Does Maine Need More Debt?

Does Maine Need More Debt?

September 29, 2011 Posted by J. Scott Moody - No Comments

According to the folks at the Maine Center for Economic Policy the answer is “yes” Maine needs more debt (pdf). They argue that new bonds would create new jobs and that Maine has a manageable debt load.

Of course, MECEP is only talking about General Obligation (bond) debt. When other forms of debt are considered, especially Maine’s pension debt, then Maine’s debt position doesn’t look so rosy.

According to a new study by Harvard Economist Jeffrey Miron, for the Mercatus Center, Maine will reach dangerous debt levels (90 percent of GDP) by 2040. From the study “The Fiscal Health of the U.S. States” (pdf):

This paper examines the fiscal health of the 50 U.S. states and reaches five conclusions. First, state government finances are not on a stable path; if spending patterns continue to follow those of recent decades, the ratio of state debt to output will increase without bound. Second, the key driver of increasing state and local expenditures is heath-care costs, especially Medicaid and subsidies for health-insurance exchanges under the Patient Protection and Affordable Care Act of 2009. Third, states have large implicit debts for unfunded pension liabilities, making their net debt positions substantially worse than official debt statistics indicate. Fourth, if spending trends continue and tax revenues remain near their historical levels relative to output, most states will reach dangerous ratios of debt to GDP within 20 to 30 years. Fifth, states differ in their degrees of fiscal imbalance, but the overriding fact is that all states face fiscal meltdown in the foreseeable future.

Check out this video to see when Maine and other states reach the danger zone.

What Maine really needs to do is to follow pro-growth policies that will grow the private sector to at least the national average–see my previous blog which shows Maine’s private sector share of personal income is still significantly lower than the national average. Such policies would include enacting, in no particular order, right-to-work, real spending restraints, regulatory reform and tax relief.