RESERVE FUNDS

A proposal from Republican state lawmakers to use some of the state’s unexpected surplus to reduce the size of a proposed bond issue provides opening to conversations over the borrowing package. However, rather than claiming surplus money for needed projects, lawmakers should re-evaluate what items in the bond issue need immediate funding and what can wait a year. Putting off those that can wait will shrink the size of the package without dipping into the state’s reserves.

Republicans have long said they would not return to the State House this summer to debate a bond package unless it is much slimmer than what the governor has proposed. Gov. Baldacci pared his initial $100 million proposal down to a $55 million. Republicans want something in the range of $30 million to $40 million.

Earlier this week, Rep. Richard Rosen of Bucksport, the senior House Republican on the Appropriations Committee, proposed a way to bridge this divide. He suggested using some of the state’s unappropriated surplus to pay for items in the bond proposal, such as a portion of the construction of a new Waldo-Hancock Bridge. This, he reasons, will make for a smaller bond, which is more palatable to his colleagues.

Most of the surplus money, now expected to top $60 million, is already allocated. Under a statute passed last year along with the biennial budget, 32 percent of such a surplus must go toward paying down the unfunded liability of the state retirement system and an equal amount must go into the budget stabilization fund. Another 16 percent would go into an operating capital reserve fund within the General Fund and 20 percent would go to programs that were initially cut but lawmakers thought deserved funding if more revenues turned up. If anything is left after lawmakers re-fund these programs, it goes into an unappropriated surplus fund where it will sit until the Legislature decides what to do with it. It is expected that between $5 million and $8 million will be left over when the accounting for the fiscal year that ended June 30 is complete.

Devoting excess revenues to paying down the state’s retirement debt and setting aside funds for hard times makes sense. In fact, Maine has been put on notice by several bonding agencies that its reserves are too low. In May, Standard & Poor’s dropped Maine’s bond rating by a notch from AA+ to AA. As a result, Maine stands to pay more in interest on the $130 million in bonds it had up for sale then. The reason for the downgrade was depletion of the state’s reserves, which weakened its ability to re-pay bonds.

This doesn’t mean the state should not take on new debt. However, it should be prudent about what it borrows money for. With this in mind, lawmakers should seek ways to both craft a smaller bond package and build up state reserves.