Saying it’s not OK to use the state’s name without approval from voters, Gov. Paul LePage has refused to approve a $31 million bond package for hospitals and colleges.

Without his signature, the bond package can’t go forward. That’s leaving some, including Franklin Memorial Hospital, scrambling to find other financing.

At issue is the Maine Health and Higher Education Facilities Authority, a little known, quasi-state agency that oversees low-interest loans for nonprofit hospitals and educational institutions.

Through MHHEFA, hospitals and colleges access tax-exempt, low-interest bonds for capital improvements. The agency has operated for 20 years, has sold bonds for 80 different hospitals and colleges without any defaults, Robert Lenna, executive director of MHHEFA, said.

“There is no federal or state statute or regulation that requires state taxpayers to pay any money on these bonds in case they were defaulted,” Lenna said.

If a number of hospitals or colleges got into financial trouble and defaulted, the agency has a reserve fund of $120 million. That fund would make the payments for a year, Lenna said.

Then a request would be made to the Legislature that the reserve fund be resupplied. “There is no legal responsibility that lawmakers vote yes, they just need to vote, Lenna said.

“Bates College has borrowed through this program. All the hospitals in the area, Central Maine Medical Center and St. Mary’s, have used this program,” Lenna said, adding they save money because they get lower-interest bonds for 30 years.

On today’s market with MHHEFA’s AA credit rating, they can get a 30-year loan for 5 percent interest. To get a 30-year loan through the banks would cost 7 or 8 percent, he said.

LePage is calling for voter approval.

“As a voter and taxpayer you have only had a say on about $500 million in general obligation bond questions on the ballot” out of Maine’s total debt of $12.9 billion, LePage said on his Feb. 19 weekly radio address.

The remainder of those obligations “is the result of promises made but never paid for,” including unfunded pensions, retiree health costs and bonds from “quasi-governmental authorities you have never heard of,” LePage said.

On Tuesday, LePage spokesman Dan Demeritt said, “The state Constitution is clear” when it comes to bonds. Taxpayers have a “moral obligation,” and no loans larger than $2 million can be issued without voter approval.

“The moral obligation may not mean the state is legally responsible, but if that debt is unpaid, it impacts the state’s credit rating,” Demeritt said. “The governor is not saying these projects are not worthy, he’s saying the Constitution is clear.”

What drives the lower interest is “Maine’s good credit rating,” Demeritt said. “Everybody in the world knows the people of Maine are not going to let this bond go unpaid.”

LePage is willing to work with hospitals and colleges to help them finance a worthy project, Demerit said. “He’d be OK with it if it were approved by voters,” he said. The Treasurer’s Office is meeting Wednesday to talk about it.

Rebecca Ryder, president of the Franklin Community Health Network, which includes the Franklin Memorial Hospital in Farmington, said her organization was counting on financing two projects that were in the bond package.

One is a $1.6 million project relocating the Farmington Family Practice to the hospital campus. The other is a $4 million medical office building in Livermore Falls offering primary care, outpatient radiology, physical therapy, behavioral health counseling and women’s health services.

“We’re moving forward with both projects,” Ryder said Tuesday. “Our finance committee has met and asked us to seek alternative funding,” including talking to banks.

The MHHEFA would have been less costly, she said, adding it’s a challenging situation. “We’re responding as best we can.”

Also getting no gubernatorial approval for bonds is the Maine State Housing Authority. Executive Director Dale McCormick said her agency is in the same boat. It too uses the state’s name to get lower-interest loans to pay for low-income or affordable housing.

Those bonds don’t require voter approval, but do need the governor’s signature.

“The same rule applies, he is not going to sign” without voter approval, McCormick said.

If Maine voters were asked to approve a bond for housing in Bangor or Lewiston, “it would be a crapshoot” to see if voters statewide would approve.

Like MHHEFA, “we have money to cover” in case of default, McCormick said. The Maine State Housing Authority creates millions of dollars of economic development, she said. “What’s so frustrating about this is we’re a big player in the Maine economy.”

She added that bonds on the ballots are general obligation, and bonds her agency use are moral obligation.

If the moral obligation bonds were treated as general obligation and approved by voters, voters would become liable, McCormick said.

bwashuk@sunjournal.com