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Maine’s credit rating downgraded due to Medicaid, median age, increasing conflict

MaineCare growth, pension reform, proactive fiscal management specifically cited

House Republican leadership responded Wednesday to the revision of Maine’s bond rating from AA+ to AA by Fitch Ratings and hyper-partisan responses from Senate Majority Leader Seth Goodall and State Treasurer Neria Douglass.

“I am disappointed with Goodall’s and Douglass’s response to this downgrade, which reflects a fundamental misunderstanding of the report; namely, the finding that an ‘increasingly contentious decision-making environment’ will prevent us from overcoming the state’s fiscal challenges,” said House Republican Leader Ken Fredette (R-Newport).

Fredette noted that in fact most of what the Fitch report cited as positive reforms—pension reform, strong fiscal management, low debt levels, and long-term structural savings in the FY 2014-2015 biennial budget—were initiatives of the current administration, and what the report cites as the primary causes of the downgrade—exploding Medicaid costs, demographic trends, and the increased prospect of obstructionism—are products of the failed leadership of the past.

“We have been trying to rein in MaineCare costs for two years, and each time we meet stubborn obstructionism from the Democrats,” said Assistant House Republican Leader Alexander Willette (R-Mapleton).  “We have come to this point after failures of leadership throughout decades of one-party rule by Democrats.  Two years is not enough time for the Titanic to change course.  We still need real reforms.”

Sen. Seth Goodall said in his statement that “some are focused on rhetoric and not results.”  He is correct.  Democrats were focused on partisan rhetoric when Republicans proposed and enacted the results cited as positive factors in the Fitch report:  Pension reform, Medicaid savings, and long-term spending reductions in the proposed biennial budget.

It is now up to Democrats to decide whether they will continue to pick partisan fights or whether they will follow the advice of Fitch Ratings and join Republicans who stand ready to solve Maine’s problems.

“Fitch’s recent announcement notes the budget gap in our welfare system, and this comes to no surprise as the major reason why Maine is downgraded,” said Governor Paul LePage. “Without flexibility from the federal government, and growing Medicaid expenses, Maine will continue to be plagued by massive shortfalls in its budgets as a direct result of expanded welfare programs.” 

While Fitch notes Maine’s slow emergence from recession and oldest median age in the nation as contributing factors to uncertainty about future workforce growth, the rating agency recognizes the Governor’s jobs bill will pump $700 million into Maine’s economy and pay its debt to hospitals.

Among other positive comments, Fitch credits recent pension reforms to improving Maine’s fiscal outlook. However, the Governor has emphasized more of this kind of structural reform is needed to bring long-term financial stability to the State of Maine.

KEY RATING DRIVERS—(Headings from the Fitch Ratings Report)

“CONTINUED BUDGET PRESSURES BALANCES:”  Caused by growing Medicaid costs, which Republicans have attempted to curb over stiff obstructionism from Democrats.

“CONSERVATIVE DEBT POSITION:”  The Republican pension reform improved funding levels and the Governor’s two-year moratorium on new debt kept debt levels low.

“RESPONSIVE FINANCIAL MANAGEMENT:”  Budgetary challenges have been met in a “timely and proactive manner.”

“SLOWLY GROWING BUT STABLE ECONOMY:”  The economy is more stable than the national average, but growth is hampered by demographic trends which come on the heels of 36 years of one-party rule in the Maine House.

“CREDIT PROFILE”

-        “Maine’s median age is the oldest among the states, 43.2 years compared to 37.3 years for the U.S., contributing to uncertainty about future workforce growth.”

-        “Medicaid expenses continue a pattern of outpacing expectations….”

-        “Funding levels for Maine’s pension system . . . improved substantially in FY 2011 following recent reforms.”

-        “…depletion of the state’s already modest reserve levels….” (A move resorted to by Democrats in the past, advocated by Sen. Alfond recently, and proposed reluctantly by Gov. LePage because of a lack of alternatives in the face of limited flexibility from the feds.)

-        “$342 million in forgone revenues over the biennium” (compared to $440 million in extra DHHS spending)

-        “[Dems regained control of Legislature], raising the likelihood of increased conflict with the Republican governor” (Alfond stated in a press conference last Wednesday that the shortfall is “all the governor’s fault,” despite the senate president’s call for a more civil tone.)

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