Maine State Senator Peter Mills

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2008 Legislature Report

"Maine is at a crossroads on electric power. We must make the right moves now."

Summer 2008
Dear Somerset County Neighbors,

The three most important bills passed this year all dealt with electric power. Because these received so little attention from the press, I have explained them later in this mailing. Energy policy is crucial for the future of Maine, and the opportunities for Somerset County are especially significant.

The second most important work of this legislature was to find new money for transportation. Although I was not happy about how the money was found (largely through borrowing), no one could quarrel with the obvious need.

In April, the legislature removed several barriers to school consolidation, but it is still uncertain how many districts will agree to combine under the new rules. For 18 months, I have argued that long range incentives would work better than short term penalties; but that debate is over for now.

This year's budget was closed by flat funding K-12 education. In the past decade, enrollments have been dropping every year. It is now up to local voters whether to raise taxes or cut costs. Although our teachers are underpaid by national standards, our costs per pupil are extremely high. This is because our teacher-pupil ratios are the second lowest in the country.

The other half of the state budget is for social services. This, too, was essentially flat funded with hopes that managed care can control costs without depriving people of necessary aid. Efforts by my party to reduce the numbers of people on the entitlement rolls were rejected.

While the basic budget was passed without raising taxes, taxes were increased in separate bills. Auto registration fees were raised to repair bridges; and several new taxes were passed to sustain Dirigo Health.

Too often Maine simply spends money without measuring results. A tiny agency of six people called "OPEGA" (the Office of Program Evaluation and Government Accountability) analyzes the effectiveness of many programs. Because OPEGA is not popular in all circles, there were several efforts this session to gut this agency; but we successfully fended them off.

It is a constant challenge and always an honor to serve as your senator.

Truly yours

Peter Mills
State Senator

Maine is Caught in an Electricity Vise

The millions of people who live south of Maine from Boston to New York create huge demands for electricity; but because supplies are so limited, they have the highest power costs in America.

To the north and east of Maine, by contrast, power is cheap, a blend of hydro, nuclear and wind sources from Quebec and New Brunswick. In addition, Maine has its own supply surplus and the potential to generate even more power from wind, bio-mass, and hydro -- if only we could move the electrons south to those who need them.

And that's the problem. Existing power lines running from central Maine to the south can't carry any greater peak load, either from within Maine or from our Canadian neighbors.

As one economist put it, Maine is sandwiched between 6 power to our north and a 10 market to our south. That price gap is creating pressure to build a new multi-billion dollar system of transmission lines to move electricity from northern generators to southern customers.

Unfortunately for Maine, our own power costs are tied to the southern New England market. We are a regulated partner in ISO New England whose job is to make sure that all six member states get reliable power. Despite our surplus, we pay nearly as much for electricity as do consumers in Connecticut.

If new lines are built, Maine's power prices may simply float up to match higher costs to our south. Even though the costs of new transmission will be spread among all New England users, Maine may get little credit for flooding the northeast with fresh sources of green power.

Impact of High Power Prices

Maine uses over 12 billion kilowatt hours (KWH) of electricity per year. Adding a mere penny per KWH takes $120 million out of our pockets. The impact of that penny is like raising property or income taxes by 10% -- except that the lost money is not spent here. It goes largely to foreign energy suppliers.

Rising power prices, like taxes, tear the heart out of our economy. Businesses that depend on electricity (like Huhtamaki) are often forced to move their jobs from Maine to other places where power costs half as much.

Three Energy Bills

The most important work done by the Legislature this year was to pass three energy bills:

1. The first bill allows us to make long range contracts with power producers to ensure that Maine customers will pay rates favorable to the prevailing market. Such contracts are essential to create a rate preference for Maine over the rest of New England when northern generators come on line to take advantage of new transmission.

2. A second bill authorizes the Public Utility Commission to cut Maine's ties to ISO New England if the PUC is not able to make better deals than we have at present. If we divorce from our New England partners, it is an open question whether Maine might go it alone or tie in with Canada.

3. The third bill expedites wind power development by pre-designating sites where wind will be welcome. The bill may remove some of the uncertainties and delays that have plagued Maine's cumbersome approval process.

While Maine's power costs will probably remain high for the remainder of our lives. these new laws may place us on a glide path toward moderating prices. To save even a penny per KWH is like giving every Maine citizen a $100 bill on every birthday

A Slow Crisis in Roads and Bridges

50 years ago Maine's tax on gas was 7 per gallon, but that was 30% of the total price. You could buy a gallon for 23.9. Even a car cost only $2000.

Now everything is at least 7 times more expensive -- except for the tax on gas which is only 4 times higher. At 29 per gallon, it is only 7% of the present price.

