Maine Policy Review Summer/Fall 2010

Summer/Fall 2010 ¡ Vol. 19, No. 2 ¡ $15

Maine Policy Review

Margaret Chase Smith Policy Center The University of Maine

MAINE POLICY R

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Volume 19, Number 2 · MAINE POLICY REVIEW · 1

PUBLISHERS MARGARET CHASE SMITH POLICY CENTER Linda Silka, Interim Director

MARGARET CHASE SMITH LIBRARY Greg Gallant, Director

EDITORIAL STAFF EDITOR Ann Acheson Margaret Chase Smith Policy Center

ASSISTANT MANAGING EDITOR Barbara Harrity Margaret Chase Smith Policy Center

PRODUCTION Beth Goodnight Goodnight Design

WEB SITE MAINTENANCE BJ Kitchin Margaret Chase Smith Policy Center

DEVELOPMENT Eva McLaughlin Margaret Chase Smith Policy Center

COVER ILLUSTRATION Robert Shetterly

PRINTING J. S. McCarthy Printers

Maine Policy Review (ISSN 1064-2587) publishes independent, peer-reviewed analyses of public policy issues relevant to Maine.

The journal is published two times per year by the Margaret Chase Smith Policy Center at the University of Maine and the Margaret Chase Smith Library in Skowhegan. The material published within does not necessarily reflect the views of the Margaret Chase Smith Library or University of Maine.

The majority of articles appearing in Maine Policy Review are written by Maine citizens, many of whom are readers of the journal. The journal encourages the submission of manuscripts concerning relevant public policy issues of the day or in response to articles already published in the journal. Prospective authors are urged to contact the journal at the address below for a copy of the guidelines for submission or see our Web site.

For reprints of Maine Policy Review articles or for permission to quote and/or otherwise reproduce, please contact the journal at the address below.

The editorial staff of Maine Policy Review welcome your views about issues presented in this journal. Please address your letter to the editor to: Maine Policy Review • 5784 York Complex, Bldg. #4 • University of Maine • Orono, ME 04469-5784 207-581-1567 • fax: 207-581-1266 http://mcspolicycenter.umaine.edu/?q=MPR

2 · MAINE POLICY REVIEW · Summer/Fall 2010

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THANKS TO …

Major Sponsor

Margaret Chase Smith Library Patrons

An Anonymous Patron Benefactors

Linda Silka and Larry Smith

Donors

Karl Turner and Susannah Swihart

Contributors

H. Allen and Sally Fernald Merton G. Henry Richard C. Hill Roger Katz William Knowles Barry K. Mills & Susan G. Mills

Peter Mills Maine Department of Environmental Protection Maine Development Foundation Maine Education Association Maine Forest Service, Forest Policy and Management Division

Evan Richert Lee Webb and Anonymous Contributors

Marge Kilkelly and Joe Murray John Lynch Philip McCarthy Sylvia Most and Alan Cardinal Lars Rydell

Elizabeth Ward Saxl and Michael Saxl Basil Wentworth and Anonymous Friends

Friends

Tracy B. Bigney Sandy Butler Maroulla S. Gleaton David Hart Hussey Seating Company

Volume Nineteen of Maine Policy Review is funded, in part, by the supporters listed above. Contributions to Maine Policy Review can be directed to the Margaret Chase Smith Foundation, 10 Free Street, P.O. Box 4510, Portland, ME 04112. Information regarding corporate, foundation, or individual support is available by contacting the Foundation.

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Volume 19, Number 2 · MAINE POLICY REVIEW · 3

TABLE OF CONTENTS

FORUMS TO OUR READERS . . . . . . . . .

6

THE MARGARET CHASE SMITH ESSAY Bite-Sized Democracy: The Virtues of Incremental Change Peter Mills . . . . . . . . . . . . . . . . . . . . . . . 8

STUDENT PERSPECTIVE

Margaret Chase Smith Library Student Essay Contest David Richards . . . . . . . . . . . . . . . . . . 10

Health Care Reform for a New Era Kacie Rioux . . . . . . . . . . . . . . . . . . . . 11

THANKS TO OUR REVIEWERS

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. . . . . . . . . 69

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TABLE OF CONTENTS

FORUMS Public Collaboration in Maine: When and Why It Works The authors present recent Maine case studies and analyze common features of effective public collaboration, a process in which people from multiple sectors (including government and non-governmental entities) work together to find solutions to problems that no single sector could resolve on its own.

Diane E. Kenty, Ann R. Gosline, Jonathan W. Reitman . . . . . . . . 14

COMMENTARY Reinventing Maine Government: How Mainers Can Shape a Sustainable Government and a New Prosperity Alan Caron and David Osborne argue that Maine spends more on government than either similar rural states or the national average. They recommend fundamental, structural change in state and local government to face the challenges of the twenty-first century.

Alan Caron and David Osborne . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Cleaning House?

Assessing the Impact of Maine’s Clean Elections Act on Electoral Competitiveness Does full public financing of legislative elections make races more competitive?

Richard Powell analyzes the impact of the Maine Clean Elections Act (MCEA) on house and senate elections since its passage in 2000.

Richard J. Powell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Putting Equity Back in Reverse Mortgages: Helping Seniors Retire with Dignity Andrew Helman describes how state policymakers can help some seniors age in place through policies to strengthen private-sector reverse mortgages, whereby individuals who may be “house rich but cash poor” can use their home’s equity to receive income.

Andrew C. Helman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

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Volume 19, Number 2 · MAINE POLICY REVIEW · 5

LETTER FROM THE EDITOR

, s r e d a e R Dear

out g a lot ab in k in th n s, I’ve bee compared l election winning is easy sitions a n o ti a n out that gical po tate and e recent s It’s been pointed olve taking ideolo ise. The word th f o t h g .

In li an inv erning mprom known English election c pt of gov quires co the conce ing. Winning an verning usually re nary, had its first n o tio h to Lati ern with gov a partisan base. G riam-Webster dic ugh Anglo-Frenc ng with refere er lo ro to energiz ccording to the M nd traces back th reek kybernan. A ministration, a a d G y a r ,” d to n tu r n a ly en “gove rteenth c ern,” and ultimate ng policy-making ome must govern u fo e th c use in directi ,” (“in er, gov at lling and estraining iple” (“customs th re, “to ste guberna process of contro ing in check or r c ing prin ld e ring to th an also mean “ho precedent or decid c a g ent in governin s”) or “serving as governm . Kenty, d e n r a u g it d ). in n s” n e eE n er exp ea of gov nt messages. Dian roblems an decisio id m e u h th n h r c p e e a r gov sue appro a number of diffe there are difficult of public is is th in t ess ith les tha The artic different ways, w . Reitman note iscuss the usefuln ether tog ey d r of an W a numbe sline, and Jonath ent can solve. Th ltiple sectors work recent Maine o u m m G n m r o . e Ann R mples fr rnment, l of gov ple from tailed exa hich peo e ingle leve that no s n, a process in w lems, and give de e that Maine gov state is to o u b e ti g o a r r th r a p o if e ch ,” rn collab ons for su and David Osbo to be “reinvented . Richard Powell’s ti lu o s d to fin ntury onantally, Caron private d ty-first ce fundame ies. Alan case stud needs to change needs of the twen e the influence of analyzes he ls, ic uc tive at all leve pressing econom ring effort to red ons Act of 2000; te’s legisla e ta e ti s e c n e th le s io th E s p e addr ess in e Clean aine’s petitiven e Maine n help th cusses M article dis ctions through th f elections on com h policymakers ca ity in their o u ic ele tions on of public funding ends ways in wh poor but have eq ls, who m h t il s c m a a M c o p c r e e r r te im a n o Pe the w Helma iors in Maine wh erse mortgages.” re, writes in e r d n A . s v “re race islatu at of sen ate-sector ange, wh in the leg number growing strengthening priv service to Maine of incremental ch y of es homes, b ded sixteen years y about the virtu a s n s recently e et Chase Smith e used on ill be foc .” ar y w c g r e a r a u c s o M is e t rs rea Perry. th dem 11, our fi b Felder and And ite-sized 0 b “ 2 s ll in a t c c he ability. ors De an expe hat you c d, with guest edit tant topic, sustain w g in w ie r o Prev y impo ic of fo rtant top an equall the impo issue will be on nd Our seco

6 · MAINE POLICY REVIEW · Summer/Fall 2010



Best,

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

My Creed . . .

is that public service must be more than doing a job efficiently and honestly.

It must be a complete dedication to the people and to the nation with full recognition that every human being is entitled to courtesy and consideration, that constructive criticism is not only to be expected but sought, that smears are not only to be expected but fought, that honor is to be earned but not bought.

Margaret Chase Smith

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Volume 19, Number 2 · MAINE POLICY REVIEW · 7

THE MARGARET CHASE SMITH ESSAY

The Margaret Chase Smith Essay

Bite-Sized Democracy: The Virtues of Incremental Change

by Peter Mills

I

n mid-summer on Mount Desert Island, the south end of Echo Lake is a great place to teach a kid to swim. The beach is warm and nearly flat. As you enter the water, the slope is so gradual as to be nearly imperceptible. While visiting there in 1981, my four-year-old daughter began by lying prone in shallow water and walking forward on her hands while kicking with her legs behind. Over a span of 50 yards, she moved gradually away from shore. By the time the water was arm-length deep, she began bouncing off her finger tips and then dog-paddling, first with one hand and then with both, finally free of the bottom, swimming proudly into depths that no longer troubled her.

A year later, I went down to Cambridge for a weekend course on how

to train other attorneys to be better trial lawyers. Our guinea pigs were Harvard law students. After closely observing a student conducting elements of a trial, we seasoned attorneys were invited to give a five-minute critique to help the student to improve. One of my colleagues, a glib and bright practitioner, rattled off a dozen things the hapless student had done wrong and then looked proudly over at our master instructor, Robert Keaton.

Keaton, one of the finest law professors of the twentieth century, inquired, “What impact have you made on our student, here? Has he learned anything from your critique? Or have you merely destroyed his ego?” Then Keaton proceeded with a critique of his own. He began by reinforcing what the student had done well.

Then, he made two important suggestions for improvement. Finally, he brought his points home by providing his own live and extemporaneous demonstration of how to do it better. Later on, the student was asked to perform again and apply what he had learned.

The common point of these two stories is that learning is a gradual, evolutionary process. A good teacher assesses carefully the student’s present ability before bringing the student along in small increments to a new stage of development.

Reading Recovery is a remedial teaching system designed to eliminate illiteracy among first graders. It is fascinating to examine the hundreds of small texts

8 · MAINE POLICY REVIEW · Summer/Fall 2010

that the program makes available, each little book numbered in sequence by degree of difficulty, each one slightly more challenging than its predecessor—but almost imperceptibly so, like the slope of the beach at Echo Lake.

Shredded wheat became a popular cereal when Kellogg’s and Nabisco reduced the size of the biscuit to a single bite.

What is true for teaching and breakfast cereal is just as true in politics. In high school survey courses on world history, a focus on dates creates the impression that revolutions are sudden events occurring all at once: the Declaration of Independence in 1776; the storming of the Bastille in 1789; Lenin’s arrival at the Finland Station in 1917. When we get to college and examine these events more closely, we re-discover them as evolutionary processes taking place in stages over significant periods of time. In America it was 15 years between the Boston tea party and ratification of our Constitution, three more years before the Bill of Rights was added, and another seven decades before the Civil War resolved some unanswered questions.

Human beings are creatures of evolution. We can’t absorb rapid change.

We abhor what is radical, sweeping, or too broad in scope.

Take for example the Patient Protection and Affordable Health Care Act (P.L. 111-148) passed by the U.S. Congress in March 2010. The most

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THE MARGARET CHASE SMITH ESSAY

common complaint is that the law is too big, that there is too much in it.

Newspaper photos of its threatening bulk lend credence to critics from the right that the law portends a government takeover of our personal lives. Now the law is under frontal attack, with an open question as to how much of it will survive until full implementation in 2014.

In recent years, the nation has not been without more gradual progress in healthcare: the Kennedy-Kassebaum insurance reforms of 1996; SCHIP coverage for children in 1997; Medicare prescription benefits in 2003; the HiTech Act of 2009.

How much happier might we be as a nation if the 2010 reforms had consisted of a few simple measures, for example, allowing those above 55 years of age to buy into Medicare or making Medicaid open to anyone with an income below 135 percent of poverty? In 50 pages of text, Congress could have made health insurance available to nearly everyone in America while avoiding the length, the heft, and the complexity of the present law.

Much of the rest of the Patient Protection and Affordable Health Care Act might well have passed in separate bills as consensus legislation, including provisions relating to cost containment, payment reform, comparative effectiveness research, medical malpractice demonstration grants, insurance policy reforms, Medicare pilot programs, medical workforce initiatives, and national quality forums.

Here in Maine, in June of 2010 voters defeated comprehensive tax reform in large measure because the bill was so big, complex, and poorly understood. For years economists have advised Maine to reduce taxes on income and broaden the base of the sales tax. Rather than try to do it all at once, what if the legislature had voted to tax soda and candy, used the

proceeds to reduce the tax on labor and income, and then sent the measure out for public approval? If the bill were voted down, at least its rejection could not be blamed on a failure to understand it.

For years the gas tax has been falling behind in its task of supporting roads and bridges. To address anti-tax hostility, why not package up a number of projects to improve roads across the state and then send them out for voter approval, upon condition that the gas tax be raised by a few cents to pay for them? Let voters decide directly whether to pay more for gas or for damaged tie rods.

Too often, interest groups who want to change policy try to cram all their dramatic reforms into a single piece of legislation. Unless there is a ready-built consensus behind the policy, this strategy has a high risk of failure.

In my 16 years of service, I was often the legislator who introduced the largest number of separate bills. Many were no longer than a single page. A politician’s attention span is pathetically short. If you build six separate bills around a common theme, it gives you six different cracks at the committees. For you to lose, they have to turn you down six times. The odds are good that a portion of your agenda will get through.

Then, you can bring back your remaining ideas next session, saving some bite-sized pieces of your “revolution” for another day. 

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Peter Mills has practiced law in Portland and Skowhegan.

In 2010 he completed 16 years of service in the Maine Legislature, having served in both the house and senate.

He ran unsuccessfully for governor in the Republican primaries of 2006 and 2010.

Volume 19, Number 2 · MAINE POLICY REVIEW · 9

STUDENT PERSPECTIVE

Margaret T Chase Smith Library Student Essay Contest

By David Richards

he Margaret Chase Smith Library is pleased to have Maine Policy Review publish the top entry in its annual essay contest for Maine high school seniors, continuing the journal’s tradition of printing the top essays, which dates back to 2003. To honor Senator Smith’s mutual interests in young people and public policy, the library has invited students each year since her passing in 1995 to write on topics ranging from community service to foreign affairs. The staff and judges continue to be impressed by the seriousness and substance with which our future leaders address the vital matters of our times.

