Treasurer's Blog: Medicaid Reform and Maine’s Credit Rating

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Dear Friend,

Our state government’s credit rating is an important tool to attract jobs.  It’s a visible measurement of Maine’s fiscal and economic health.  Businesses choose to invest their money in states where government can pay its bills, and taxes and regulations are fair and predictable. Otherwise, employers rightly fear that their companies and workers will likely pay higher taxes to fund unaffordable programs, or their public services will be cut.

Maine’s credit rating ranks in the bottom half of all states based on Standard and Poor’s analysis. 13 are healthy enough to be awarded the prized AAA rating.  15 receive the AA+ distinction. Another 16, including Maine, score AA.   4 are rated AA-. California and Illinois have even lower ratings.

An individual seeking a home mortgage or car loan submits to a credit assessment by the bank or automobile company.  The lender wants confidence that the borrower is able to repay the loan.  If the individual is spending more than he/she earns, and is making up the difference with credit card debt, the loan might not be granted.  Or, if it is, the interest rate and monthly payments will be high.   Likewise, if a state government is not fiscally prudent and responsible, its credit rating is in jeopardy of being lowered, resulting in higher interest payments for taxpayers on the money it borrows.

Maine state government submits to an exhaustive examination of our budgetary and economic health.  This analysis by Standard & Poor’s has resulted in our AA rating.  When the Legislature and voters approve borrowing to build/repair roads and bridges, for example, State Treasury sells bonds to investors to secure the necessary funds.  Similar to a monthly home mortgage payment, every six months Maine taxpayers pay the bond holders interest and principal until the bond (loan) is retired (repaid).

The credit rating agencies favorably view Maine state government’s conservative practice of paying off the General Obligation bonds sold by Treasury in 10 years.  They also positively view the LePage Administration’s commitment to balance the state budget without gimmicks.  In years past, the books were “balanced” in part by not paying hospitals approximately $500 million they were owed.  One-time federal stimulus money was mostly funneled into already unaffordable programs instead of reforming them.  Unpaid state employee furlough days were used to plug budget holes.  Our financial reserves were depleted.

The credit rating agencies also point out the importance of addressing our long-term financial obligations. Last year, the LePage Administration worked with the Legislature to eliminate $1.7 billion of public pension debt by slowing the rate of growth of retirement benefits for teachers and state employees.  This reduced future government spending by approximately $200 million per year until the pension debt must be paid off in 2028.  And this, in turn, created a more affordable obligation for Maine taxpayers, and a more predictable funding source for teachers and state employees who receive those benefits.

This year, the credit rating agencies are again watching closely as to how Maine state government deals with another long-term liability -- our unaffordable Medicaid program (Mainecare).  In 1998, approximately 154,000 of our most disadvantaged fellow Mainers were enrolled in this taxpayer-funded health care safety net.  During the last 13 years, this number has increased by 134% while our population has grown by roughly 4%.  Today, there are 361,000 individuals in the program, the 3rd highest enrollment rate of any state in the country.  This dramatic growth in the Medicaid program, combined with unusually generous benefits, has become increasingly unaffordable for Maine taxpayers.  This financial strain also puts our most vulnerable families at risk of losing their health care benefits if the money runs out.

The Maine Department of Health and Human Services (DHHS) calculates a $221 million shortfall in our Medicaid program through June 30, 2013, the end of the two-year budget cycle.  The Governor has submitted a supplemental budget that includes adjustments to the program to make it solvent and affordable.  Without the Legislature adopting these reforms, DHHS reports that our Medicaid program will run out of money this April, roughly three months before the end of the current fiscal year.

Right now, state government has an opportunity to demonstrate to the people of Maine, and to the credit rating agencies, that it will live within its means.  That it will no longer spend more than it takes in.  That it will make the difficult but necessary decisions to redesign our unaffordable Medicaid program for the benefit of the most vulnerable, and for fairness to the taxpayers alike.

Fiscal discipline; living within our means; Maine’s credit rating; job creation; taking care of the needy.  They’re all connected to the long-term economic and fiscal health of our Great State. Let’s all work together to make it work for all.

Best wishes,

Bruce Poliquin
Maine State Treasurer


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