This recession has been particularly unkind to New England. Massachusetts, Rhode Island, Connecticut, New Hampshire, and Vermont have all experienced a bulging unemployment rate, shrinking industry, and other economic problems. Through most of the downturn, though, Maine appeared to have come off a little better than her sister states.
But as Maine officials begin to look toward fiscal 1994, beginning July 1, 1993, they are faced with a possible $1.2 billion budget shortfall and several taxes scheduled to expire at the end of this calendar year.
The state has also been plagued by a decrease in tourism over the last three years because of the recession and cool, wet summers.
In June 1991, Standard & Poor's Corp. downgraded the state's general obligation rating from AAA to AA-plus, citing a reliance on one-short measures to balance the budget.
State Treasurer Sam Shapiro of Maine recently said his office, plus Gov. John R. McKernan's administration and the Legislature, are working together to find ways to close the gap without the use of one-shots. In addition, he said, they hope to provide the people of the state with the services to which they have grown accustomed.
Shapiro, 65, has been the state's treasurer since 1980. From 1968 through 1979, he served as chairman of the Maine State Employees Appeals Board and treasurer of the Maine Democratic Party.
From 1952 to 1980, Shapiro was vice president and then president of State Furniture Co. in Augusta, Maine.
He is a graduate of the University of Pittsburgh, where he was a four-year starter on the varsity baseball team.
In the first of a two-part interview with staff reporter Patrick M. Fitzgibbons, Shapiro discusses the current economic condition of the state his role as treasurer, and how the Clinton administration should address a large problem in the municipal industry -- the Tax Reform Act of 1986.
Q: What challenges are facing Maine?
A: Obviously, we have a budget-balancing problem.
It's not a deficit. It's a forecasted revenue shortfall where all departmental requests aggregate to a billion-dollar shortfall for the fiscal years 1994 and 1995.
But this is not unusual. During every budget processing year there are revenue shortfalls based upon departmental requests, possibly not to the magnitude that we have now. But there's an unusual circumstance now that some revenue producers -- a 1% sales tax, a 10% surcharge on income tax, employee furlough days, and employee shutdown days -- were all instituted with the promise that they would be determinated by the end of this fiscal year in June 1992.
Q: What do you think the likelihood will be that these taxes actually sunset?
A: You know, I don't think anybody really knows.
Both parties in a biennium prior to a gubernatorial election are going to place themselves in a position where they're going to be against continuing the taxes. They're going to say "let's sunset them" and basically stick to that position until the last day of the Legislature, where there's going to be some give and take.
It's almost like trying to decide which way a tornado is going to head. You just don't know until it makes its move.
Q: How do you think a state treasurer can help a state through a fiscal crisis? What is your primary goal?
A: Basically, the treasurer has greater knowledge of available financial tools and can educate the Legislature as to what's available. It's sort of like you create a Frankenstein in a sense.
Here's an example: Not too long ago, the Department of Transportation was financing vehicle purchases in the $20 million to $25 million range through [General Motors Acceptance Corp.] or Ford Credit at taxable rates. So I showed them they could use certificates of participation at tax-exempt rates.
Well, that was fine. We saved a lot of money on buying 25 million bucks' worth of trucks and vehicles.
But then the Legislature, once they knew what a certificate of participation was, ended up constructing two buildings and putting a million-dollar addition to a third building through the use of certificates of participation because they didn't have to go to the electorate in referendum.
I also helped them find out what a refunding was. They never knew, because Maine's paper is all sold without any call provision and our constitution prohibits advance refunding. So we came up with a method of a forward refunding and told them we could refund principal debt that was coming in the upcoming fiscal year. So one year they did a $26 million refunding, and this year they had a $21 million refunding scheduled, but I'm trying to get them not to use it this year.
Q: Why are you recommending that they don't do a refunding?
A: Well, the rating agencies don't like the idea. It's a one-shot deal. I think it's very critical to our credit rating.
We're still rated very high. We're AA-plus with both Moody's [Investors Service] and Standard & Poor's, and we want to keep that rating. Anything we can do to keep it, obviously, will be important. At one time we wee told by the rating agencies that if we did the refunding the second time, "you're going to be downgraded."
I think the rating agencies are taking the view that really it's not one issue that decides whether you're downgraded. How we approach this coming biennium's fiscal problems, how we balance the budget, and what we do to balance the budget is first.
If we handle those things the way we always have in the past, I think we'll hang onto our rating. If we don't, then I think we're going to get downgraded.
Q: Looking nationally, what do you expect for Maine from the Clinton presidency? Are there any infrastructure projects Clinton has mentioned that have caught your eye?
A: I think it's realistic to assume that with a Democratic President and Democratic Congress, states where there are Democratic leaders representing them with hopefully reap some benefits. [George Mitchell, D-Maine, is Senate majority leader.]
I don't know that there's anything specifically on the drawing board yet. But I hope there will be, and I'm sure that we will draw out some things before long in the hope to get some things for Maine. I think Maine needs them.
Q: Do you see any sort of regulation changes coming up within the next couple of years, or would you suggest any sort of changes in regulating the municipal bond industry?
A: Absolutely. I was one of the most outspoken opponents of the Tax Bill of 1986. I never thought that bill would pass because I always had confidence in the Constitution.
Having two senators from each state [regardless of] population was a way of protecting states rights, and I never dreamt the senators would sell their states down the drain in terms of bonding and tax-exempt financing.
But as things turned out and every history tells you, it was part of a tax package, and because of that tax package it passed. And I can tell you now that I have been at various conferences and meetings where we've listened to dozens of U.S. senators and congressmen, and they've all said the same thing. The Tax Act of 1986 was a calamity, it was wrong, and shouldn't have happened. And they wished that it hadn't happened, and frankly, I think it's one of the causes of our recession that we've come into.
Q: How difficult do you think it will be to repeal or to change the things done in the tax act?
A: I think that President-elect Clinton has taken a position that is prostate and pro-municipal bonds. He has said that he's going to straighten that mess out and I hope that he will be able to. I think that it's a given by both parties that it was wrong.
Q: How would you suggest we go about it? What would be the best course of action?
A: They ought to take all the limits that they have put on states' ability to sell tax-exempt bonds. They should reinstitute low-income housing bonds and every method that government has to raise money for the common good. That would stimulate the economy.
There are a lot of jobs that revolve around governments having an ability to raise money for programs at the cheapest cost. Hell, this darn tax-free bonding by municipalities and states has been around for over 200 years and it's worked.
I've talked to a lot of retailers in Maine and they all feel that since Clinton won the election, everybody is more optimistic, more upbeat, and spending a little more money.
Q: What about regulations as far as the industry regulating itself?
A: Well, I think you know investment banking firms, money managing firms, bond counsel firms, everybody who deals in the municipal bond business, obviously makes political contributions in every state at practically every level.
They're not happy about doing it.
Perhaps those who receive it like it, but these firms give to both parties, and frankly, I think they ought to police themselves to the extent of certainly capping what they could give in any individual election.
If you don't take it, though, the other side will. Perhaps it should be a joint effort where they ask all the states to do something uniformly, like we have uniform property rules and statutes.
I would feel much more comfortable if it was against the law, and I'm going to say so in the state of Maine.
Frankly, all the lobbying agencies, doctors, insurance people, and banking people all contribute money. And they don't give it because political candidates are a charity. They give it because they want to get something back. So I think that everybody ought to be treated equally. Once you begin to cap one area, you ought to cap them all.