The focus for the 2009-10 school year was an issue that has challenged the country since the end of World War I— national health care. Specifically, students were asked to offer their own policy prescriptions to improve and reform the American medical system. Such a vast, complex, and vexing topic produced a wide variety of responses. Mirroring the national and congressional debates, opinions generally fell into one of three categories: belief that health care was better left decentralized; support for a greater federal role in the medical system; or recognition that the economics of the issue severely constricted opportunities for real reform.

There was no consensus. The judges evaluated entries on the basis of evidence and argumentation, not according to ideology.

Winner of the $500 first prize was Kacie Rioux, who at the time was a student at St. Dominic Regional High School in Auburn, Maine. Citing the “general welfare” charge in the Preamble to the United States Constitution, Rioux argues: “Providing affordable health care coverage for all Americans can be seen as an investment in the well-being of the nation. All tax-paying citizens

10 · MAINE POLICY REVIEW · Summer/Fall 2010

should have access to health care and not fear the consequences of the insurance companies or unexpected state intervention.” Other top essayists were second-place recipient Elizabeth Barker of Marshwood High School in Eliot and third-prize winner Lee Smith of Acadia Christian School in Trenton.

We hope Kacie Rioux’s submission stimulates readers’ thoughts, and encourages them that the best of our teenagers are up to the challenge of informed leadership.

If you know a Maine high school senior who might be interested in the annual contest we hope you will make them aware of it. For more information, please contact the library at mcsl@mcslibrary.org or check the information online at www.mcslibrary. org/program/edu/essay.htm. David Richards is the assistant director of the Margaret Chase Smith Library in Skowhegan, Maine.

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STUDENT PERSPECTIVE

F

i r s t

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l a c e

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s s ay

Health Care Reform for a New Era

By Kacie Rioux

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hink of all the major social reforms in the last century. The New Deal, the Civil Rights Act, the G.I. Bill, and the Social Security Act were all measures taken by the federal government to improve the welfare of its citizens. Since the 1970s and the failure of the Family Assistance Plan, however, no major social reforms have occurred. The United States and the rest of the world have changed substantially in the past 40 years. In a new century with increased technology and expanded capabilities, why does the nation refuse to change its anachronistic attitudes towards health care? The insurance companies have been the beneficiaries of laissez faire economics for too long, and now is the time for America to address these injustices.

According to the Preamble of the Constitution, it is a responsibility of the government to provide for the “general welfare” of the populace of the United States. Civilians of the nation are considered free; however, this cannot be the case if people are unjustly restrained by high medical bills that prevent them from living freely. Providing affordable health care coverage for all Americans can be seen as an investment in the well-being of the nation. All tax-paying citizens should have access to health care and not fear the

consequences of the insurance companies or unexpected state intervention. Currently, uninsured citizens are filled with dread when facing a medical emergency or even just a doctor’s appointment. Millions of Americans may skip appointments if they fear possible diagnoses by the doctor because their insurance will not provide coverage.

Ultimately, this myopic process creates even greater costs. Preventative care saves lives at a lesser cost to citizens, insurance companies, and the government.

Expanding the availability of resources while changing the practices of companies will improve the lives of Americans everywhere, especially those of the lower classes.

Currently, insurance companies reserve the right to deny people on the basis of pre-existing conditions and can drop people by choosing not to renew their policies or by substantially raising rates. This fact can be terrifying for lowincome citizens or even members of the middle class faced with a sudden emergency. Change is necessary so that people can feel safe knowing that there will be assistance if something goes wrong.

Avoiding hospitals and doctors when feeling sick or injured is a foolish idea that negatively affects the economy and society.

For example, a man, Richard Smith, falls off a ladder and lands on his back while doing some yard work. He works as an independent carpenter and does not have health insurance. Although Richard is in extreme pain, he refuses to go to the hospital because of the likelihood that he will be forced to pay expensive medical bills. Instead, Mr. Smith goes inside and alternates ice and heat for a few days until he feels slightly better. He goes back to work and a few months later while carrying some heavy drywall to the second floor of a new home, his back spasms and

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he falls down a flight of stairs, severely injuring himself. An ambulance has to be called and Richard undergoes emergency surgery and nine months of physical therapy before he can go back to leading a normal life. Even after all of this trauma and expense, it is not possible for Mr. Smith to return to his work as a carpenter, so he ends up living off the state. In this situation, if the man had insurance and went to the hospital after the initial accident, the costs for both the individual and society would have been decreased. Instead the expenses were absorbed and the government is forced to pay the man disability/welfare. This additionally drains the economy while hurting the community.

Paying taxes so that health care can be available for all citizens is a responsibility.

Although a competitive consumer nation, Americans have always relied on their neighbors in a time of need. The increasingly individualistic attitudes of recent generations, however, have led to a noticeable lack of community involvement. Yet paying taxes to support the well-being of all citizens should be valued by Americans.

It shows the importance of obtaining the common good. If the hypothetical Richard Smith had been able to be rehabilitated and work and pay taxes, he would have reached a level where he was able to help others through his labors.

All American citizens should be entitled to health care. Anyone who pays taxes should have the peace of mind that when faced with a serious medical emergency he or she will not be left destitute. No person should be denied basic rights or be forced to choose between paying medical bills and food for their families. Providing medical care for the elderly, poor, children, and infirm is already done even without a direct plan with the effect of law. The Hippocratic Oath taken by all doctors

Volume 19, Number 2 · MAINE POLICY REVIEW · 11

STUDENT PERSPECTIVE

professes that physicians will remember those “whose illness may affect the person’s family and economic stability. My responsibility includes these related problems, if I am to care adequately for the sick.”1 All medical professionals are required to help all who ask, and the same attitude should be adopted by the government. Anyone who needs assistance should not fear the practices of the insurance companies, and government regulations should help people to feel secure and safe in a time of crisis.

A major concern of many people with the new health care system is that of illegal immigration. People who enter the country illegally without documentation should not be allowed to receive the benefits of this new system. The current plan passed by Congress does not allow illegals to purchase insurance under the new program. Individuals encountering a medical emergency will be forced to pick up the costs on their own. In addition, this new policy could be used to help police the borders. Everyone who shows up at hospitals without insurance and is recognized as an undocumented alien should be helped, charged for services, and either given an opportunity to apply for citizenship or deported back to their home country.

Paying for the new health care program will be a burden to all citizens.

However, by making insurance available to all citizens, Medicaid funding should be cut. Also, with more preventative medicine available, by the time people are eligible for Medicare, they should have fewer major health problems that raise costs. To pay for this program, higher taxes on the wealthy and middle class will be necessary.

Although no one likes to speak those words, the benefits outweigh the negatives.

If lower classes are able to receive health care, their place in society and standard of

living would be easier to improve. When the lower classes are profiting it does not injure the upper classes. Creating more people who are better able to contribute to the workforce and economy is not a negative consequence. Although at first the burden may seem large, it is important to remember that Americans are already paying the medical bills of those who cannot afford health care. Having a health care system will better enable the lower classes to advance and eventually assume some of the costs. Currently, there is not a specific tax taken out specifically for health care; however, unpaid bills are paid by the federal income tax. The Hill-Burton Act already provides subsidies and free care to people based on poverty.

A way to finance subsidies under the Obama administration plan is a ten percent tax on the tanning industry. This measure should receive bipartisan support.

Tanning is very dangerous and a leading cause of skin cancer. Teenagers and young adults have caught onto this trend and are suffering the consequences. A tax may discourage some from following the trend in addition to raising revenues to pay for the new plan.

Another highly debated part of President Obama’s health care plan is the public option. It would create a government-run insurance program that would compete with private insurance companies.

The goal would be to provide better care for citizens and influence the private sector to reform its practices to compete with the public option. Government bureaucracies, however, such as the Veteran’s Administration and the U.S. Post Office, are too large and inefficient to function properly. This business would not be motivated by profit, which would make it increasingly difficult to be efficient and effective. The bureaucracy would be moti-

12 · MAINE POLICY REVIEW · Summer/Fall 2010

vated to provide better health care in order to cut future Medicare costs. This fact, however, is unlikely to stimulate productivity among the individuals working in the system.

Instead of creating a new government bureaucracy, it would be equally effective to create a health exchange and enforce stronger regulations for insurance companies. Civilians would be able to choose their own insurance through the health exchange created by the government. The government could still provide subsidies for people to purchase health insurance.

The formation of new laws to end practices such as denying pre-existing conditions or dropping customers could easily be instituted. Congress could also pass laws allowing greater transparency, no discrimination, and creating caps on how much people can pay. This practice would not require the creation of a public option.

The government could focus instead on creating new health care facilities and providing easier access to training for doctors, nurses, and other medical personnel. In a nation with a new health care program, it will be important to have enough staff and facilities to make sure all the needs of the populace are met.

Another important area that should be addressed in the health care plan is the prescription drug industry. Drug manufacturers spend millions of dollars on persuading doctors to prescribe their products and on advertising. Bribery runs rampant in this industry, and the FDA can only advise consumers on which products are safe for consumption. Prescription drugs have huge profit margins and have become more prevalent in society. Reform in this industry is definitely needed.

The cost of pharmaceuticals directly influences several factors of health care including private insurance. Money spent

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STUDENT PERSPECTIVE

on prescription drugs has recently begun to exceed that of all other sectors including hospital care.

The industry has also been able to secure a monopoly. Pharmaceutical companies have patent rights on a drug for 20 years before any generic versions can be manufactured. Some of these companies will slightly change the formulation of the drug at the end of this 20-year period to extend the patent rights and keep the prices high. Under a new health care plan, demand for prescription drugs is likely to go up. It is important that the government simultaneously address the corruption of this industry in addition to that of the insurance agencies.

Health care reform is necessary. Even in a financial downturn, this plan can help to stimulate the economy by providing more jobs in the medical field and helping people feel secure and confident in their own well-being. Not having to worry about being covered and fighting with the insurance company will provide citizens with the peace of mind that they deserve.

Major social change has not occurred in the United States in decades, and it is time that Lyndon B. Johnson’s and Harry Truman’s programs are updated in a way that is better suited to modern society and that also reaffirms the government’s responsibility to its citizens as written in the Constitution. 

ENDNOTE 1. www.pbs.org/wgbh/nova/doctors/oath_ modern.html.

Kacie Rioux of Minot, Maine, graduated as valedictorian in 2010 from St. Dominic Regional High School in Auburn. She is attending Boston University with an undeclared major, but will likely double major in political science and English.

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Volume 19, Number 2 · MAINE POLICY REVIEW · 13

PUBLIC COLLABORATION IN MAINE

Public Collaboration in Maine:

Government by itself cannot address all complex public policy issues. Diane Kenty, Ann Gosline, and Jonathan Reitman write that “public collabo-

When and Why It Works

ration” can alter the discourse on divisive local,

by Diane E. Kenty

regional, and state issues. Public collaboration is a

Ann R. Gosline

process in which people from multiple sectors

Jonathan W. Reitman

(government, business, nonprofit, civic, and tribal) work together to find solutions to problems that no single sector is able to resolve on its own. The authors describe the common features of effective public collaboration and provide detailed case studies and analysis of five recent examples of public collaboration in Maine.

14 · MAINE POLICY REVIEW · Summer/Fall 2010

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PUBLIC COLLABORATION IN MAINE

Public collaboraINTRODUCTION

M

aine people have a time-honored tradition of gathering to talk about community concerns— whether at town meeting, in the stands at the high school football game, or around the coffee pot at the store “in town.” In recent years, Maine policymakers have tapped this custom by adopting a collaborative approach to tackle a number of complex public issues.

This article addresses forms of collaboration1 that involve participation by one or more public sector entities and an issue or problem of keen public interest, for which we use the term “public collaboration.”2 Maine’s use of this tool is part of a national movement that has seen many states and regions turn to collaboration to solve problems through joint efforts of the business, government and non-profit sectors.3 It is consonant with increasing calls for broader civic engagement and citizen participation in government as a fundamental tenet of a healthy democracy (Leighninger 2006; Kemmis 1995; Susskind and Cruikshank 1989).

Public–private partnerships are not new. The evolution of networks connecting government with private and nonprofit sectors has been examined (Goldsmith and Kettl 2009). Many helpful examples of public–private partnerships have been documented (Susskind, McKearnan and Thomas-Larner 1999; Chrislip and Lawson 1994; Fosler and Berger 1982).

Others have described the inner workings of the collaborative process (Chrislip 2002; Susskind, McKearnan and Thomas-Larner 1999; Gray 1989).

In this article, we examine five recent examples of public collaboration in Maine. We describe the features that distinguish effective collaborative efforts and discuss certain key elements in the case studies that affect the potential for success in public collaboration.

We conclude with lessons for leaders who are considering a collaborative approach to solve community problems or shape public policy.

What Is Public Collaboration?

Public collaboration includes a variety of processes4 in which one or more public officials invite representatives from other sectors—business, nonprofit, tribal, and civic—to work together to achieve

pragmatic solutions to common tion reflects not problems that go beyond what any sector could achieve on its merely a search for own. Often, multiple public agencies or departments are new policy answers involved across local, regional, state and/or federal levels of or new ideas, but government.

A collaborative approach to a search for new governing refutes the assumption that government is capable of, or types of govershould be expected to find workable solutions to every problem nance that meet on its own. In Sirianni’s model, government should play the role the needs of the of “civic enabler” of productive engagement and collective twenty-first century. problem-solving among ordinary citizens, civic associations, and stakeholder groups (Sirianni 2009). Public collaboration reflects not merely a search for new policy answers or new ideas, but a search for new types of governance that meet the needs of the twenty-first century (Ruckelshaus 2010). It presumes that groups and individuals outside of government are capable of jointly developing strategies to improve joint outcomes, thereby moving outside the range of voting, political organizing, campaigning, and lobbying activities that typify a representative democracy. Community and elected leaders may need to work together to develop and share knowledge in certain areas, or a new vehicle may be needed to allow traditional adversaries to talk with one another on an informal basis, outside of traditional regulatory or administrative channels. Public collaboration encompasses both formal and informal systems and networks for decision-making and problem-solving.

Effective uses of public collaboration often have several features in common (Carlson 2007). While not uniformly present in every case, these features mark the most successful uses of public collaboration: • Initial assessment: Before sponsoring a collaborative process, the potential sponsor evaluates whether the problem is sufficiently compelling

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to devote the time and resources to a collaborative effort, whether the time is right, and whether necessary resources can be found.

• Sponsoring agency or entity: A government agency or other public entity brings parties together across governmental, sectoral, and/or organizational boundaries to achieve integrative solutions.