Throughout most of the last century when the gas tax was high, Maine DOT straightened, widened and paved most of the dirt roads originally laid out for horses.

Today, many of these same roads and bridges are 40 to 100 years old. They are now wearing out faster than we can repair them. Of the 2722 bridges that the state owns, 2000 of them are in fair to poor condition.

Unfortunately, DOT lacks the money to keep up. Cars are getting 30 miles to the gallon instead of 14. Construction prices for asphalt, steel and concrete have risen far faster than the tax on gas.

With little choice but to increase highway spending, the Legislature borrowed money this year and raised at least one tax. Car registrations will rise from $23 to $33 to support $160 million in bonds for bridges. To repair old roads, another $50 million in bonds will be paid for by taking from the general fund money that would otherwise support schools and social services. This is on top of $100 million in highway bonds approved in 2007 and another $10 million on the ballot for 2008.

Although Maine's registration fee is cheaper than most other states, raising it was not my first choice. It is expensive to put a car on the road. We pay a 5% sales tax, plus a 2.4% excise tax on the sticker price, plus $33 for registration. This adds $1513 to the cost of a $20,000 car.

Enchained by Public Pensions

Because our 27,000 teachers and 14,000 state employees are required by state law to join a Maine retirement system outside of Social Security, their benefits are not portable. It is difficult for them to leave their public jobs, even temporarily.

I proposed in April to put all newly hired teachers and state employees into a different system based on Social Security with supplemental benefits. This measure was added by amendment to a union bill that had proposed an expensive early retirement option for existing members. My amendment was endorsed overwhelmingly by the House and Senate.

On the last day of session, the bill as a whole was rejected by the Appropriations Committee because the pension improvement sought by the unions was unaffordable.

Regardless of what the state may later do -- or not do -- to improve benefits for those already hired, Maine should provide a different system for new hires.

Because today's economy is constantly shifting, high school seniors are told they will work in many different careers before they retire. Yet, the teacher delivering that message is caught in a pension designed so that a teacher hired at age 22 is compelled to continue the same job for 40 years.

Maine's pension fund shortchanges thousands of young teachers and state workers who don't stay. Whem they leave the system before retirement, they usually give up all the contributions made by the state on their behalf and receive no credits under Social Security.

Most other states and the University of Maine converted long ago to pensions that are based on Social Security and are less reliant on forfeitures. Benefits are portable and transparent. Employees move in an out of public service freely and with fewer penalties. Even if it costs more to run such a system, portability and fairness are worth the price.

It is difficult and expensive to change public pensions retroactively for current employees, but there is no excuse for failing to start clean with new hires.

Dirigo, Taxes and Public Health

Because education and social services were essentially flat funded, this year's budget was closed without raising taxes; however, taxes were later raised in two bills passed at the end of session. One of them was the $10 increase to register cars (discussed above). The other bill imposed new taxes on paid health claims, soda pop, beer and wine to sustain the health insurance program known as "Dirigo Choice."

Dirigo covers about 15,000 people who pay an amount for insurance that depends on their household income. The state pays an average of $3000 to support each person on this program.

While providing insurance is one way to improve public health, it is certainly not the only way, nor necessarily the most efficient way, to spend public dollars. Because so many of those dollars come from taxing health claims, it raises costs for everyone else who is struggling to pay a premium without public subsidy. It does little to benefit the 127,000 people in Maine who remain uninsured.

For the several years that Dirigo has been running, there have been no studies to determine whether the public money invested is producing the best value for public health. Would we better off, for example, spending the same $45 million a year on different people, on more people, on Federally Qualified Health Centers, on school based health clinics, on direct dental care, on well baby visits, on vaccinations, or on other preventive services?

We should focus on effectiveness and outcomes. Just because a public program is exempt from the rules of profit and loss, does not mean it should be managed without attention to results. What we fail to measure, we fail to manage.

Wind and Wood

The high cost of energy is bad news for those who heat with oil or electricity, but it creates at least two silver linings for Somerset County: (1) We grow a lot of wood and (2) we own some of the windiest ridge tops in New England.

The high cost of oil makes Somerset firewood all the more valuable; and the new pellet plant in Athens demonstrates how to convert waste tree tops and limbs to dry pellets in 40 pound bags. In the longer term, researchers at the University of Maine are working on ways to convert wood energy to ethanol and perhaps build refineries next door to paper mills.

The second opportunity is for wind power. While wind projects produce very few long range jobs, they do add great value to the real estate on which they are constructed. Two or three such sites in Somerset County could easily double the assessed value of land in the unorganized territories.