September 10, 2012

Truth Test: King ad right on tax decrease, dubious on bond rating

By Michael Shepherd mshepherd@centralmaine.com
Staff Writer

"As governor, he lowered taxes, fixed roads and schools, protected open spaces and got the highest bond rating ever."

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On the Angus King ad's claim that he lowered taxes while governor

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On the claim that Maine had the highest bond rating ever while King was governor; and for the ad overall

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ABOUT TRUTH TEST

TRUTH TEST is a feature of MaineToday Media's campaign coverage in which we cast a critical eye on the truthfulness of advertising and public comments by political candidates and groups.

-- First television campaign ad for independent Angus King, a candidate for the U.S. Senate

This introductory ad for Angus King, the former two-term independent governor, isn't chock full of detail. This sentence is the only one that makes factual assertions, and they're careful and general.

Two of the four claims, the ones involving roads and schools and open spaces, are too general to check. Any politician can say they helped those things and probably get away with it.

We'll be Truth Testing his first claim and last claim -- that he lowered taxes and presided over the state's highest-ever bond rating.

'LOWERED TAXES'

There's no politician who hasn't boasted of lowering one tax or another, so we're going to hold King to a large burden of proof -- not just a few decreases, but Maine's tax burden over his tenure as governor, by two separate measures.

First, a Maine Revenue Services document detailing the net estimated effect of "significant" King-era tax increases and decreases and their impact in fiscal year 2003. The sheet says nearly $429 million was saved in taxes because of changes enacted between 1995 and 2003.

Of these, the two largest tax decreases were the repeal of the hospital assessment tax by the 117th Legislature, in office from 1995 to 1996, and the two-step lowering of the sales tax from 6 percent to 5 percent by the next two legislatures.

In all, those decreases took more than $300 million out of state coffers in the 2003 fiscal year.

The largest tax increase was the 118th Legislature's doubling of the cigarette tax, from 37 cents per pack to 74 cents. That gained the state nearly $38 million in revenue, the sheet says.

Second, we'll look at another Maine Revenue Services measure of taxation -- a 2011 incidence study that measured Maine's effective state and local tax rate back to 1996.

It said that in 1996, King's second full year in office, Mainers paid just over 11.8 percent of income, including capital gains, in state and local taxes. In 2002, King's last full year in office, that rate had dropped to under 11.5 percent.

That isn't a perfect measure, as tax collection can shift with the health of the economy, but paired with the net tax decreases in the other Maine Revenue Services document, it provides compelling evidence for King's claim.

"We would argue that over the King administration, at least from 1996 through 2002, the tax burden decreased," said Michael Allen, associate commissioner for tax policy at Maine Revenue Services.

Verdict: All evidence collected points to a large impact on Mainers' wallets from changes enacted during the King administration. With a net and percentage-wide decrease, we've got no problem with the claim.

We rate this statement true.

'HIGHEST BOND RATING EVER'

This is true -- if you look only at one of the three credit rating agencies that have reviewed Maine's general obligation bonds. This agency has also been rating Maine since 1996, while the others have been for decades.

We'll look at Maine's total rating history before 2007 and compare King-era numbers to numbers from before then, using a sheet provided by Grant Pennoyer, director of the Maine Legislature's Office of Fiscal and Program Review.

The King campaign is right, if looking at judgments from Fitch Ratings. In June 2000, that agency moved Maine's rating from AA up to AA-plus, which the state held until 2004, when it went back down to AA.

King spokeswoman Crystal Canney said Fitch was the agency they confirmed this with, forwarding an email from Fitch saying Maine did get its highest rating from them during the King years.

But Fitch had only been rating Maine since 1996, so history as defined by the King campaign is awfully short. If you look at peak King-era numbers from two other agencies, Standard and Poor's and Moody's, they weren't the highest in history.

From Standard and Poor's, Maine obtained the highest possible rating, AAA, in 1978 and 1982, but could only muster AA-plus ratings from 1991 through 2000. An AAA rating means the company believes you have "extremely strong capacity" to meet bond commitments; AA-plus means they think you are strong, but your long-term risk is a bit greater.

And finally, numbers from Moody's, which has been rating Maine longest, gave Maine a King-era peak rating of Aa2 in 1998, 2000 and 2002.

Though their company judges an Aa rating as being "high quality," it's not their highest rating. That would be Aaa, "highest quality, with minimal credit risk." Maine got that in 1944 before a downgrade in 1974.

This statement that King presided over the highest bond rating ever differs a little bit from a similar claim on King's campaign website, which says that during the King years, "Standard & Poor's maintained its already solid AA+ rating (while) both Fitch and Moody's increased Maine's ratings to AA+, marking the state's first credit rating upgrade in many years."

That's more accurate, though Moody's doesn't use a system involving pluses. And while the "many years" claim is accurate with Moody's, which hadn't upgraded Maine since 1982, it isn't really with Fitch, because they only started rating Maine in 1996, four years before the upgrade.

Verdict: Though King's campaign characterizes one rating right, it eschews two other agencies. The one they choose is also the agency that has been rating Maine for the shortest amount of time. For that, we're downgrading the truthfulness of the statement in the ad.

We rate this statement mostly true.

King's introductory ad is short on substance and detail, but the tax claim is true by any measure. The bond rating claim is dubious, because it ignores two rating agencies to create the most favorable measure of Maine's creditworthiness.

We rate this ad mostly true.

Michael Shepherd can be contacted at 621-5632 or at:

mshepherd@mainetoday.com

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