• Convener: In addition to sponsorship by a public agency or other entity, a respected leader serves as the “convener.” By virtue of an office held, personal reputation, or leadership skills, the convener has the trust and credibility to bring differing or competing interests to the table. The convener may be assisted by a facilitator, a neutral third party who helps to assess, plan, organize, and manage the collaboration.

Most major public issues require involvement by more than one level of government...and more than the public sector alone.

• Inclusive participation: Public collaboration takes place within, not outside, the democratic process and works best when all necessary interests are included. All participants have a voice and share responsibility for the process and outcome.

• Neutral forum: A neutral forum is created in which disparate views are respected and diverse parties can work together to solve problems and make decisions.

• Fair and reasonable procedural rules or guidelines: With the assistance of a sponsor and/or facilitator, participants define the scope of discussions and adopt ground rules for conducting meetings and making decisions.

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• Gathering and sharing information: Participants share and verify information and, when needed, jointly develop ways to acquire and manage new information.

• Developing solutions: Participants work together to explore possible solutions and come to agreement on the best course of action.

• Implement result: When an agreement is reached, the sponsor and all stakeholders affirm their commitment to identified steps for implementing the agreement. A mechanism is established to effectuate the agreed-upon plan.

Public collaboration typically proceeds in three phases (Carlson 2007). In the first phase, the sponsor or planning group lays the necessary foundation by conducting an assessment to determine whether or not to initiate a collaborative process. The second phase, the actual course of collaborating, is the most visible phase. The sponsor works with a convener to identify and bring diverse interests to the table. Participants come together and jointly agree upon procedural rules, begin to develop and exchange information, frame and discuss issues, generate and evaluate options, develop mutually agreed-upon solutions, and secure the endorsement of all constituencies and authorized decision-makers. The third phase is implementation.

Participants work together to implement their agreement, including formalizing the decisions, carrying them out and monitoring the results.

WHY MORE PUBLIC COLLABORATION?

D

espite generations of experience in talking about community concerns with neighbors or at town meeting, few people have experience working successfully in tandem with government officials and private organizations to develop responses to problems that transcend traditional notions of winning and losing.

Collaboration can help to diminish divisiveness between citizens that occurs when polarizing issues are allowed to fester. It can also turn the focus toward future goals and a common vision. Public collaboration may be helpful to address longstanding differences

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based on geography, background, partisanship and the many interpretations of “Two Maines.”

Three trends are driving the increase in more public collaboration in Maine and nationwide. First, societal problems are growing more complex, and governance has become more challenging. Second, government simply lacks the resources to tackle problems on its own. Third, the population in Maine (and nationally) is becoming more diverse, and the populace increasingly expects to have a say in decision-making.

Increasing Complexity

In a global economy anchored by rapid technological change, Maine’s challenges aren’t getting any simpler. Most major public issues require involvement by more than one level of government (often local, regional, state, and federal), and more than the public sector alone. This is true whether the issue is planning for emergency management, public health, law enforcement and corrections, or social services.

Several precedents in Maine validate the complexity of problems and existing uses of collaboration.5 The Long Creek case study discussed below required multiple levels of governmental involvement.

Gateway 1, a project that includes 21 communities along Route 1 from Brunswick to Rockport working with the Maine Department of Transportation, exemplifies state and local collaboration.6 At a single level of government, two counties collaborated to consolidate their jails,7 and municipalities work together through several regional councils of governments in Maine.8 Other collaborative networks in Maine involve private partners, along with government agencies. The regional planning coalition known as Mt. Agamenticus to the Sea Conservation Initiative in York County is one example.9 The latter stages of Mount Desert Island Today and Tomorrow also included both public and private partners.10 Similarly, the case studies discussed in this article all combined private sector involvement—whether business, non-profit organizations, or concerned individuals—with the public sector.

Decreasing Resources

Instances of inter-governmental cooperation at the local and regional level have emerged in Maine, but only to a modest extent. Maine has nearly 500

municipalities and 16 counties, and a strong tradition of “local control.” Demands on public resources are increasing, but those resources are dwindling. In most of the biennial state budgets adopted by the Maine Legislature since 2002, budget deficits have required substantial adjustments when anticipated revenues failed to materialize. State revenues have dropped sharply since FY09 and, for the biennial budget that will take effect in July 2012, the Maine Office of Fiscal and Program Review has estimated a structural budget gap of at least $800 million.11 Especially while the U.S. economy continues its slow rise from recession, Maine government lacks the resources to tackle problems on its own. The public and private sectors will need to tackle problems as partners and leverage all available resources.

Growing Diversity and Popular Expectation

Maine’s population is growing more diverse, and citizens increasingly expect to have a say in public issues According to recent demographic data from the 2010 U.S. Census, though the vast majority of Maine’s population continues to be Caucasian, approximately 77,000 residents are of other races.12 The increasing racial diversity of the population means a greater heterogeneity of perspectives and influences on governance. The public increasingly expects to have a voice in decision-making, especially given the explosion of information available on the Internet. With hundreds of thousands of households in Maine connected to the Internet, and the rest of the population enjoying access through libraries and other community venues, citizens have never been in a better position to “get up to speed” on issues quickly. Online discussion about all kinds of issues has proliferated. Mainers increasingly register their opinions online in response to news stories, routinely read and write blogs, and are accustomed to receiving information electronically on public issues through municipal Web sites. Community leaders and ordinary citizens expect to be consulted and involved in finding ways to capitalize on opportunity and to solve problems.

While the Internet has many redeeming features, it can also accentuate polarization or spread disinformation, if users visit only Web sites that confirm their thinking and beliefs. It can be a challenge to confirm the validity of online information, even when attempts

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are made. Participation in a well-managed collaborative effort can cut down on this “cocooning” effect to bring people of different views together for discussion.

RECENT EXAMPLES OF PUBLIC COLLABORATION IN MAINE

W

e explore here five examples of public collaboration that represent a mix of issues, structural features, participants, and process design. Not all are universally acclaimed as resounding successes; as with most high-stakes, high-profile public issues, they have political implications that tend to spawn continuing debate. Some of the examples presented here also required further governmental or other institutional action, and are works in progress. Brief discussion follows each case study.

Sears Island: An Old Controversy in Need of a New Approach

Since the 1970s, controversy roiled over what to do (if anything) with Sears Island, an island in Penobscot Bay off the coast of Searsport and the largest undeveloped island on the eastern seaboard. Proposals had included a nuclear power plant, a cargo and cruise ship location, an oil refinery, a coal-fired power plant, and a liquefied natural gas (LNG) facility, along with conservation proposals for leaving the island undeveloped for wildlife and bird habitat and recreational use.

In December 2005, dozens of people gathered in the governor’s cabinet room in Augusta to attend a “scoping meeting.” The purpose of the meeting was to identify issues of concern to the various parties and agencies involved. It also explored the possibilities for creation of a group that would be empowered to recommend consensus solutions to the decadesold debate on appropriate uses for Sears Island.

Subsequently, the governor sponsored the Sears Island Planning Initiative (SIPI), a group of 46 stakeholders.

They represented land trusts and conservation organizations, transportation interests, state regulators, and local activists.

Over the next several months, the SIPI steering committee held eight day-long meetings to educate itself on the issues and to debate their merits. The steering committee also hosted a public “open space” 18 · MAINE POLICY REVIEW · Summer/Fall 2010

meeting at which members of the public who could not attend the steering committee meetings could voice their opinions. By November 2006, emerging areas of agreement had gelled enough for the group to suggest that the facilitator develop a “straw man” proposal to summarize the group consensus to that point.

Using that proposal as a base, the steering committee continued its debates and refined the proposal, working through 12 successive drafts. On April 27, 2007, the group adopted a consensus proposal that set aside 330 acres of the 931-acre island for development of a potential port, protecting the rest with a conservation easement. Four members of the original group of 46 dissented, but in the spirit of consensus, they agreed to step aside to let the agreement move forward.

The consensus agreement was then approved by the governor and the town of Searsport, and, ultimately, the Maine Legislature’s Transportation Committee. It is now being implemented through a follow-up joint use planning committee.

Assessment The initial assessment to see whether a collaborative effort was feasible took the form of a scoping meeting convened by the governor, where it became clear that all parties felt that the current “limbo” status of the island was untenable. Based on the lengthy history of the Sears Island conflict, interested parties were battle-weary and at a stalemate. Conservationists and commercial interests had concluded that neither could prevail without the other. Continued uncertainty was growing costly to the town of Searsport, which was losing potential tax revenue, to conservationists, who sought to invest in a recreation center, and to commercial interests, who knew they could not attract investors or developers of a port proposal without precipitating bitter opposition. That stalemate brought about a tentative (if skeptical) willingness to participate in a group that was charged with developing consensus recommendations.

Sponsor and convener In each of the case studies, a government leader or governmental entity served as the sponsor, and the sponsor assigned high-level employees or representatives to participate, signaling the importance of the

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collaboration. In the Sears Island example, the governor sponsored the collaboration process, and a senior member of the governor’s staff convened it. As sponsor, the governor intervened at critical moments when the deal was in the balance.

Inclusive participation The Sears Island steering committee allowed participants to “self nominate,” whether or not they represented any particular organization. This “big tent” strategy was deliberate. The governor and steering committee wanted to ensure as broad an array of stakeholders as possible. The eventual group of 46 participants could have been unwieldy, but the individuals who joined were also expected to commit to a set of ground rules designed to promote dialogue and encourage agreement.

Gathering and sharing information In the Sears Island case study, the participants already had gathered extensive documentation (seven three-ring-binders’ worth) during decades of controversy. After it was convened, the group received more than a dozen informational presentations from various perspectives. This information-gathering was intended to allow stakeholders to see the subtlety and complexity of the issues, in the hope that they would move away from the black-and-white thinking that characterized the start of the process.

Implementation The Sears Island Agreement was specific about future steps that would happen following its adoption.

For port advocates, the consensus agreement stated, “As part of this agreement, MaineDOT will be actively marketing, soliciting proposals and creating partnerships for a cargo/container port on Mack Point and/or Sears Island” (Sears Island Planning Initiative Consensus Agreement 2007: 2–3). For conservationists, the agreement stated that “the [proposed Education and Maintenance] Center and other public recreation improvements may be built as soon as the buffer easement is approved by the Joint Use Planning Committee and accepted by the easement holder” (Sears Island Planning Initiative Consensus Agreement 2007: 4). The group created an institutional structure

and timeframe for implementation: “The terms of [the conservation] easement will be finalized by the Joint Use Planning Committee within twelve months of the date of this Agreement….MaineDOT, the town of Searsport, the easement holder, the DOC and other interested parties will enter into a Management Agreement consistent with the terms of the buffer easement” (Sears Island Planning Initiative Consensus Agreement 2007: 3).

Perhaps most important, the parties explicitly stated their shared commitment to implement their agreement. This mutual commitment was tested in December 2008 when the legislature’s Transportation Committee sought assurances that the port proposal would be actively pursued; until it received those assurances, it voted to put the agreement on hold indefinitely, by accepting, but not approving it. This wariness prompted the governor and several members of the steering committee (representing differing perspectives) to work together to provide the Transportation Committee the assurances it sought. Ultimately, the agreement was approved by the committee and signed by the governor.

In each of the case studies, a government leader or governmental entity served as the sponsor, and the sponsor assigned high-level employees or representatives to participate, signaling the importance of the collaboration.

Long Creek Watershed Restoration Project: Finding a Way to Get Ahead of a Looming Problem

In 2007, the city of South Portland learned that hundreds of businesses and other landowners in a 3.4-square-mile area around the Maine Mall might be required to undertake costly construction to comply with federal and state water quality standards. Long

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Creek, a stream that meanders through this commercial area, had been found to contain high levels of heavy metals and other pollutants from runoff from the parking lots, roof-tops, and roads. An environmental group, the Conservation Law Foundation (CLF), was pressing its concern that unregulated runoff was contributing to the impairment of the stream’s water quality and threatening the health of downstream waters, including Clark’s Pond, the Fore River, and the Casco Bay. CLF announced its intention to petition the U.S. Environmental Protection Agency (EPA) to enforce the Clean Water Act by imposing strict new requirements on landowners with larger areas of pavement and rooftops. A similar petition in Vermont was the subject of an ongoing lawsuit.

In contrast with the Sears Island case study, Long Creek did not represent an old controversy requiring negotiation, but the need to create a new, collaborative model to avoid imposition of traditional “command and control” regulation.

The city of South Portland decided to use a collaborative approach to address this looming challenge. First, South Portland obtained a grant from the Maine Department of Environmental Protection (DEP). With this grant and significant in-kind resources in hand, city leaders in South Portland pulled together landowners in the Long Creek watershed (the area draining into Long Creek) to develop a plan for the watershed. The watershed includes portions of the municipalities of South Portland, Westbrook, Portland, and Scarborough, and includes public or quasi-public landowners (the four municipalities, MaineDOT, the Maine Turnpike Authority, ecomaine [a non-profit waste management company owned and operated by 21 municipalities] and the Portland Jetport), along with large and small commercial landowners.

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The grant provided for an engineering study to identify significant opportunities to address pollution from runoff, facilitation to bring public and private landowners to the table and to develop the governing group, and project management by the Cumberland County Soil and Water Conservation District. Public and private entities provided substantial in-kind and volunteer time to the project. With help from the Casco Bay Estuary Partnership, the project developed a first-of-its-kind model for landowners to participate in a collaborative program to meet permit requirements by paying fees to a newly created entity empowered to undertake the most cost-effective projects in the watershed. This approach will potentially save landowners many thousands of dollars over time and is expected to be more cost effective in cleaning up Long Creek than requiring landowners to undertake separate projects on their individual properties.

The collaborative program was developed just in time. In December 2008, the EPA announced that CLF’s petition had been granted and that designated landowners would be required to take significant steps to clean up pollution in Long Creek. Because the group had developed a collaborative program, EPA and DEP allowed landowners to participate in the collaborative program rather than undertake costly construction on their own land. More than 100 of the 125 landowners designated by EPA as requiring a stormwater-discharge permit made a preliminary election to participate in the collaborative program. The project had an additional unforeseen benefit: because priority construction projects had been identified, the project was granted millions in federal stimulus funds under the American Recovery and Reinvestment Act of 2009. To begin implementing the management plan, the four municipalities entered into an agreement that created a new non-profit entity to provide ongoing oversight.13 Assessment In contrast with the Sears Island case study, Long Creek did not represent an old controversy requiring negotiation, but the need to create a new, collaborative model to avoid imposition of traditional “command and control” regulation. City government decided that

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the best approach would be to get out in front of the problem by working with public and private landowners and all relevant regulating agencies to develop a joint solution to the water-quality problem. Recognizing that it lacked the necessary resources, the city of South Portland applied to Maine DEP for a grant to provide resources for both technical-engineering analysis and facilitation.

