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By Evan Richert Sunday, March 25, 2007

How much should Maine borrow for its future - and for which future? The Legislature will be debating this in coming weeks as it considers bond proposals amounting to hundreds of millions of dollars.

Some see any borrowing as excessive, a sure sign that the state is unable to live within its means. But borrowing is good business for two reasons. The first is to protect existing assets. In fact, borrowing is a responsibility of ownership.

Borrowing is necessary to keep large and expensive assets that are used to deliver state services - buildings, roads and bridges, treatment plants, other infrastructure - in good working order or to periodically replace them.

Avoiding that responsibility is a form of negligence. Ostrich-like, it pretends that depreciation is not a cost to be reckoned.

The second reason is to produce opportunities for growth. Borrowing for this kind of investment can be chancy.

When the investment is one-time and scatter-shot to satisfy a political itch - as with occasional "jobs bonds" - the results are spotty. But when the investment is focused, long-term, based on standards and competition, and subject to outside evaluation of results, the outcomes can be spectacular.

This has been the case, for example, with state investments in research and development, which routinely return $3 to $5 for each state dollar invested. And the Land for Maine's Future Program has proved an equally good investment.

It has helped to conserve 444,000 acres of Maine's most coveted lands at a remarkably modest average cost to taxpayers of around $200 per acre. In the process it has sustained forestry, farming, water access, and recreation.

And it serves as a magnet for growth by preserving the values and the landscape that tourists, retirees and entrepreneurs in today's economy all want. Borrowing for long-term growth through programs like LMF and R&D was considered discretionary as recently as a decade ago.

But now they, along with universities, emerging clusters of industry and downtowns, are the building blocks of an investment economy that, according to the Brookings Institution, depends mostly on innovation and one-of-a-kind quality of place.

Both LMF and R&D model the investment economy by setting standards, requiring matching funds and awarding funds competitively.

A bond package that restores vital transportation, building and utility assets is an obligation of state government, and one that has slipped badly in recent years. But that is not enough. That will keep our collective heads above water, but not swimming forward.

Maine also needs single-mindedly, even relentlessly, to target proven programs like R&D and LMF that turn innovation into jobs and modest dollars per acre into preserved, storied landscapes.

Borrowing, of course, has finite limits. But state governments have reliable guidelines from ratings agencies and others on what those limits are. Several years ago Maine reviewed the practices of the most credit-worthy states in the nation. Since then, it has followed this guideline: Debt service (principal and interest) on bonds should not exceed 5 percent of revenues coming into the state's general and highway funds.

Maine also has disciplined itself to pay back bonds quickly, within 10 years. That means it can't fudge on debt service by stretching it out over longer periods of time.

For the last decade, Maine has been below this bond limit. And for the last three years, its cost for all tax-supported debt as a percentage of revenues has been around 3.7 percent, the lowest in more than a quarter-century.

Further, the state has been paying off its bonds at $70 million to $80 million per year. At that rate, if it issued no more bonds, Maine would have no bonded debt within 10 years.

All told, Maine could bond for $300 million tomorrow and still be within the 5 percent limit. It could bond for nearly as much and still be near the per capita median of $754 of bonded debt for all states.

Whatever amount the Legislature decides is right for Maine's future, there is ample capacity to invest in basic infrastructure, innovation and quality of place.

- Special to the Telegram