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On the morning of Wednesday, November 30, the Maine Municipal Bond Bank (MMBB) employed a money-saving strategy to borrow $55 million to fund road and bridge construction in Maine. For the first time anyone can remember, Wall Street investment banks were asked to blindly bid against each other to buy the $55 million of TransCap bonds sold by the MMBB to raise the money to pay for the road and bridge work.
Details of the forthcoming sale were distributed to potential bidders long before the sale date. Then, on November 30, the competition was waged on investment banking computer terminals across the country while we monitored the action on our pc screens in Augusta. When the dust settled, the results were excellent: The competitive process lowered the bonds’ average interest rate by approximately 0.2% than otherwise would have been realized, saving taxpayers roughly $1.3 million over the 15-year life of the bonds.
The MMBB is one of the quasi-independent Authorities created by the Legislature to provide specific public services to the people of Maine. Its primary purpose is to borrow money by selling tax-exempt municipal bonds to investors, and loan the proceeds to small towns wanting to build landfills, sewer treatment plants, and other infrastructure projects. The towns then repay the loans to the MMBB, which uses the money to pay the interest and principal on the bonds sold to the investors. Like the other state Authorities, the MMBB has historically relied on its relationships with a small number of Wall Street professionals to sell its bonds. However, when possible, new private sector board members on all Authorities are injecting more competition into the process with the goal of saving taxpayer dollars.
In addition to helping Maine towns borrow money cheaply, the MMBB also helps state government borrow money to fund some of its infrastructure projects. Selling TransCap bonds is one such program. The interest and principal payments to the bondholders come from gas taxes, automobile vanity plate fees, and title/registration fees. Investors have been willing to loan the state money (by purchasing the bonds) because of their confidence that these transportation taxes and fees will be collected to pay the interest and principal on the bonds they own.
Some of the financial workings of Maine State Treasury and the various Authorities are detailed and complicated, like borrowing money by selling municipal bonds. Even so, one goal should always be clear: save Maine taxpayers as much money as possible. One way to do so is to employ competitive strategies that drive down the cost of borrowing money. No cozy Wall Street relationships – instead, complete transparency. The new leadership team in Augusta is spreading this competitive bidding strategy where and when it fits across state government. Stretching every dollar allows government to help as many Mainers as possible, like repairing more miles of road.
November 30, 2011, was a good day for the hard-working people of Maine. Continuing to lower the cost of running state government is essential for those who hold the public trust. Let’s keep it going.
Maine State Treasurer
For related information and media, visit www.maine.gov/treasurer/outreach.