Sponsor and convener In the Long Creek case study, the sponsor was the city of South Portland. The director of the Department of Water Resource Protection for South Portland and several city councilors participated in the Long Creek collaboration, underscoring the city’s commitment to the initiative.

Participants The Long Creek case study demonstrates a challenge different from Sears Island. Although public officials in the city of South Portland were aware of the challenges ahead, business leaders were not. With the assistance of a grant-funded facilitator, the city reached out to leaders in the public, non-profit, and business sectors, especially leaders in the business community, to bring them into the collaboration. Ultimately, these steps gained the participation of 38 steering committee members, including respected business leaders. The Long Creek steering committee also welcomed the membership and active participation of CLF, the environmental organization that eventually submitted the petition to EPA to enforce stricter requirements in the watershed. All parties ultimately agreed that CLF’s participation in the public collaboration allowed for constructive communication and was important to the project’s success.

Gathering and sharing information The foundation of the Long Creek project was a strong analysis of the sources of pollution in the watershed and the identification of the combination of measures—targeted construction projects, pollution prevention, education—likely to be the most effective in reducing pollution. The project hired scientific and engineering consultants to perform this analysis. The steering committee and a large stakeholder technical

advisory committee guided the technical analysis at every step, from the hiring of technical consultants to providing guidance on methodology. As a result, the steering committee had confidence in the soundness and integrity of the priorities and actions identified for cleaning up the watershed.

Implementation In the Long Creek example, the Long Creek Restoration Project was convened in part because no institution, model, or mechanism existed to achieve the goals of the project. The project’s steering committee recommended setting up a new entity to implement the collaborative program, address issues as they arise and make adjustments in light of ongoing water-quality monitoring. The four municipalities with land in the watershed entered into an interlocal agreement to create a new “Long Creek Watershed Management District,” which was incorporated as a new non-profit entity. The district is governed by a board made up of representatives from the public, private, and non-profit entities in the watershed.

Comprehensive Land Use Planning: For Dialogue Only

The two previous case studies described groups that took action or adopted policies. The Maine Land Use Regulation Commission (LURC or the commission) sponsored a public collaboration process that was specifically designed not to take action, but rather to promote dialogue among conflicting parties. LURC was created by the Maine Legislature in 1971 to serve as the planning and zoning authority for the state’s townships, plantations and unorganized areas.

The LURC statute requires that the commission operate under a comprehensive land use plan (CLUP) whose purpose is to guide the commission in developing specific land use standards, creating zoning boundaries and guiding development. The plan was originally adopted in 1976 and subsequently revised in 1983, 1990, and 1997. The commission began the process of revising its CLUP in June 2004. For the next four years, the commission and its staff conducted research, solicited landowner and citizen reaction to various drafts, and conducted eight public workshops attended by 725 people.

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Despite this intensive effort, the level of discourse about critical issues to be addressed in the CLUP— principally the issue of how and where development was to be managed in the unorganized territories—remained highly polarized. Many private individuals expressed frustration that the traditional public-hearing format did not permit them to speak directly to the commissioners or get the commission’s reaction to the points they were raising. Others complained that the process did not permit those with differing viewpoints to converse with one another to understand their respective concerns and explore any possibilities for common ground.

According to the minutes of its December 12, 2008, meeting, LURC adopted the staff’s recommendation to accept The Nature Conservancy’s offer to pay for creation of “a facilitated working group process to discuss specific issues in the Plan …before any further redrafts or proceeding to formal public hearings.”

Because of the commission’s concern that it must retain decision-making authority, it was clear from the start that the working group would not be empowered to make substantive decisions. Rather, as reflected in the group charter adopted at the first meeting, “It is … hoped that the group’s discussions will result in improved communication among affected private individuals, organizations, interested citizens and LURC” (LURC 2009: 1). The group’s charter explicitly defined the limits of the process: “There will be no formal votes taken on any issue under discussion. The facilitator may periodically offer a ‘sense of the group’ for group consideration. Only those statements on which there is broad agreement will be adopted as representing the group’s views” (LURC 2009: 1).

The group, representing forest, conservation, recreation, regulatory, development and environmental advocates, met four times over three months. Those day-long meetings were planned and facilitated to retain the group’s exclusive focus on the development issue. The principles of constructive participation (ground rules) adopted by the group permitted dialogue on issues on which the various stakeholders held differing and sometimes conflicting views. The parties had the opportunity to react to one another’s ideas, to test each others’ data, and, where possible, to build on mutually acceptable concepts. One of the sponsors commented that the process “altered the 22 · MAINE POLICY REVIEW · Summer/Fall 2010

communications between commissioners, their staff and certain stakeholders” (The Nature Conservancy, personal communication).

By the end of March 2009, the group approved a final summary report of its discussions that highlighted several areas of agreement, while also noting specific areas of disagreement. The Comprehensive Plan was amended to reflect many of the themes and perspectives articulated during the process, and the plan was approved by LURC and the governor. It is now being implemented. The process itself appears to have been instructive, since the CLUP now explicitly states that future policy explorations on the theme of how to manage development in areas of the jurisdiction be undertaken using a collaborative model.

LURC staff are now pursuing an implementation process that begins with attempts to reach out to stakeholders.

Assessment In this case study, the sponsoring agency and key stakeholders (landowners, conservation and recreation interests, and state regulators) realized that a mechanism outside of the normal regulatory structure was necessary to provide a way for the parties to better understand each others’ perspectives and to explore common ground. Based on numerous complaints it had received, LURC concluded that if it simply continued with the traditional regulatory process, divisions would likely undermine any plan it adopted.

Because LURC had no monies with which to fund the process, a non-profit group provided private funding.

Sponsorship and convener In the CLUP case study, LURC and The Nature Conservancy (TNC) were co-conveners. The prior relationships of TNC with forest interests and the conservation community played a role in bringing people to the table.

Gathering and sharing information The LURC working group provided not only an opportunity to receive information, but one that would help to understand, and perhaps challenge, assumptions and limitations. In this case, parties drew different conclusions from the same sets of information

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depending upon what additional information they relied upon and upon how reliable they determined the information to be. This ability to poke and probe information as a group is a key element that separates a collaborative process from a public hearing.

Relationship-building as a basis for future collaboration When the parties arrived at the first meeting, they were quite candid that there was very little trust in the room. Several different interests said they had felt “disrespected” throughout the regulatory process. In contrast, during this collaboration, former adversaries shared meals, suggested topics for discussion and explored values they had in common (e.g., interest in exploring transfer of development rights as a potential tool in managing growth).

In delivering the approved CLUP to the governor following the collaborative process, LURC stated, “History shows that collaborative processes can achieve unprecedented levels of success both from the perspective of the regulated parties and public interests. They can result in creative, equitable and enduring solutions” (LURC 2010: vi). In looking ahead to implementation of the CLUP, LURC said, “we are committed to collaborative stakeholder processes that allow us to find solutions that work for landowners and residents of the jurisdiction while protecting public interests in this extraordinary area and its resources” (LURC 2010: vi).

Ocean Energy Task Force: Intensive Focus on a Potential Resource

The Ocean Energy Task Force presents a variation on public collaboration. By Executive Order dated November 7, 2008, the governor created the Ocean Energy Task Force, charging it with recommending strategies to meet or exceed goals established in the Maine Wind Energy Act, 35-A M.R.S. §3404(2)(B); identifying obstacles to development of offshore wind resources and recommending solutions to overcome those obstacles; and addressing a number of other goals associated with energy from off-shore wind, tidal, wave, and off-shore oil and natural gas resources. Members of the task force were appointed by the governor, the speaker of the house, and the president of the senate and included legislators from both parties.

The governor appointed as co-chairs the director of innovation and assistance at Maine DEP and the president of the Gulf of Maine Research Institute, a non-profit organization that works to develop solutions to the complex challenges of ocean stewardship and economic growth in the Gulf of Maine bioregion. Staff members from the Maine State Planning Office and other state agencies provided staff support.

The task force engaged in extensive fact-gathering and analysis.

The [Ocean Energy] task force addressed emerging policy, rather than issues in which there had been conflict.

The task force addressed emerging policy, rather than issues in which there had been conflict. Though the composition of the task force and its charge were set by the executive order, the task force sought to include others who wished to participate and to foster a collaborative approach to fact-gathering, analysis, and problem-solving. The task force created eight subcommittees, which increased opportunities for participation. It adopted process rules providing the public with the opportunity to present information and comment. The task force and each of its subcommittees established lists of interested persons who were given notice of the meeting and provided with materials considered at meetings. When possible, the task force provided opportunities to monitor or participate in meetings electronically or via telephone.

Studies, reports, and drafts were posted on a Web site hosted by the Maine State Planning Office. In its final report, the task force noted, “Through their active participation in these meetings, research, and provision of information, members of the public made important contributions to the work of the Task Force and helped inform and shape development of its findings and recommendations” (Ocean Energy Task Force 2009: 4).

The task force ultimately agreed on wide-ranging recommendations, including recommendations to

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establish state renewable ocean energy goals; to improve the siting, governance and permitting framework for renewable ocean energy development; to promote financing and development of renewable ocean energy projects in Maine; and to support formation of a private-sector-led entity to spearhead renewable ocean energy development efforts in Maine. The Maine Legislature passed two bills (one unanimously) implementing the task force’s recommendations, including a process that resulted in the approval of three offshore wind and tidal power test sites.14

Gathering, sharing and validating information The task force engaged in extensive fact-gathering and analysis, aided by information provided by the University of Maine, state agencies, and other entities.

Additionally, the task force considered two reports prepared specifically for it: an independent policy analysis of Maine’s regulatory and proprietary (submerged lands leasing) authorities and a projectoriented economic analysis of offshore-wind-energy development and conversion of home heating and transportation to more efficient options.

Assessment The governor and his staff determined that an intensive evaluation of ocean energy was timely. The reasons for this decision are set out in the executive order, which cited Maine’s renewable ocean energy potential to address state and regional energy-related needs and to stimulate ocean energy-related economic opportunities.

Implementation The task force proposed detailed legislation to streamline and clarify state permitting and leasing laws, addressing the roles of DEP, LURC, the Maine Public Utilities Commission, Maine Department of Conservation, and Maine municipalities. The task force also recommended a federal-state partnership with the federal agency having primary responsibility for leasing and environmental review of offshore renewable-energy projects. This task force has since been established.

Last, the task force recommended the Maine Coastal Program to create a free, on-line coastal atlas and to develop ways to address data gaps.

…the River Drivers case study provides an example of an apparently successful collaborative process that later foundered because it failed to address implementation adequately.

Sponsorship and convening As noted, the governor sponsored the task force by issuing an executive order. The task force was convened by its co-chairs, one from a government agency and one from a non-profit with a reputation of neutrality.

Participation Though the composition of the task force and its charge were set by the executive order, the task force made efforts to include others who wished to participate. It established procedural rules providing the opportunity to present information and comment and established subcommittees allowing for expanded participation.

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River Drivers Agreement: Access to the Allagash

Created by the Maine Legislature in 1966, the Allagash Wilderness Waterway is a 92-mile ribbon of lakes, ponds, rivers, and streams that winds its way through northern Maine’s woods. In the 1970s the waterway was named the first state-administered component of the federal Wild and Scenic River System. For the next 33 years, the Allagash was the subject of ongoing legislative fights, lawsuits, controversial management plans, and consent decrees between state and federal agencies. In 2002, the issues came to a head when the sitting governor proposed an additional access point at John’s Bridge.

John’s Bridge became a lightning rod for longstanding, simmering issues: for environmentalists it signaled further threats to an overburdened river and to sportsmen it represented an acknowledgment of their historic rights to use the river.

In the spring of 2003, the commissioner of the Department of Conservation invited a group of 23

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stakeholders and advisors to gather for a two-day facilitated retreat at the River Drivers Restaurant in Millinocket. The goal was to forge consensus on access to the river and a variety of other management issues.

The representatives were from conservation, sportsmen, recreational, and local interests.

After two days (and one night) of negotiations, negotiators emerged from the session with the “River Drivers Agreement,” which the governor hailed as comprehensive and visionary approach to access and management issues on the river. An editorial in the April 9, 2003, Bangor Daily News praised the agreement as a road map for “preserving both the wilderness character of the waterway and recreational access to it.”

However, this agreement did not anticipate what would happen if the agreement encountered challenges.

Within three years, such challenges arose. In 2006, the Maine Legislature enacted a statute that revised several provisions of the River Drivers Agreement by adding vehicular access points to the river and making several bridges permanent.

Implementation In contrast to the Sears Island and Long Creek case studies, the River Drivers case study provides an example of an apparently successful collaborative process that later foundered because it failed to address implementation adequately. The River Drivers Agreement did address access to the Allagash River and other management issues. However, the agreement did not specify future steps in the event of a challenge by others who were not part of the joint discussions.

Moreover, the participants reached agreement in isolation from those they represented, thus violating one of the core principles of public collaboration: making sure that each participant has the authority to sign an agreement, especially when participating as representative of a group or recognized constituency.

In the River Drivers Agreement, participants lacked the opportunity to consult with their constituents to seek their consent before announcing the agreement. This was likely a contributing factor to the discontent that later surfaced. In response to dissatisfaction with the agreement expressed from some corners, the Maine Legislature acted three years later to revise several provisions.

Sharing and exchanging information Before the meeting, assessment interviews conducted on behalf of the sponsor revealed that despite their positioning, the parties had much in common.

Tapping those shared values and interests could set the groundwork for agreement. As with other nascent collaborative efforts, the risk was that if participants started their work in the large group, there might be temptation to posture and reiterate past arguments, demonizing “the other.” The assessment suggested that it would be helpful if participants began to see one another as appreciating the river for many of the same reasons.

From those two insights, the collaboration began with a small group exercise in which participants told others the story of their first trip on the Allagash, their best trip, and why those trips were so special to them.

The participants realized that, collectively, they had more than 500 years of experience on this special river.

Participants called this exercise a “breakthrough.” This illustrates that the information-sharing aspect of public collaboration may include personal reflections, as well as technical data.

LESSONS FROM MAINE’S EXPERIENCE

T

he case studies discussed in this article suggest the following lessons for leaders when considering possible collaborative efforts for community problemsolving or policy-making.

Is Public Collaboration the Best Approach?

The critical first step is a thoughtful analysis of the underlying conflict or roots of inaction, along with a survey of prevailing attitudes and timing questions, to determine if collaboration is viable. The problem must be so compelling and the need for a solution so great that stakeholders recognize that the gain from a negotiated solution outweighs the possible compromises or concessions—however small or large—that will have to be made from their preferred outcome.

