A week after its presentation by Gov. Paul LePage, legislators are still trying to digest the administration’s first biennial budget. For the most part, LePage is doing exactly what he said he would.

He’s trying to sharply rein in state pension costs, in accord with his belief that the unfunded liability in the system is far too high to be paid off by the 2028 constitutional deadline. But he is not making further significant reductions in the state workforce, and he’s ending state shutdown days.

He’s making an effort to maintain education funding, filling in most, though not all, of the gap left by the end of federal subsidies. He wants to end public benefits for legal immigrants, eliminate health insurance for low-income adults, and tighten eligibility for general assistance.

He’s proposed a significant package of tax cuts — $200 million over two years – that focuses on reducing the top income tax rate.

You can agree or disagree with these priorities, but all are broadly in line with the traditional Republican philosophy of fiscal prudence, self-help, and support for education.

On pensions, current state employees and retirees will take a big hit, paying an additional 2 percent of their salaries for retirement, and see cost-of-living pension adjustments eliminated. Those features are controversial – increasing the standard retirement age to 65 less so – but they are a rational response to a system that’s under funded, even if it’s in better shape than many other states.

Where LePage gets onto shaky ground is his position on borrowing. He doesn’t like it. He hates it, in fact, and is willing to carry this campaign to unprecedented levels.

The governor’s budget provides zero dollars for the transportation bond issues voters have approved regularly since the 1960s. In recent elections, voters said yes to $119 million in transportation bonds for 2009-2010. They also approved $113 million for 2007-08.

Since fuel tax revenues – the other major source for road projects – are projected to rise only 2.7 percent, and LePage also wants to stop indexing the tax to inflation – this means there will be $100 million less invested in the transportation system. That’s an 18 percent cutback. The new Transportation commissioner, David Bernhardt, says he’ll continue to look for operational efficiencies, but there’s no way they’ll bridge this funding gap. Unchanged, LePage’s plan means fewer construction jobs, continued deterioration of roads, and a “stay away” signal to transportation-dependent businesses looking at Maine.

The Legislature will not act for months on bond issues – there are many in the hopper, some sponsored by Republican committee chairs. While Senate President Kevin Raye says there will be no bonds if the governor doesn’t want them, the reality is that two-thirds votes are required, making them immune from a gubernatorial veto.

The administration has already upped the ante, however, by killing a $31 million bond package for the Maine Health and Higher Education Facilities Authority, which offers financing for hospitals, colleges and universities. These bonds are not the general obligation measures that require voter approval.

But LePage, backed by state Treasurer Bruce Poliquin, nonetheless insists a default by a borrower might trigger a state bailout – a speculative position no court has ruled on. Nonetheless, the governor said no, and all these projects, and the jobs they represent, will be scuttled.

LePage and Poliquin are not wrong to be concerned about debt, but they seem confused about what different categories mean. The unfunded pension liability, for instance, is an obligation to pay a difficult-to-determine amount in the future, based on things like retiree health and stock market performance. General obligation bonds, like transportation, raise money for the state now and are repaid at a fixed rate over 10 years. There’s no mystery or uncertainty.

Maine has a high credit rating, and its bonded debt, both as a proportion of the state budget and the state economy, has been declining for years. There’s no problem, unless you try to lump every state debt together and cry, “Fire!”

Since bridges last for 80 years and reconstructed roads at least 35 years, it makes perfect sense to borrow for them. Paying cash for everything is like trying to buy your first home without a mortgage, or your first car without an auto loan. In that scenario, most first-time homebuyers would be in their 50s, and young families with kids that need the space would all be renting.

Surely the governor understands this, yet he’s acting as if the fiscal sky is falling. If he’s trying to create jobs and attract out-of-state companies to Maine, it’s hard to see how this helps.


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