think it’s ironic that this is supposed to help taxpayers, and it’s already costing them money,” Bennett said.

Other cities have not yet followed suit.

Bob Lenna, executive director of the Maine Municipal Bond Bank, said he has not heard of other Maine cities having to buy insurance to get a good credit rating. The bank handles bond sales for many Maine municipalities.

“Like most markets, the bond markets don’t like uncertainty and a referendum like this creates uncertainty,” Lenna said. “And it’s true in most things like this: You pay when things are uncertain.”

Mike Starn, spokesman for the Maine Municipal Association, said Lewiston’s move was a first for him.

“As of yet, we have not heard anything,” he said. “It’s interesting, however. It’s interesting that it’s not even law, it’s not even been voted on, and it’s already having an impact.”

City finance directors in Portland and Augusta had not purchased insurance for their bond sales, they said Tuesday.

The city of Bangor sold its municipal bonds just weeks before Lewiston and also bought bond insurance, said Finance Director Debbie Cyr. The city regularly insures its bond sales, however, and didn’t act in response to the tax cap.

“It was just general purpose,” Cyr said.

Auburn might have to consider insurance when it sells its municipal bonds later this summer, said Acting Finance Director Laurie Smith.

“We don’t want to add another expense if we don’t have to,” Smith said. “We’ll do whatever is required. We haven’t really thought about this.”

Paying for credit

Lewiston’s $21.3 million bond issue includes money to pay for work at the city’s Southern Gateway project and at the Bates Mill Enterprise Complex, in addition to annual road work and capital projects.

Lawyers hired by Lewiston to review the bond package said the city would need insurance to keep a good bond rating. Bennett said the cost of the insurance would simply be included in the other costs of the bond.

“That’s $153,000 we could be doing something else with,” Bennett said. “I can think of a lot of things we could do with that money.”

Bond rating agency Moody’s most recently gave Lewiston an “Aa3.” That’s one of the top four ratings given by the agency and the fourth year running that Lewiston has earned it.

This year’s bond package contained a two-page explanation of the proposed property tax cap and how it might affect the city’s finances.

The cap would allow cities to levy only $10 in property taxes per $1,000 of value, based on 1997 assessments. Bennett assumes Lewiston would have about $12.6 million in property tax revenues to run the city and the schools, if the tax cap passes. By comparison, the fiscal year 2004-05 budget calls for about $40 million in property tax revenues.

State suffers

State Treasurer Dale McCormick said the tax cap and last month’s referendum vote have lowered the state’s credit rating. Standard & Poor’s downgraded the state’s $130 million bond package two weeks ago, from a “AAA+” to “AAA,” based partly on the tax cap.

“In other states where this has happened, there has been pressure on the state government to fill the needs-gap for the cities,” she said.

The state’s bond rating downgrade was also based on the referendum voters adopted this month requiring the state to pay 55 percent of education costs and on the state’s negative general fund balance, McCormick said.

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