In assessing whether a public collaboration process is worth the investment, a true cost-benefit analysis should examine what costs the parties (including government) will incur from alternative courses of action, including no solution at all. This is examining

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the parties’ “best alternative to a negotiated agreement” (BATNA). If a key party already has an option that is superior to collaboration and perceives no possible benefit from involvement (and no incentive can be offered), there is a high risk that a collaborative effort will not succeed, or could be used to seek delay or to derail resolution.

On the question of timing, if the situation is an emergency, and there is not enough time to gather and exchange information and for deliberation— notwithstanding the fact that an emergency can sometimes focus attention and bring about more efficient discussions—it is less likely that public collaboration will be useful. Good timing assumes the ripeness of an issue; that is, parties must be willing to come to the table and be sufficiently motivated. In the Long Creek example, some public leaders knew that it was critical to find a creative solution before EPA imposed a solution requiring individual permits for each property, and they worked to persuade other stakeholders to come to the table. In the Sears Island example, motivation arose from years of stalemate. With all relevant interests at apparent impasse, there was grudging acknowledgment of the need for a joint effort if any movement were to be accomplished.

Motivation may be highest before parties are entrenched in their positions, but the Sears Island case study shows that it may also be present when the parties perceive that they are at a stalemate. There is a right time to collaborate, and leaders must ascertain if and when they can hit that “sweet spot” in the history of a conflict or controversy at which collaboration is likely to succeed.

The assessment should also consider whether the issue calls for the response of several governmental agencies, none of which could completely tackle the problem on its own. This strongly supports the need for collaboration, as demonstrated by the Long Creek, Sears Island, and Ocean Energy examples. For example, the outcome of the Sears Island Consensus Agreement required actions by the governor, the Department of Transportation, the Department of Conservation, the State Planning Office, the legislature’s Transportation Committee, the town of Searsport, and the Waldo County Commissioners.

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Critical Roles of Sponsor and Convener

In addition to a sponsoring agency or other entity, the use of a convener (or co-conveners) helps to confer legitimacy and secure broad participation. A respected leader can single-handedly raise the profile of an issue and secure the involvement of reluctant, though necessary, participants. The convener helps to frame the issues for consideration, and when discussions come to difficult points and emotions run high, the convener is invaluable in emphasizing the importance of staying with the effort, building confidence, and encouraging creative thinking and hard work. Sometimes, the convener’s assurance that he or she will be guided by the group’s decision may be all the encouragement that is needed. At other times, it may be the convener’s own knowledge and imagination that spurs on collaboration or helps participants adapt to changing circumstances.

As in the case of the Ocean Energy Task Force, the convener of public collaboration is not always from the public sector. A leader from the private sector (in this instance, the nonprofit community) in the role of a co-chair may fit the bill perfectly. Having active support from other community leaders who are not elected officials or government employees is a hallmark of true public collaboration.

Public collaboration is generally most effective when linked to political leadership in some way. It cannot be entirely divorced from political institutions and the political process. Because the focus is a public issue or community problem, implementation of a solution is likely to require some form of governmental action—whether legislative or regulatory in nature. In the Sears Island case study, the agreement rested on the ensuing state legislative response. In Long Creek, EPA-enforced water-quality standards had to be satisfied. In such situations, the convener may also serve as a conduit to government agencies or may bring political instincts to bear on the direction of collaborative effort.

Inclusive Participation Is Essential

The first major challenge to confront is exactly who will participate in public collaboration, and it is often one the group itself must address. For the sake of credibility and to come to the best and most durable

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solutions, it is important that all significant interests who are willing to commit to the agreed-upon principles and guidelines have the opportunity to participate. However, the principle of inclusivity may be in tension with the need for efficient time management. It takes longer to discuss issues in very large groups, but some collaborative groups have found that tradeoff worthwhile.

In cases involving large numbers, participants may be willing to agree on a representative steering committee. But where tensions are high or trust is low, the most effective approach is usually to work with the large, apparently unwieldy group to identify issues and to develop information. Later in the process, as participants come to know each other, larger groups are more likely to agree to form subcommittees and discuss issues in smaller, more manageable groups.

platform for creative thinking. As a result, the joint learning process often results in an important shift from rancorous discussion to joint problem-solving.

Finding Necessary Resources

Collaborative efforts require resources. Significant energy is required from participants. The costs for bringing people together, maintaining communication, procuring technology, and obtaining information can be significant. (Local efforts that are less datadriven may be far less costly and time-consuming.)

When evaluating whether to undertake a collaborative process, it is important for sponsors and conveners to make a realistic assessment of the resources that will be required and the availability of these resources.

Gathering, Sharing and Validating Information as a Foundation for Agreement

In most collaborative efforts, the joint exploration of information is critical. Stakeholders usually come to the table with strong views—and incomplete information—about the sources of problems and possible solutions. It is important to give stakeholders the chance to present information that they consider critical and to ask the group to identify additional information it needs to develop and evaluate potential solutions. In the Sears Island example, the participants listened to presentations from various perspectives, which allowed members to see and understand the complexities presented by the issues (e.g., were rail and marine transportation actually “greener” ways to move goods than trucking?). The solutions developed in Long Creek were based on an analysis of the sources of pollution in the watershed and identification of approaches to address runoff. The Ocean Energy Task Force engaged in extensive fact-gathering and analysis.

The LURC working group provided an opportunity not only to receive information, but to understand and challenge assumptions and limitations. And one of the successful aspects of the River Drivers collaboration was drawing out the commonalities among the participants by inviting their personal stories. The joint learning process, at its best, creates a common understanding of challenges and a common language that become the

In most collaborative efforts, the joint exploration of information is critical.

In gathering the necessary resources, conveners and stakeholders are sometimes required to be creative.

Resources may be provided by the sponsor, stakeholders, or some combination. In Long Creek, for instance, a grant was obtained from the DEP; two private stakeholders provided meeting space at no cost; and individual participants with scientific and economic expertise helped the group develop economic models for participation by landowners.

In the LURC Comprehensive Plan case study, a nonprofit conservation organization believed in the collaborative approach strongly enough to underwrite the costs of the collaboration.

Build Implementation into the Collaborative Agreement

At the end of a collaborative process, it is critical for stakeholders to commit to supporting implementation. It is also important that they provide for a mechanism for implementation.

Issues that call for public collaboration are usually long-lasting. The issues may continue to generate controversy long after any agreement is signed in a

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collaborative process. It is important for participants consider how to address issues that may arise in the future. This may mean that the sponsor exercises existing authority with the support of stakeholders, or that the sponsor and other stakeholders work together to create a new group or entity to implement the agreement. For example, when the Long Creek stakeholders agreed to set up a new entity to implement their watershed plan and collaborative program, they explicitly provided that this new entity could modify the program in light of new information and new circumstances. In contrast, the River Drivers case study provides an example of an apparently successful collaborative process that later foundered because it failed to address implementation adequately. Had the Allagash Wilderness Waterway Management Plan Advisory Committee been designated in the River Drivers negotiations as the appropriate body to address future access issues, the subsequent debate might have been managed in a way that was more consistent with the collaborative spirit that led to the original agreement, rather than through the ensuing legislation.

CONCLUSION

P

ublic collaboration has been used effectively in Maine to address new policy challenges and to tackle longstanding, vexing problems that have defied answers. It has the potential to alter the quality of public discourse on divisive local, regional and state issues. Confronting complex dilemmas, it is important for Maine’s leaders in the public and private sectors to learn from each other about effective design and use of the collaborative approach to problem-solving. This approach can lead to successful, workable solutions, but it is not guaranteed to do so. For the right challenge, at the right time, and with the right elements, public collaboration is an increasingly important part of governance in Maine. -

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ACKNOWLEDGMENTS We are indebted to Christine Carlson, founder of Policy Consensus Initiative, who has shaped consensusbuilding efforts and collaborative governance nationally, along with our own thought and practice.

ENDNOTES 1. Collaboration means “to labor together.” The word “collaborate” is from the Latin “collaborare.”

Webster’s Third New International Dictionary

(unabridged) also defines it as “to work jointly with” others. Though often used indistinguishably with such terms as “cooperation,” collaboration suggests a deeper level of effort and engagement.

Himmelman defines collaboration as “exchanging information, altering activities, sharing resources, and enhancing the capacity of another for mutual benefit.” He observes that “when organizations collaborate, they share risks, responsibilities, and rewards, each of which contributes to enhancing each other’s capacity to achieve a common purpose” (Himmelman 2002: 3).

2. Some have adopted the term “collaborative governance” to describe the process in which the public is involved and has a part in decision-making about a policy or solution to a community problem (Carlson 2007; Sirianni 2009).

3. A few examples include Oregon Solutions (www. orsolutions.org), a program affiliated with the Oregon governor’s office; Envision Utah (www. envisionutah.org), a public–private partnership for quality growth in Utah; the Florida Conflict Resolution Consortium (www.consensus.fsu.edu), created by the Florida Legislature; and successful efforts of a Wyoming governor to convene state and federal agencies at the “kitchen table,” as reported at http://www.policyconsensus.org/ publications/news/PCI_Newsletter_July_04.html.

4. The spectrum of processes includes (1) information exchange, in which government leaders or staff members meet with representatives of the private and civic sectors, or concerned citizens, to give them information or obtain information from them; (2) consultation, in which feedback, advice or input is sought from a broad array of stakeholders, on a one-time or ongoing basis; and (3) engagement, which includes direct and genuine participation of

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citizens and organizations in an active, intentional partnership with public officials (Carlson 2007).

This article focuses on the third category: collaborative, consensus-building efforts among diverse participants.

5. More examples of public collaboration in Maine exist than are named here, thanks to visionary leaders, skilled facilitators and tireless participants.

6. For more information, see www.gateway1.org.

7. The Two Bridges Regional Jail serves Lincoln and Sagadahoc Counties. See www.tbrj.org.

8. Regional councils of municipal governments in Maine include the Androscoggin Valley Council of Governments (www.avcog.org); Greater Portland Council of Governments (www.gpcog. org); Kennebec Valley Council of Governments (www.kvcog.org); Penobscot Valley Council of Governments (www.pvcog.org); and Washington County Council of Governments (www.wccog.org).

Similar regional functions are performed by the Eastern Maine Development Corporation (www. emdc.org) and the Northern Maine Development Commission (www.nmdc.org).

9. The coalition includes the U.S. Department of Fish and Wildlife and Maine Department of Inland Fisheries and Wildlife, along with other national, regional, and local partners. See www.mta2.org.

10. For more information, see www.mditomorrow.org.

11. Revenues declined from sources other than “stimulus” funding pursuant to the American Recovery and Reinvestment Act of 2009 (http://maine.gov/ legis/ofpr). The estimate of the structural budget deficit gap appeared in the “Fi$cal News” newsletter (November 2010) of the Maine Office of Fiscal and Program Review, which is available at http://maine.gov/legis/ofpr/other_publications/ fiscal_news/FiscalNews_2010_11.pdf.

12. U.S. Census data for Maine is available at http:// quickfacts.census.gov/qfd/states/23000.html.

13. For more information, see www.restorelongcreek. org.

14. (http://www.mainelegislature.org/ros/LOM/ LOM124th/124R1/PUBLIC270.asp) Public Law 2009, Chapter 270, An Act to Facilitate Testing and Demonstration of Renewable Ocean Energy Technology; and (http://www.mainelegislature.org/

ros/LOM/LOM124th/124R2/PUBLIC615.asp) Public Law 2009, Chapter 615, An Act to Implement the Recommendations of the Governor’s Ocean Energy Task Force.

REFERENCES Carlson, Christine. 2007. A Practical Guide to Consensus. Policy Consensus Initiative, Portland, OR. Chrislip, David D. 2002. The Collaborative Leadership Fieldbook: A Guide for Citizens and Civic Leaders.

Jossey-Bass Publishers, San Francisco, CA. Chrislip, David D. and Carl E. Larson. 1994.

Collaborative Leadership: How Citizens and Civic Leaders Can Make a Difference. Jossey-Bass Publishers, San Francisco, CA. Fosler, R. Scott, and Renee A. Berger. 1982. PublicPrivate Partnership in American Cities: Seven Case Studies. Lexington Books, Lanham, MD. Goldsmith, Stephen and Donald F. Kettl, eds., 2009.

Unlocking the Power of Networks: Keys to HighPerformance Government. Brookings Institution Press, Washington, DC. Gray, Barbara. 1989. Collaborating. Jossey-Bass Publishers, San Francisco, CA. Himmelman, Arthur. 2002. Collaboration for a Change: Definitions, Decision-making Models, Roles and Collaborative Process Guide. Himmelman Consulting, Minneapolis, MN. http://depts. washington.edu/ccph/pdf_files/4achange.pdf [Accessed November 21, 2010] Kemmis, Daniel. 1995. The City and the Good Life: Renewing the Sense of Community. HoughtonMifflin, Chicago, IL. Land Use Regulation Commission (LURC). 2009.

Comprehensive Land Use Plan Working Forum Charter. Maine LURC, Department of Conservation, Augusta.

Land Use Regulation Commission (LURC). 2010.

Comprehensive Land Use Plan for Areas within the Jurisdiction of the Maine Land Use Regulation Commission. Maine LURC, Department of Conservation, Augusta.

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Diane E. Kenty of Westbrook is adjunct

Leighninger, Matt. 2006. The Next Form of Democracy: How Expert Rule Is Giving Way to Shared Governance. Vanderbilt University Press, Nashville, TN. Ocean Energy Task Force. 2009. Final Report of the Ocean Energy Task Force to Governor John E. Baldacci.

Ocean Energy Task Force, Maine State Planning Office, Augusta. http://www.maine.gov/spo/ specialprojects/OETF/Documents/finalreport_ 123109.pdf [Accessed November 21, 2010] Ruckelshaus, William. 2010. “A New Shade of Green.”

Wall Street Journal, April 10.

faculty at the University of Maine School of Law. She serves on the board of directors of the National Policy Consensus Center and Policy Consensus Initiative (PCI), located at Portland State University in Portland, Oregon.

Sears Island Planning Initiative Consensus Agreement.

2007. Jointly prepared by the Maine Department of Conservation, the Maine State Planning Office, and the Maine Department of Transportation, Augusta.

Ann R. Gosline is a prin-

Sirianni, Carmen. 2009. Investing in Democracy: Engaging Citizens in Collaborative Governance.

Brookings Institution Press, Washington, DC.

as a facilitator in some of

cipal in the firm Gosline and Reitman and served the case studies discussed herein. She has been an

Susskind, Lawrence and Jeffrey Cruikshank. 1989.

Breaking the Impasse: Consensual Approaches to Resolving Public Disputes. Basic Books, New York.

