Baldacci, bonding house to meet Effort aims to preserve state’s financial rating

AUGUSTA – Gov. John E. Baldacci and his top financial officers hope to raise Maine’s profile on Wall Street next week as the state prepares to make a case for maintaining its current bond rating.

Already on a watch list for a potential bond rating downgrade by Moody’s Investors Services, the state risks paying higher interest rates on the money it borrows if the Wall Street bonding house takes the next step and lowers Maine’s Aa2 rating.

The governor also will take advantage of an invitation by the New York Stock Exchange to ring the opening bell Monday to officially begin the day’s trading at 9:30 a.m.

“When I’m down there Monday, I’ll be ringing the bell for Maine and highlighting the publicly traded companies that are on the NYSE with headquarters in Maine,” Baldacci said. “I’ll be reviewing many of the challenges before us and steps we’ve taken that have helped us to end the [fiscal] year in the black and pay for education.”

Mainers with access to CNBC television can watch the governor participate in the ceremony and should plan to tune in a few minutes before the event.

Baldacci will be joined by Maine native Michael Federle, publisher of Fortune magazine; Mike Dubyak, president and CEO of Wright Express, one of the state’s largest technology-focused companies; and Maine State Treasurer David Lemoine. All will send investors a message that Maine is experiencing success in its transition from a state reliant on traditional industries to one “poised for business growth,” particularly in high-technology areas.

Later in the day, the governor and state treasurer plan to meet informally with several bonding house representatives to discuss the administration’s plans for bringing greater stability to state finances. A formal meeting with Moody’s Investors Services on the state’s bond rating is scheduled for Wednesday and will be led by the governor’s chief financial officer, Rebecca Wyke. Baldacci plans to participate in the meeting by way of an interactive telecommunications link. He will remain in Maine to deal with the potential inclusion of a military base in Maine on the base closure list expected to be presented next week to the U.S. Department of Defense Base Realignment and Closure Commission.

Face-to-face meetings between bonding company representatives and a state’s chief executive sometimes can make the difference when a bond rating is determined, and Baldacci plans to make the most of his swing through New York on Monday.

“It will be sort of a one-two punch prior to Wednesday’s meeting [with Wyke],” Baldacci said.

Last month, Nicole Johnson, senior analyst and vice president at Moody’s Investors Service in New York, said the state must devise a plan to bring Maine’s spending into line with revenue collections.

The recurring deficit known as the budget’s structural gap threatens the state’s financial stability and thus could force analysts to lower Maine’s bond rating. Johnson expressed concern over the state’s plan to borrow more than $400 million to balance the recently passed $5.7 billion, two-year budget. She also identified a Republican-endorsed effort to repeal that same borrowing plan through a people’s veto referendum as a development that does little to erase uncertainties over the state’s finances.

Baldacci remained confident Friday of the administration’s ability to convince Wall Street the state has taken actions which eventually will eliminate the structural gap in the state’s budget. The gap is a recurring deficit that is posted automatically at the beginning of each new budget cycle when projected state revenues fail to keep up with the anticipated costs of current services. When the next budget is taken up in 2007, legislative finance analysts predict lawmakers will face a structural gap of between $650 million and $700 million.

The Legislature and the Baldacci administration have adopted several policies over the last two years aimed at reducing the structural gap over time and decreasing volatility in Maine’s revenues. In discussing those initiatives with Wall Street representatives, the governor will highlight the pressures placed on the state by complying with last year’s citizen’s initiative on education funding. Baldacci said the structural gap was influenced by the need to identify an additional $250 million in the state’s $5.7 billion budget for education funding, a cash influx that is supposed to decrease the growth of local property taxes.

He also will emphasize how the state is expected to finish the current fiscal year, which ends June 30, with an estimated $35 million surplus. Baldacci said he will underscore the importance of state, local and county spending caps included within the recently enacted LD 1 tax relief legislation and the essential programs and services model the state has implemented to drive down the costs of local education.

Since educational expenses are such a large part of the state budget, Baldacci said Friday he also would underscore how school costs are expected to decrease over the next 10 years with the decline of the number of students enrolled in grades K-12.

“It will diminish spending greatly in that area and really allow those spending caps to take hold,” he said. “Meanwhile, our income growth continues to rise as evidenced by the re-projection of an additional $100 million this year by the Revenue Forecasting Commission. The expected continuation of that growth is something I want people to look at because, in the years ahead, all of these things bring the lines between spending and revenues much closer together.”