Maine pushing $97M in state bonds

BANGOR – At a time when people remain skeptical about where to invest their money, the state is offering some financial advice – buy a Maine bond.

For two days, Friday, June 6, and Monday, June 9, state treasurer Dale McCormick will be conducting a sale for Mainers only, putting $97 million in bonds on the market for residents to buy. Mainers typically buy one-third to one-half of the bonds sold during the annual sale. What’s left will be made available to individual and institutional investors out of state on June 10.

The smallest bond is $5,000, and the estimated return of 3 to 4 percent on most of the bonds is exempt from state and federal taxes for Maine residents.

“This makes the interest rate feel like it’s approximately 2 percent higher than the interest rate shown on the bond,” McCormick said.

The general obligation bonds are issued in series of yearly increments up to 10 years.

Maine bonds have been available for purchase for years, McCormick said Tuesday, but this year the state is taking extra steps to promote them by advertising the sale on its Web site at www.state.me.us/treasurer. On the Web site, McCormick lists 25 financial institutions where the bonds can be purchased.

“For the first time ever, I’m trying to make it easier to buy a Maine bond,” she said.

Why? Because the state believes it’s a good investment. Three financial analysts, however, are split on whether a Maine bond is a good place to sock away money.

It all boils down to whether the individual investor is comfortable with the rate of return, according to McCormick and the analysts.

“The interest rate that people will get, what I will pay them, is going to be somewhere between 3 and 4 percent,” McCormick said. Compared to stocks, which cumulatively lost more than 6 percent last year, bonds are a safe haven, she said.

But one Portland-based analyst, who asked not to be identified, said that because of the recently signed federal tax-cut law, stocks are becoming attractive again and shouldn’t be ruled out in favor of bonds. He said investors could get a higher yield by purchasing common stock in good, solid companies.

Under the law, stock dividends will be taxed at a maximum of 15 percent, down from the maximum of 35 percent. And if share prices rise, the capital gains will be taxed at a maximum of 15 percent, down from 20 percent.

A recent analysis by Washington Post columnist Albert B. Crenshaw shows bonds as a “loser” under the new tax-cut law. Interest income “gets no break” under the law, he wrote on June 1, “so investors choosing between a bond paying 3 or 4 percent fully taxable and a stock paying a dividend of 1 or 2 percent taxable at only 15 percent may find the shares, with their potential for appreciation, more appealing.

“Municipal bonds may fare even worse,” Crenshaw said. “They pay lower interest because they are tax-free, but now investors are looking at a choice between no tax on a muni and 15 percent on a dividend rather than between no tax and 25 to 35 percent.”

Alan Day, the chief economist for Banknorth Investment Management Group, said he believes bonds remain safe because they are free of taxes on the state level and they have a rate of return already attached to them. Stocks, however, are speculative, and investors run the risk of choosing the wrong company.

McCormick said she is confident most of the bonds will be sold during the days of the sale, and so is the Portland analyst who is promoting stocks these days. The state has a AA-plus bond rating, pays off its bonds within 10 years instead of 15, like most states, and keeps the amount of bond indebtedness to less than 5 percent of annual general and highway fund revenues, McCormick said.

If all of the bonds are not sold, the senior underwriter, UBS PaineWebber, will buy them and sell them slowly over time, she said.

“There’s not very much left, usually,” McCormick said.

After the $97 million sale of bonds, and the retirement of nearly $100 million in bonds, Maine’s bond indebtedness will be 4.04 percent of annual state revenues, McCormick said, “which is very low.”

The Portland analyst agreed that Maine bonds have always been attractive to investors.

“The bonds will get sold one way or the other,” he said. “There’s much more demand for bonds than what’s available.”