Susskind, Lawrence, Sarah McKearnan and Jennifer Thomas-Larmer. 1999. The Consensus-Building Handbook: A Comprehensive Guide to Reaching Agreement. Sage Publications, Thousand Oaks, CA.

attorney since 1978 and has extensive experience facilitating and mediating public policy processes involving natural resource, land use, and health system issues including multiple levels of goverment and the private and non-profit sectors.

Jonathan W. Reitman is a principal in the firm Gosline and Reitman and served as a facilitator in some of the case studies discussed herein. He has been an attorney since 1978, and his practice currently focuses on mediation, facilitation, conflict coaching and training. He has been adjunct faculty at the University of Maine School of Law, and has taught in Bosnia, Italy, England, Israel and Palestine.

30 · MAINE POLICY REVIEW · Summer/Fall 2010

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REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y Reinventing Maine Government: How Mainers Can Shape a Sustainable Government and a New Prosperity

by Alan Caron and David Osborne1

D

espite all of the challenges that Maine faces today, our future is as bright and full of potential as it has been in decades—if we are willing to tackle our problems openly and honestly. We have strengths in the very things the world is looking for in the twentyfirst century: resourceful, creative, hard-working, honest people; pride in what we do; safe and friendly communities; a world-class environment; and neighbors who care about one another.

A new prosperity may be within our reach, but to get there we need to dramatically change the way we do things. The next governor and state legislature will look out at a landscape that includes overextended and unsustainable governments, an aging population, ever-rising health care costs, an economy and schools too often geared toward yesterday rather than tomorrow, and growing public frustration and discouragement.

What is at stake here cannot be overstated. There are two diverging roads on the horizon. If we stay on the one we have been on for the last half century or so, hundreds of thousands of Mainers will continue to struggle. More children will grow up in poverty. More will leave school. More will become discouraged or dependent. The quality of this place, its communities and environment will almost certainly slowly decline.

And what is now a trickle of younger people leaving will become a loudly rushing stream.

There is a second road that we could choose to take. To get to that one, we have to redirect funds that are now leaking into the sands of inefficiency and put them into what matters: educating the next generation; retraining and retooling ourselves; creating incentives for entrepreneurs and support for innovators. It turns

32 · MAINE POLICY REVIEW · Summer/Fall 2010

out that whatever you care about—whether it is jobs or people or the environment or social programs—the economy matters. A stronger economy is the only answer to Maine’s many problems.

THE CHALLENGES MAINE FACES

M

aine faces two great challenges today, which are closely interwoven. The first is a fiscal crisis in government unlike any we have seen in at least two generations. The second is a long-stagnant economy that now discourages Maine people and limits investments in the future.

The budget crisis has announced itself through growing deficits and a projected shortfall next year of as much as a billion dollars. Those deficits will get worse in coming years as we absorb the delayed effects of an aging population, billions of dollars of unfunded pension obligations, rising health care costs and the unforeseen consequences of past political decisions.

Those problems, in turn, will inevitably tumble down to critical programs, local communities and schools.

A 2006 report by the Brookings Institution, Charting Maine’s Future, pointed out that Maine spends more money on government than similar rural states, which has the effect of crowding out our ability to invest in “what matters” to grow the state’s economy. Brookings urged Maine to look more deeply into this problem as a key to a new era of prosperity in the state. A new report released in September 2010, Reinventing Maine Government (Caron and Osborne 2010), takes the Brookings analysis to a deeper level by looking beyond state government to include county and local governments, changing demographics, pension fund obligations, health care, public education and higher education.

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C O M M E N T A R Y Table 1: How Maine Compares to the National The report is directed at citizens who want

and Rural-state Averages to better understand the challenges Maine faces.

It attempts to move the discussion of government Percentage Percentage Cost savings beyond anecdotes and ideology to a set of facts above above the if state were at that can help Maine honestly compare itself with national rural-state the appropriate average average average* similar rural states and the country. It focuses on how Maine can build a twenty-first century K-12 Education (per student) 8* 11* $141 million government, how government is currently strucMedicaid and Welfare 69* 101* $361 million tured, and how Maine stacks up against other Unallocated Miscellaneous 62* Undefined $205 million rural states and the nation. Finally, it offers a Health, Other than Medicaid 125* 80* $184 million series of bold and provocative recommendations for “reinventing” Maine government.

Higher Education, 7* 16* $13 million The numbers are troubling and the trends Non-instruction even more so. In category after category, Maine Corrections (per inmate) 101* 136* $100 million spends more on government than either similar Sewer -10* 14* $18 million rural states or the national average. Some of that Local Government might be justified or necessary, but much of it 17* 10* $8 million Administration may simply be a result of outdated and redunLegislature 132* 68* $8 million dant structures, inefficient operations and the demands and habits of politics. Whatever the Fire Protection -13* 10* $11 million cause, it leaves us unable to adequately prepare Solid Waste 32* 33* $29 million the next generation for tomorrow’s jobs, to General Public Buildings 51* 3* $3 million encourage and support new businesses or mainTOTAL $1.081 billion tain the character of Maine, all of which are critical to our future. *The rural-state averages were used in the comparisons for health, sewer, local governWhatever one’s attitude toward government ment administration, legislature, fire protection, and general public buildings. In these cases, being rural noticeably affects cost levels. Otherwise, the national averages are or one’s political leanings, these are challenges used in these comparisons. that touch us all, cannot be avoided, and have no easy solutions. The state cannot raise taxes further; it has to pay its bills; and it can ill afford to further weaken essential functions of governWHERE MAINE COULD SPEND LESS ment such as education, transportation, and critical safety-net programs. f Maine spending on government, as a percentage of We believe that the situation is beyond the point personal income, was at the national or rural-state where the state can meet these challenges by tinkering average, we would save more than one billion dollars a with the current structures, merging small programs, year (Table 1).2, 3 As a percentage of state personal imposing across-the-board cuts and furlough days, and income, Maine spends about 13 percent more for state employing accounting gimmicks. The time has come to and local government than the national average, and 16 contemplate fundamental, structural change and bold percent more than other rural states, making Maine the steps forward. In this article, we summarize and provide sixth highest-spending state in this measure. However, key highlights of our longer report. The full report is that does not mean Maine gets better results. In some available at www.envisionmaine.org. cases, we simply spend more and get less.

I

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C O M M E N T A R Y Here are some brief examples, some of which will be discussed in more detail later: Public Education (K-12). Compared to the rest of the nation, Maine spends a high amount on primary and secondary education, more than $1.9 billion in 2007. Public education is by far the largest local government service. Nationally, 58.1 percent of total local-government payroll is in primary and secondary education, while in Maine it is 71.4 percent of the total. In this ratio, Maine is fourth highest in the nation. Expenditures per student in Maine are eight percent higher than the national average, and Maine’s payroll per student is 18 percent higher than the national average, despite per capita income in Maine being 11 percent below the national average. Maine’s expenditure per student exceeds the average of the other rural states by 11 percent.

Medicaid and Welfare. Maine clearly has a high level of benefits (predominantly Medicaid) in comparison to the rest of the nation and to other rural states.

Maine’s Medicaid and welfare spending, as a percentage of state personal income, is 69 percent higher than the national average, and it grew slightly faster than in the rest of the nation from 2002 to 2007.

…[we have] three major ticking time bombs that are converging to create a perilous moment for the state.

Other and Un-allocable. This is a catch-all category that covers a lot of spending areas in Maine. It includes everything that is not in another category of spending covered in census data. It is a budget category deserving of a closer look and a better understanding.

For every $100 in state personal income, we spend $1.18 on this catch-all category each year, just slightly below the New England average, but 62 percent higher than the national average.

34 · MAINE POLICY REVIEW · Summer/Fall 2010

Health (other than Medicaid). Maine’s expenditure on health care relative to state personal income is 125 percent higher than the national average and 80 percent higher than the average of the other rural states.

Corrections. Maine’s corrections cost per inmate is very high when compared to other states.

Maine’s annual expenditure per inmate is about $93,500, while the national average is roughly $46,400. Expenditures per inmate are also more than double the rural-state averages.

The Legislature. Maine’s state legislative expenditure relative to state personal income is 132 percent higher than the U.S. average and 68 percent higher than the average of the similarly rural states.

THE THREE GREAT TICKING TIME BOMBS

I

f the only challenges we confronted over the next five to ten years were the habit of spending too much and large budget deficits each year, we might be able to muddle through. Unfortunately, we also have three major ticking time bombs that are converging to create a perilous moment for the state.

The Aging State: Fewer Workers and Growing Needs

One in five Maine adults is now at or near retirement age. By 2030, it will be one in three. Maine is the oldest state in the nation, with a median age of 42, five years older than the national average. Over the next two decades more people will be retiring and fewer people will be left to pay taxes that support public infrastructure, education, social programs, and the environment. What this all adds up to is a looming crisis in public spending and government revenues that will drive further reductions and reinforce the need for restructuring in government. As baby boomers age, there are not enough younger replacement workers to balance the older population. Without massive changes, it is easy to see that the situation is becoming unsustainable, both fiscally and economically.

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REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y FIGURE 1: Maine’s Pension Plan Liabilities

$981,000,000 in 2028 $1,000 $900

Annual Costs Unfunded Liabilities

$800

Cost (in millions)

$700 $600 $500 $400 $300 $200 $100 0 2010

2028

Source: Maine Public Employees Retirement System

Unfunded Pension and Retiree Health Care Liabilities: The Bills Are Coming Due

The state will pay almost half a billion dollars next year for unfunded pension and health care liabilities for retirees. Within a few years that figure will be closer to a billion dollars. Unfunded liabilities are an onrushing train that too few Mainers understand and that will dominate discussion in Augusta in the coming months and years. The state currently owes approximately $4.4 billion for unpaid obligations for public employee pension and health care plans. Those costs now consume about ten percent of the state budget and

could easily consume 20 percent within six to eight years. In the last budget, the cost was $315 million per year. Those payments are about to dramatically increase each year from now on, to an estimated $448 million by 2012, $732 million in 2017, $896 million in 2020, and $938 million dollars in 2021 (Figure 1).

Health Care Costs Are Crowding Out Other Needs

The rising cost of health care is slowly bankrupting the country and states from Maine to California.

Maine spends 24 percent more per person on health care than the U.S. average. In New England, only

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REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y Massachusetts spends more. The state share of Medicaid, the largest single health care expenditure, rose from 4.9 percent of total state spending in fiscal year 1985 to 10.4 percent in 2008.

THE INEFFICIENT STRUCTURES OF GOVERNMENT

M

any like to blame the people who work in government or bloated programs for all the state’s fiscal problems. There is some of that certainly, but those are not the main factors. The problem is the way that government is built today. We need to turn the discussion to the larger question of the structure of government itself and how it functions.

The State Legislature: Unwieldy and Over-extended

Maine ranks 40th in total state population, but the legislature is the nation’s tenth largest. The cost of the legislature, relative to state personal income, is 132 percent higher than the U.S. average and 68 percent higher than the average of the similarly rural states.

Despite the investment that Maine commits to its legislature, it is hard to argue that the legislature works well. Anyone who has attended a legislative hearing where eight to ten bills are being heard, or seen the legislature in action during its final week, would appreciate how dysfunctional the system can become. To understand how it could be improved, we need to look beyond the size of the legislature and the length of sessions to the number of bills and issues the legislature tries to take up. Under current rules, legislators, no matter how inexperienced or knowledgeable, can submit as many bills as they want each year. The legislature tries to tackle too many issues and take on too much work for a part-time citizen body. That is an invitation to chaos and inefficiency. The results of this over-extension should not be surprising. Unimportant work clogs the machinery of government, while critical issues languish or get pushed to the future because they would take up too much time. Programs and benefits to constituents or government employees, along with

36 · MAINE POLICY REVIEW · Summer/Fall 2010

tax breaks to well-organized interests, are created or extended without a good sense of their long-term cost.

Today’s well-intended bills produce tomorrow’s unintended consequences.

State Government

By almost any measure Maine has one of the most inefficient rural-state governments in the country.

Listen to an elected official running for re-election and you are likely to hear of the new programs and activities created during their term. But if you ask them—or virtually anyone in government—when the last substantial program was closed down, you are likely to get a long pause. Government sometimes seems frozen in time: able to add but not to subtract. Part of the problem is that state government rarely measures the efficiency of its work and consequently does not know what to change, even if it could.

The problems of state government are complex and difficult. They cannot be solved by moving boxes around on an organization chart or cutting programs across the board. We need to rethink the scope of what Maine state government does, then recode its bureaucratic DNA to incorporate new technologies, modern management approaches, and the expectations of the twenty-first century.

Ask someone in state government: how many people in your agency have as their full-time job the task of ensuring that each dollar is spent within the rules?

Then ask: how many people have as their full-time job the task of ensuring that each dollar produces the best results for the people it serves? The contrast is always dramatic. It is not that government does not care how money is spent. It cares that it is spent within the rules.

Only a small fragment of government has as its primary responsibility looking at whether or not government is maximizing the results achieved with each tax dollar.

Most people who have looked at state governments across the country know that there is a better way to do things. The problem is getting there. There are powerful institutions that are invested in bureaucracy and the status quo. Some exist to benefit workers or protect programs, while others have contracts with state

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C O M M E N T A R Y government. Together, they tend to block change wherever they can. The main causes of inaction are predictable: inertia, fear, lack of vision and confidence, and a media environment hostile to the risk-taking that is essential to an entrepreneurial government.

That is not to say that all employees or organizations that benefit from government spending resist change.

Many are just as frustrated with bureaucracy and inefficiency as the rest of us. And they have an important place at the table.

County and Local Government

Maine needs more state and local services to be delivered at a regional level, but most of the state’s 16 counties are not set up to take on a larger regional role, and too many towns and state agencies lack confidence in their ability to do more. So, while many towns are working with counties, others are forming regional and multi-town collaborations. This chaotic pattern of change could become a fourth level of government if we are not careful.

Local government in Maine, if you include schools, employs about twice as many people as state government. Excluding schools, local government is about two-thirds the size of state government. A good deal is made about how many towns Maine has (just under 500) and how expensive there are, or at least they seem to be to local taxpayers. The numbers, though, tell a more complicated story. If you took schools out of local budgets, which represent 71 percent of local budgets, the remaining 29 percent of spending—on public works, public safety and municipal services—matches up well with other local governments across the country. In fact, Maine town services cost 33 percent less than towns in other rural states.

That is not to say there is not more that can be done to build more efficient collaborations and regional service delivery, which could bring costs down and improve services at the same time. The key is to figure out how to help towns do that and how to evolve a system that has been working well, in many areas, for more than two centuries.

Public Education

Maine has made a big and critically important investment in public education over the last 30 years.

