Mainers all benefit from statewide investments that strengthen our economy now and into the future, such as roads and bridges, broadband infrastructure, and the people- and technology-powered systems that provide clean water to homes, schools, and businesses.
Capital investments like these often carry a large up-front price tag, but the benefits are spread over a long timeline. For example, expanding Maine’s capacity to provide reliable, high-speed Internet to communities that lack access today is a boon for current residents. But it’s also an investment that boosts future generations of families and entrepreneurs.
The use of general obligation bonds — essentially loans taken out by the state — are usually a smart way to pay for these sorts of investments in our communities and our economy. Borrowing allows the state to spread out the cost of these investments, making the project more affordable in the short-term and sharing the cost between those who benefit today and those who will benefit in the future.
While bonding is generally a responsible way to pay for infrastructure and other long-term investments, there are variables at play that can make bonds more or less prudent in any given year. Today, those factors line up in Maine’s favor, making now a good time for the state to borrow. Here’s why.
Borrowing is currently inexpensive and predicted to remain so for the foreseeable future. For several years interest rates have been held at historically low rates and despite recent small increases to rates, the Congressional Budget Office predicts that interest rates will continue to stay low.[1] This combined with Maine’s good credit rating means that borrowing is a low cost option to finance projects with big economic pay off.
Maine is underinvested. Interest payments as a percent of all spending is one good measure to determine how much a state is investing in capital projects and other long-term infrastructure. Nationally, the average state and local interest payment as a percent of all spending was just 3.4 percent in 2016 —the lowest level since 1977, when the US Census of Government Finances first began tracking. Maine is far behind the national average at just 2.3 percent.[2]
Bonds will generate federal funds for Maine. Since 1993, every dollar of state bonding has drawn down more than a dollar of federal matching funds, on average. Each of the bonds that may face voter consideration this year would provide federal matching funds that will help pay for the related investment and increase the benefit of the state’s investment.
Maine has relatively little debt. Maine’s outstanding debt fell 20 percent between 2010 and 2016. While low debt might seem like a good thing at first brush, it must be considered within the context of the state’s needs. Much of Maine’s infrastructure — including our roads, wastewater systems, dams, and passenger transit systems — have received “D” grades from the American Society of Civil Engineers. These systems are the backbone of our economy, and while it might make sense to prioritize a small debt load if they were all in top condition, it makes no sense to put off responsible borrowing when there are pressing infrastructure needs.
Today, the Maine Legislature is considering four bond proposals: a transportation bond, infrastructure and economic development bond, an environmental protection and energy efficiency bond, and a land conservation bond. Lawmakers will consider each bond independently and, if they achieve two-thirds support in both chambers, send them to voters for approval.
As lawmakers consider this year’s bond package, they should feel secure in the knowledge that conditions today make borrowing a smart policy to fund those investments.
Endnotes:
[1] Congressional Budget Office. “An Update to the Budget and Economic Outlook: 2019 to 2029” https://www.cbo.gov/system/files/2019-08/55551-CBO-outlook-update_0.pdf
[2] US Census of Government Finances data
