PAVE AND SAVE

With a freshly found $40 million to $60 million budget surplus burning a hole in Maine’s pocket, the temptation for lawmakers to spend the money is strong. An urge to drop a proposed bond and pay for projects Maine would otherwise borrow for is both strong and understandable. But using the surplus to cover a highway bond, as legislative Republicans suggested this week, would cost Maine more than it would save.

If Maine had no plans for the surplus and plenty of cash in reserve, dumping the bond in favor of a straight payment for highway repair would make sense. But that doesn’t reflect the hole this state is in. As recently as this spring, bipartisan agreement updated what is called “the cascade” for surplus state revenues. Rather than new spending, they go to a budget stabilization fund and working capital reserve (55 percent), to paying down the state pension liability (20 percent), the state’s post-retirement health benefits liability (15 percent) and to capital repairs and improvements (10 percent).

Building up reserves and paying down liabilities doesn’t score a lot of political points because these responsibilities aren’t nearly so visible as a new road or bridge, but they are necessary. That doesn’t mean roads should be ignored, only that Maine should set priorities for spending – something it has been doing with the cascade.

According to Rebecca Wyke, commissioner of the Department of Administrative and Financial Services, the approximate cost over the 23-year life of the pension fund for not putting the cascade percentage toward its liability – and losing the matching money that also would go toward paying it off – is $152.8 million. Similarly, the opportunity cost over 30 years of removing the share for the post-retirement health benefit of the cascade is $76 million.

Combined, according to these figures, that’s a loss of about $228.8 million in opportunity cost to save the interest on a 10-year highway bond, worth between $19 million and $24 million.

.

You don’t need a study to know that Maine’s roads require substantial improvement, but you do need one to know how its roads compare with other states. According to David T. Hartgen, a civil engineering professor at the University of North Carolina who annually assesses road conditions nationwide, Maine ranks in the bottom third of states for such measurements as pavement and bridge condition.

A worse measure for Maine is the amount it spends on maintenance for its roads – 23 percent of the total vs. a national average of 16 percent. Its maintenance budget is so high because it doesn’t have the money to do the more expensive rebuilding, but the situation virtually assures that Maine will remain forever behind on road work.

Can Maine afford to bond for road repair? States are fortunate to have a simple means for determining whether their debt levels prevent them from bonding further – an unforgiving bond market that punishes the profligate and celebrates the sensible. The largest rater of government bonds is Moody’s, which recently praised Maine’s “conservative approach to debt, with moderate bond issuance, an aggressive payout structure, and capacity to accommodate unforeseen borrowing needs.” What Moody’s worried about were the state’s high fixed costs “due to the state’s pension liabilities.”

The highway bond being considered by some Maine legislators is what is known as grant anticipation revenue vehicle, a bond that allow states to borrow against future federal allocations. Republicans oppose any bonds and persuaded Democratic leaders to take a no-bond pledge in exchange for GOP support on this year’s supplemental budget. Neither party serves Maine well with this arrangement.

Maine needs a regular investment in long-lasting capital projects that support Maine businesses through an efficient network of roads and that protect the public from rubble-strewn, pot-holed byways that lead to accidents. But it cannot abandon its liabil-ity debt to achieve this.

It can, however, afford a bond, and legislators should mutually drop their no-bond pledge – important only to themselves – and get on with the process.