The state now ranks fourth highest in the nation in the percentage of local government payroll devoted to education. At the same time enrollments have declined by 16 percent and payrolls have swelled, particularly among non-teaching staff. While those investments in public education need to continue, and perhaps even expand with more attention on early childhood development, streamlining and refocusing the system—and getting more return on our investment—is essential.

Most people who have looked at state governments across the country know that there is a better way to do things.

In 2008, Maine spent $2 billion in combined state and local dollars on K-12 education. That worked out to $13,513 per student, 25 percent more than the national average of $10,259 per student and more per student than all but nine other states. While costs are high, results are declining. During the last few years, eighth-grade math scores plummeted from first place nationally a decade ago to 24th place in 2007. The dropout rate increased from 3.09 percent in 1998 to 5.17 percent in 2007.

It is tempting to blame the high cost of public education in Maine on geography, since some parts of the state are so sparsely populated. It is also not correct. Maine ranks 38th in population density among the states. Alaska, Idaho, Kansas, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, and Wyoming each have lower population density than Maine, and in the 20032004 school year, each of those states spent less per student than did Maine.

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C O M M E N T A R Y Factors contributing to higher per-pupil education costs in Maine include student-teacher ratios, the ratio of teaching to non-teaching staff, the number of school districts, and special education. Maine has the second highest ratio of teachers to students in the country, with 11.3 students for every teacher. The national average is nearly 15.8 students for every teacher. Other rural states, including Iowa, Kansas, Montana, and South Dakota, perform as well or better than Maine on the National Assessment of Educational Progress and have a ratio of about 13.5 students per teacher. A decade ago, Maine’s ratio was closer to those states– about 14 students per teacher. In 2009, about 16,000 teachers worked in schools in Maine, along with roughly 22,000 non-teachers: administrators, aides, nurses, custodians, and other staff. Most of the growth in funding of schools in recent years has gone to nonteacher employment.

One of the first things that Mainers need to do, if real change is going to happen in government, is to confront our tendency to cling to cherished myths as though they were inscribed on stone tablets brought down from high mountains.

Of the 215 school units in Maine, 40 do not operate schools of their own, but instead send students to schools in neighboring districts. Of the 178 school units that actually operate schools, 60 have fewer than 25 teachers.

Maine’s percentage of students designated as special education students is 30 percent greater than the national average, and the state ranks third in the country in that category. Research by the Center for Education Policy, Applied Research, and Evaluation

38 · MAINE POLICY REVIEW · Summer/Fall 2010

shows that Maine’s comparatively high poverty levels do not account for the high incidence of students in special education here. Rather, our identification guidelines make more students eligible for special education than do national guidelines. Further, guidelines are inconsistently applied even within the state. Maine children with special needs deserve appropriate services, and the state should continue to ensure that they receive such services. But the way we do that should make sense. Two factors may be driving this high use of special education in Maine schools. One is the desire to get more money into the local system. The other is the absence of “alternative” schools, forcing parents toward a special education designation to get additional services for their child.

Higher Education

Perhaps no public investment is more critical to a strong economy and rising incomes than higher education. Higher education should be one of the state’s strategic assets, to support new business growth, improve the skills and knowledge of people in Maine, and attract new businesses. Yet Maine spends 18 percent less than the national average and 37 percent less than other rural states on higher education as a percentage of state personal income. And, we suggest, it is poorly spent.

The surest way to see what a state’s priorities are is to look at the way it spends money. By that method, it is clear that Mainers care about K-12 public education, but, oddly, not so much about higher education. The problems, however, cannot be solved simply with more money. Maine’s higher education system is too rigid, too fragmented, uncoordinated, and extremely inefficient. Perhaps nowhere else in Maine government can you see the effects of nineteenth century needs, technology, and structures driving government inefficiency than in higher education. The state has a total of 17 campuses of higher education and 17 satellites of those campuses, broken into two autonomous networks, separated more by history and organizational culture than logic. The University of Maine System, despite its name, is essentially a confederation of seven highly independent

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C O M M E N T A R Y colleges, with ten campuses, which seem to work together mostly to ensure that no particular college is allowed to grow at the expense of others. The best evidence of the inability to adapt to a changing world is the funding formula that allocates funds to the seven campuses. It is virtually the same as it was 40 years ago, despite massive changes in the economy, enrollments, programs and demographics.

Maine spends more of its higher education payroll dollars than 48 other states on non-instructional areas.

For every $1 of instructional payroll, $1.75 goes to non-instructional payroll. Nationally, the figure is $1 to $1.15. In rural states, the figure is $1 to $1.04. If Maine were at the national average, we would have saved $13 million in 2007.

Maine also does not appear to do well in using its public support for higher education to produce college graduates and research. Maine ranked 49th, 27 percent below the national average, in college degrees from public institutions relative to state support over the period from 1980 to 2005. In terms of both research grants and doctorates awarded, Maine also ranks near the bottom. Consequently, Maine’s potential college students and their families face relatively expensive college educations. Over the period between 1994 and 2001, average in-state tuition and fees at Maine’s public colleges were 50 percent higher than the national average and the fourth highest in the country, but without the corresponding quality. Despite having a high school graduation rate well above the national average, Maine has a below average rate of college participation (53.9 percent in Maine versus 58.4 percent nationally).

NEW THINKING AND NEW APPROACHES ARE NEEDED

Maine needs a twenty-first century government that is not just smaller, but smarter, one that is constantly learning to adapt to a changing world and do more with less. While the “Reinventing Maine Government” report focuses on reinventing government, its purpose is much broader—suggesting ways to

reinvigorate the Maine economy, create tomorrow’s quality jobs, and expand confidence in the future.

Reinventing government will not, by itself, revitalize our economy, but it is a critical first step. Without that step, as difficult as it may be, we cannot expect to unlock a new economic prosperity for Maine.

There was a time when Maine could afford to reform government and to make small adjustments based on the ebb and flow of tax collections and the economy, combining small programs and trimming here and there. Those days are behind us. Today, we are in a new and long-lasting fiscal crisis. This fiscal crisis will persist throughout the coming decade and the one after as baby boomers retire, health care costs increase, and the full costs of decisions made over the last few decades come due.

Reinventing government is not a choice. It is already happening. Whether we want it or not, government is already being restructured, as if in a slowmotion movie, one frame at a time. The driving force for change is not political posturing, party politics or wishful thinking; it is simply hard facts and real numbers. States and local communities cannot print money and build up debt as the federal government can. They must balance their budgets each year.

Dwindling dollars are therefore forcing change. This is not to say that Maine, in particular, has not found ways to go into debt—most notably through underfunded pension and insurance plans and by not paying its bills to hospitals—but the days of spending-todayand-paying-tomorrow are rapidly coming to a close.

Ten Myths that Hold Us Back

One of the first things that Mainers need to do, if real change is going to happen in government, is to confront our tendency to cling to cherished myths as though they were inscribed on stone tablets brought down from high mountains. Here are a few of the most common ones: 1. We can have it all. This myth allows us to pretend that we can have unlimited services from government—great schools and communities, good roads and colleges,

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Volume 19, Number 2 · MAINE POLICY REVIEW · 39

REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y generous social programs—and still have low taxes, even with a weak economy.

Maine. Young people are leaving. Wealthy Mainers are residing in other states half the year. Businesses are not growing. New ones are not coming. All of it drains our resources.

The fact is that Maine people are taxed out.

2. Our current fiscal problems are temporary.

For decades, government balance sheets rose and fell with the economy. About ten years ago, that started to change. Now we find governments facing deficits even in good times.

8. If we keep doing things the way we always have, we will be okay. If that were true, Mainers could graduate from high school and step into waiting jobs at factories, where they would earn a good living assembling some of the world’s best shoes, fabrics or paper products.

3. We can reduce someone else’s government programs, but not ours. If Mainers can agree on anything, it is this: almost everyone is in favor of cutting someone else’s government.

Thinking that change can just apply to someone else avoids reality and costs us dearly.

4. It is all about waste, fraud and abuse.

Making speeches about waste, fraud, and abuse simply allows politicians to rail at government without being specific enough to lose any votes. We can count our blessings every day that the level of outright corruption and greed here, when compared to other states across the country, is remarkably low.

5. We can cut our way to prosperity. If it was this simple, Alabama would have the most vibrant economy in the nation, and Zambia and New Guinea would lead the world.

Strong economies need good, disciplined fiscal management, but they also need infrastructure, good schools, healthy communities, and effective law enforcement.

6. We can invest our way to prosperity. That has become the predictable rallying cry of anyone who wants to add new programs and functions to government, pass a bond issue or otherwise defend a favorite program. The simple fact is that we need to both cut and invest our way forward.

7. All we have to do is tax the rich more.

This notion overlooks the fact that in today’s world capital and people can and do easily move. And they have been moving—out of

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9. Government cannot be changed. If the founding fathers had believed government could not be changed, we would still be paying taxes to Massachusetts and raising toasts to the queen.

10. If only we had a strong leader. No single person or party can solve all the problems Maine confronts, no matter how grounded, intelligent, articulate, or charismatic they are.

We are a state with a strong popular will. We are a town meeting state, a referendum state, a place where leaders can move mountains, but only when we agree to let them—and then help.

GUIDING PRINCIPLES FOR REINVENTING GOVERNMENT

F

or Maine government to become more efficient and modern, we will need a fundamentally new approach to how it is organized and what it does, including the following: 1. Adjust our expectations of government.

The problem of inefficiency is not entirely government’s problem. We need to look in the mirror, too. We cannot ask for more and then complain when the bills come in.

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REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y 2. Push government leaders to be accountable for future effects. We need to change the inclination of public officials to seek short-term benefits without regard to long-term consequences, by changing accounting, budgeting, and legislative practices to make the full costs of decisions known, when they are made.

10. Use market-oriented strategies and public– private partnerships to solve problems. To get better results with less money, Maine governments need to use the marketplace and partnerships to solve problems, not just government programs and regulation.

3. Budget for results. Do not create annual budgets based on last year’s budget. That just locks in place yesterday’s structures and approaches.

For Maine government to become more

4. Invest in constant improvements. Change costs money. New systems have to be built and people need to relearn how to work within them. It takes time, effort, and resources.

fundamentally new approach to how

5. Measure performance and close outdated programs. Every level of government needs performance auditing and reviews that ensure that results will be improved.

6. Decentralize government and empower employees. Public organizations and systems in Maine need to push authority down, encouraging those who deal directly with citizens to make more of their own decisions.

7. Reward excellence and remove incompetence. Move beyond a bureaucratic culture that makes it virtually impossible for government to grow and change.

8. Use competition to drive improvements.

Require service providers within government to compete for their business, based on their performance and price.

9. Make government more accountable to taxpayers. Public organizations in Maine should treat those they serve—the parents whose children they teach, the people who line up to renew driver’s licenses, the citizens they are trying to protect from pollution and the small business owner trying to get started—as they would customers in a business they owned.

efficient and modern, we will need a it is organized and what it does...

AN ACTION PLAN FOR THE COMING DECADE

O

nly a stronger economy can allow Maine to meet the state’s many needs, change the demographic direction of Maine as an aging state, and pull the two Maines together. All of the following recommendations are designed with that purpose in mind: to free up resources for targeted investments in tomorrow’s prosperity.

End Unfunded Pension Liabilities

The state needs to pay its bills on time and stop adding more unsustainable obligations. We need to resist any effort to change the payment due date of 2028. For newly hired state employees, continue to allow early retirement with reduced benefits, but raise the eligibility age for full benefits to reflect longer life expectancy. Automatically enroll all state employees in the state’s tax-advantaged retirement saving plan as an important supplement to traditional pension benefits, particularly for employees who still want the option of an earlier retirement. Accounting procedures and legislative practices should be changed so leaders and the public know the full cost and effect of long-term obligations.

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Volume 19, Number 2 · MAINE POLICY REVIEW · 41

REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y FIGURE 2: Eight Proposed “New Counties”

• spurring more competition; • producing better health, not more procedures; • encouraging coordinated care organizations that succeed by promoting health and preventing illness.

Aroostook

Develop a Smaller, Smarter Legislature

We need to limit the number of bills, shrink the legislature and shorten the sessions by

Central Maine Penquis

• allowing no more than five bills in each twoyear session from any single legislator; • reducing the size of the legislature by one-third to 25 senators and 75 house members;

Western Maine

• reducing the length of sessions by 50 percent; • imposing lifetime term limits of 12 years on all legislators.

Create a Flatter, Leaner, More Responsive State Government

Downeast Midcoast

• to engage state employees, managers, elected officials, and the public in a transformation of state government from the ground up;

Cumberland York

Slow the Climb of Health Care Costs

The climb of health care costs can be slowed by emphasizing prevention, paying for health not sickness, increasing competition and coordinating care. Some steps include • reducing chronic illness by focusing on changing personal behavior rather than just responding to the symptoms of that behavior; • using the buying power of the government to negotiate lower costs; 42 · MAINE POLICY REVIEW · Summer/Fall 2010

We need to create a twenty-first century government by gradually replacing outdated hierarchical bureaucracy with a flatter and more decentralized structure. To do so we need

• to measure and prioritize all functions of state government for value and efficiency; • to eliminate outdated and unnecessary programs and red tape; • to use competition to drive innovation and efficiency; • to constantly re-invest in improvements.

Have Fewer Counties That Do More

Maine should replace the existing 16 counties with eight combined new counties, professionally run and

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REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y more representative, to become effective regional service delivery providers (see Figure 2). The number of county commissioners in these new counties should be increased to nine, to make them more representative of county-wide interests. All county managers, officials, and staff should be appointed rather than elected.

Increase Collaboration between Towns

The state should help towns save money by sharing and regionalizing services, such as road maintenance, public safety, fire protection, valuation, and communications. When new counties are organized to better deliver services regionally, they should become the preferred delivery mechanism.

Innovate in Public Education

We need to transform public schools through innovation and experimentation by • moving Maine toward the national average on student-teacher ratios; • reducing administrative expenses with a new round of district administrative consolidations, but this time put the savings back into the classroom; • evaluating teacher performance; • rewarding good teachers by bringing their pay to the national rural state average and removing under-performing teachers; • investigating the increase in non-teacher employment over the last decade and moving the teacher/non-teacher ratio to the national rural state average; • creating a statewide standard for special education programs that brings Maine closer to a national average.

Develop a Fully Coordinated System of Higher Education

overlapping systems, eliminating duplication and excessive autonomy. To do so, the state should • maintain separate University of Maine and community college systems, but create one board of trustees with authority to coordinate and integrate planning and development of the two systems; • change the current 40-year-old funding formula that freezes campuses in yesterday’s economy, in favor of a system that rewards excellence and results; • establish a true University of Maine System, rather than the current network of largely autonomous campuses; • provide future funding directly to students and let them indicate which campuses are best serving their needs.

