July 28, 2013

Charles Lawton: Frugal Maine's low debt burden an economic plus

We hear a lot about Maine's tax burden -- how high it is, how it constrains job growth and how we ought to do something to reduce it. We hear less about our debt burden -- probably because it is less regularly and less sensationally reported in lists ranking all the states and used by various media outlets to stir up controversy.

But ongoing debt is no less a burden than annual taxes, and we would be well advised to pay it equal attention. And here, according to the newest U.S. Census Bureau data on state and local government finance, Maine shows up better than in the tax rankings.

For fiscal year 2011, the latest year for which data are available, Maine's total state and local debt amounted to nearly $9 billion, or about $6,800 for every person in the state.

Unlike our annual tax burden, which exceeds the national average, our debt burden is substantially less. Total state and local debt for the United States as a whole is nearly $3 trillion and amounts to about $9,400 per person.

Thus, on a per-person basis, Maine's state and local government debt is 28 percent below the national average -- not a fact we hear trumpeted in glaring headlines very often.

When measured against personal income and total tax and fee collections (measures of our ability to pay this debt off), we also fare better than the national average.

Our state and local government debt amounts to $185 per $1,000 of our total personal income (22 percent below the national average). And government debt equals just 64 percent of the total amount of tax and fee revenue raised in Maine (24 percent below the national average).

All of this speaks well of Maine's frugality compared to many other states. However great our tax burden, Maine does not appear to be facing the dismal bankruptcy situation seen in Detroit.

Nonetheless, there is one area in which Maine does not compare quite so favorably, and, as with so many other structural problems now plaguing us, it derives from our unbalanced demographic structure.

While state and local debt per $1,000 of personal income amounts to $185 in Maine, when measured not against income but against earnings, the burden rises to $269. And our relative ranking rises from 22 percent below the national average for burden on income to only 16 percent below the national average for burden on earnings.

The reason for this difference is that Maine, compared to the nation as a whole, derives a much higher than average share of its total income from "unearned" sources -- various retiree benefit programs plus rent, interest and dividend income. In addition, a smaller portion of Maine's total population is employed or seeking employment.

Thus, while Maine's overall state and local government debt burden is blessedly low, it falls increasingly on a segment of the population less able to increase its income to continue to pay off that debt.

In short, our relatively low debt level does not, if we want to maintain a stable standard of living for our elderly, free us from the challenge of continuously working to create more and better job opportunities so as to attract younger people to our state.

Only in this way can we keep our now relatively low debt burden from becoming more like our tax burden even if we do maintain our frugal ways.

Charles Lawton is chief economist for Planning Decisions, a public-policy research firm. He can be reached at:

clawton@planningdecisions.com

 

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