CONCLUSION

T

he challenges Maine faces today did not suddenly appear out of nowhere. They are the product of decades of decisions by elected officials and voters at various levels of government, and of long-term trends in the Maine and global economies. The problems identified here are larger and more complicated than any one political party or interest group or point of view can tackle alone. Few of the remedies will be easy or painless, and all of them will require that we think and act in new ways.

Moments like these demand the best of Maine people and Maine leaders. Fortunately, our history reminds us that Mainers are resourceful and practical people, who know how to change, adapt and work together when it is required. If we honestly face these challenges and keep pushing to find common ground, a brighter day is coming for Maine. 

Maine needs to increase funding to higher education in exchange for improvements in coordinating

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Please turn the page for notes, references, and author information.

Volume 19, Number 2 · MAINE POLICY REVIEW · 43

REINVENTING MAINE GOVERNMENT

C O M M E N T A R Y Alan Caron, a lifelong Mainer, has spent 40 years

ENDNOTES

working on a variety of

1. This article is based on a longer report of the same title (Caron and Osborne 2010). Readers are directed to the original report for details about additional data sources and methodology, www.envisionmaine.org.

2. “Personal income” is a standard, comprehensive measure of income in a given area, used by the U.S. Bureau of Economic Analysis. It includes both cash and non-cash income: net earnings; income from investments; and income from government transfer payments (e.g., Medicaid, Medicare, Social Security, unemployment benefits, nutrition assistance).

3. Data regarding expenditures in Maine state and local government and comparisons with national and rural-state expenditures are from work done by Trostel (2010). Trostel’s data update background analysis he did in 2006 for the Brookings Institution for their Charting Maine’s Future study (Brookings Institution 2006). The rural-state averages reported

by Trostel are for the five most rural states other than Maine: Mississippi, Montana, South Dakota, Vermont, and Wyoming; Alaska was excluded as it is clearly an outlier in terms of state and local government spending, presumably because of its high revenues from petroleum royalties (Trostel 2010).

initiatives to improve the lives of Maine people. He is founder and past president of GrowSmart Maine, which is best known for bringing the Brookings Institution to Maine in 2006 for its major report, Charting Maine’s Future.

He now heads Envision Maine, an independent think tank based in Freeport.

David Osborne is the author or co-author of five books on reshaping government, including the New York Times bestseller Reinventing Government in

1992. He is a senior partner in The Public Strategies Group, a consulting firm that helps public organizations improve their performance, and has worked with governments large and small across

REFERENCES Brookings Institution. 2006. Charting Maine’s Future: An Action Plan for Promoting Sustainable Prosperity and Quality Places. The Brookings Institution Metropolitan Policy Program, Washington, DC.

the country.

Caron, Alan and David Osborne. 2010. Reinventing Maine Government: How Mainers Can Shape a Sustainable Government and a New Prosperity.

Envision Maine, Freeport.

Trostel, Philip. 2010. Maine State- and LocalGovernment Payroll and Expenditure in 2007.

School of Economics Working Paper No. 588, University of Maine, Orono. http://umaine.edu/soe/ files/2009/06/SOE-588.pdf [Accessed November 26, 2010]

44 · MAINE POLICY REVIEW · Summer/Fall 2010

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Volume 19, Number 2 · MAINE POLICY REVIEW · 45

IMPACT OF MAINE’S CLEAN ELECTIONS ACT

Cleaning House?

Does full public financing of legislative elections

Assessing the Impact of Maine’s Clean Elections Act on Electoral Competitiveness

make races more competitive? Richard Powell

by Richard J. Powell

able to rely substantially less on private contributions

analyzes the impact of the Maine Clean Elections Act (MCEA) on house and senate elections since its passage in 2000. Using statistical analysis, he concludes the MCEA has not significantly increased competiveness, even though candidates have been

and the financial disparity between candidates has decreased significantly. Powell suggests that analysis of the Maine case will be useful as the nation and other states consider public-financing laws comparable to the MCEA.

46 · MAINE POLICY REVIEW · Summer/Fall 2010



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IMPACT OF MAINE’S CLEAN ELECTIONS ACT

Because publicINTRODUCTION

I

n the words of the well-known political scientist Robert Dahl, “In a democratic vision, opportunities to exercise power over government of the state ought to be distributed equally among citizens” (Dahl 1996: 639). The current system of financing U.S. elections, based largely on private donations, and the importance of money in determining election outcomes, have led many observers to doubt whether the U.S. succeeds in reaching Dahl’s standard. As a result of widespread concerns that elections—and thus the affairs of government—were being unduly influenced by special interest groups through their campaign donations, many states have implemented some form of public financing of state legislative elections. In the vast majority of those states, levels of candidate participation are very low due to insufficient funding and regulatory control. In 2000, Maine and Arizona, however, became the first states in the U.S. to offer full public financing of their legislative elections in a way that has encouraged widespread participation.

The Maine Clean Elections Act (MCEA), enacted via a ballot initiative in 1996, is a voluntary system overseen by the Maine Ethics Commission.

Candidates choosing to participate in the system are required to raise a limited amount of money in the form of small private donations to prove their viability. Once designated as clean-elections candidates, they receive campaign funds from the taxpayerfunded system. The amount disbursed to each candidate varies, but it averaged $6,695 in the house and $34,103 in the senate in 2008. Not all candidates received that much money, however, due to the disbursement of matching funds in some races.

If a MCEA candidate faces a non-MCEA opponent, he or she receives matching funds to balance out the difference. In exchange for accepting public funding, MCEA candidates are not permitted to raise any additional outside funds from private donations for use in their own campaigns. Participation rates have been high due to relatively high funding levels—by Maine standards—and the matching-fund provision, which significantly reduces the possible advantages of non-participation.

Perhaps owing to the recentness of these reforms, little research has yet addressed the impact of full public financing on state legislative elections.

To fill that void, I conducted a study to examine the impact of MCEA on legislative elections in the state. Because publicfinancing laws have been proposed at the national level and in a number of other states, this study provides us with an early glance at the implications of such reforms. How many candidates are currently accepting public funds? Does public financing make elections more or less competitive (controlling, of course, for a range of electorally relevant factors)? Are incumbents more or less secure under public financing?

financing laws have been proposed at the national level and in a number of other states, this study provides us with an early glance at the implications of such reforms.

PUBLIC FUNDING OF ELECTIONS

T

he link between electoral institutions and democratic representation has been a perennial issue in U.S. political history. Numerous reforms—the Australian (secret) ballot, voter-registration laws, direct primaries, and many others—have aimed to strengthen the bonds of representation between U.S. citizens and their elected officials, while attempting to limit the influence of special interest groups. In recent decades, much of the focus of electoral reform has been on the campaign-finance system. For example, following the Watergate scandal, Congress enacted the far-reaching Federal Election Campaign Act of 1974 (FECA), which mandated full disclosure of all campaign contributions and placed limits on political donations. FECA also set up an optional system of publicly financed elections for the presidency, paid for by taxpayer contributions via the check-off option on their yearly tax returns. The goal, of course, was to remove the financial dependence of candidates on private donors. In

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Volume 19, Number 2 · MAINE POLICY REVIEW · 47

IMPACT OF MAINE’S CLEAN ELECTIONS ACT

Percentage of Candidates Accepting MCEA Funds, 2000–2008

TABLE 1

House (%)

Senate (%)

2000

29.2

50.7

2002

60.2

73.2

2004

78.5

79.5

2006

79.9

86.5

2008

83.2

79.7

doing so, reformers hoped to weaken the ties between special interest groups and elected officials, instead making office-holders more responsive to their constituents (Corrado et al. 1997; Jacobson 2001). In 2002, sweeping new regulations in the Bipartisan Campaign Reform Act (BCRA) sought to close a number of financing loopholes along with adding new restrictions on campaign donations.

Since the 1970s there have been a number of unsuccessful attempts to extend public-finance laws to races for Congress. For example, one such proposal was unsuccessfully promoted by Senator George Mitchell (D-Maine) during his tenure as Senate Majority Leader.

Although more than 20 states have enacted some form of partial public financing of state elections, only two states—Maine and Arizona—offered full public financing of state legislative elections as of 2006, joined

by Connecticut in 2008. Following the lead of Justice Louis Brandeis, political commentators have sometimes referred to state governments as the “laboratories of democracy” because lessons learned from state-level reforms can be applied in other states or at the national level. For that reason, Maine’s experience with full public financing holds great significance for ongoing debates about campaign-finance reform across the nation.

The general topic of campaign finance has been the subject of a great deal of research in political science. The existing research, almost exclusively concerned with national politics, has tended toward a few broad types—empirical studies aimed at assessing why some candidates fare better than others in raising money, the impact of campaign finance on election outcomes, and normative arguments in support or 48 · MAINE POLICY REVIEW · Summer/Fall 2010

opposition to various regulations. Another strain of research has sought to measure what donors receive in return for their campaign donations.

Although there is a limited literature examining the effects of partial public financing on state election outcomes (see Jones 1981; Penning and Smidt 1983), no study has yet provided a comprehensive examination of the effects of full public financing on state politics. The work of Mayer and Wood (1995) is typical of the limited research that exists on the topic.

In their analysis of partial public funding in Wisconsin, they found that such laws reduced the funding disparity between challengers and incumbents, but failed to make state legislative elections more competitive overall. Contrary evidence was provided by Goidel and Gross (1996) who ran a series of sophisticated quantitative simulations that showed public financing generally leads to more competitive elections. Their findings were consistent with those of Donnay and Ramsden (1995) and Malbin and Gais (1998) who found that Minnesota’s partial public financing laws led to more competitive elections in that state.

Unfortunately, studies of Minnesota and Wisconsin’s campaign-finance systems are of limited use due to low levels of funding and candidate participation. Yet, these limited and inconclusive findings are about all we have in understanding the impact of public financing on state government. Due to the limited amount of research conducted to date, our understanding of this area of growing importance is grossly incomplete. In particular, we do not have a full understanding of the effects of public financing on electoral outcomes.

DATA AND ANALYSIS

T

o assess the impact of public financing on legislative elections in Maine, I compiled a dataset of all candidates running in the general election for the Maine House of Representatives and Senate from 1994 to 2008.1 Although MCEA did not take effect until the 2000 election cycle, I extended the dataset back to 1994 to adequately capture any trends that were already ongoing in Maine when MCEA took effect. Thus, this study spans the first five elections with public financing along with the three prior elections. For each legislative candidate, I collected data

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on gender, party affiliation, candidate status (incumbent, challenger, or candidate in an open-seat race), campaign funding, and the percentage of votes received. Voterregistration data were collected for each district in each election cycle also.

Public Funding and Candidate Entry

TABLE 2:

Percentage of Candidates Accepting MCEA Funds

by Incumbency Status, 2000–2008 HOUSE Incumbent (%)

Challenger (%)

2000

23.1

2002

44.2

2004

SENATE Open (%)

Incumbent (%)

Challenger (%)

Open (%)

27.5

41.2

50.0

65.0

40.0

66.7

68.9

80.0

69.6

69.6

73.4

79.5

83.7

86.4

81.8

72.4

2006

82.1

80.2

76.0

81.5

87.9

92.9

2008

80.9

80.0

89.7

76.9

78.6

85.0

At first glance, the data clearly attest to the success TABLE 3: Mean Fundraising and Expenditures by Candidate, 1994–2008 of MCEA in enticing candidates to accept public HOUSE SENATE financing and the accompaTotal Total nying regulations. As shown Private MCEA Private MCEA Expenditures Expenditures Funds ($) Funds ($) Funds ($) Funds ($) in Table 1, by 2002, the ($) ($) second election under 1994 3,796 -4,000 20,479 -20,232 MCEA, more than 60 1996 5,234 -4,989 20,808 -19,299 percent of house candidates and nearly three-quarters of 1998 6,482 -5,974 24,523 -22,012 senate candidates partici2000 3,699 ++ 4,519 10,881 ++ 22,581 pated in the new system.

2002 2,635 3,812 5,921 8,800 18,024 22,947 Moreover, participation 2004 1,574 5,737 6,529 7,447 25,077 32,614 rates rose steadily over the next three election cycles.

2006 1,989 7,672 8,079 4,876 32,556 33,671 By 2008, 83 percent of 2008 1,459 6,695 7,137 3,942 34,103 31,890 house candidates and 1994–1998 4,899*** 4,984*** 20,911*** 20,515*** almost 80 percent of senate (mean) candidates accepted public 2000–2008 financing. As shown in 1,828*** 6,489*** 5,732*** 28,898*** (mean) Table 2, MCEA has been *p<0.05, **p<0.01, ***p<0.001 effective in getting the ++MCEA funds were disbursed to candidates, but the state’s online disclosure system was not yet fully functional. participation of incumbents, challengers, and candidates in open-seat races, with all three types of candidates generally of private contributions raised by legislative candidates participating about 80 percent of the time. has decreased significantly in both the house and As discussed earlier, one of the chief aims of senate. In the three elections prior to MCEA, house MCEA’s proponents was to reduce the amount of candidates raised an average of $4,899 from private money being raised and spent in Maine’s legislative contributors and their counterparts in senate races elections, particularly private contributions. The data raised $20,911. Under MCEA, there has been a presented in Table 3 show that those goals have been dramatic decrease in private contributions. From 2000 only partially met. Under MCEA, the average amount to 2008, average fundraising from private sources View current & previous issues of MPR at: mcspolicycenter.umaine.edu/?q=MPR

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IMPACT OF MAINE’S CLEAN ELECTIONS ACT

TABLE 4:

Advantage in Total Expenditures by Winning Candidates in Contested Races, Open-Seat and Non-Open-Seat Races, 1994–2008 HOUSE Incumbent ($)

SENATE

Open Race ($)

Incumbent ($)

Open Race ($)

1994

2,356

793

8,073

5,166

1996

1,733

1,690

10,244

7,622

1998

2,491

4,122

11,533

-8,534

2000

1,750

1,602

-1,220

9,426

2002

1,726

1,634

3,027

5,388

2004

482

160

-9,756

4,416

2006

571

1,530

2,263

6,224

2008

260

1,080

771

12,511

1994–1998 (mean)

2,189***

1,803

10,117***

4,680

2000–2008 (mean)

896***

1,188

-656***

7,462

*p<0.05, **p<0.01, ***p<0.001

decreased to $1,828 in the house and $5,732 in the senate. Overall, the amount of direct private contributions to Maine’s legislative candidates has dropped by more than 60 percent under MCEA.2 Of course, elections are still costly affairs, so candidates have relied on MCEA funds to fill the void. In the 2008 election cycle, candidates accepted an average of $6,695 in MCEA funds in house races and more than $34,000 in senate races. In this regard, the performance of MCEA has been mixed. Although candidates’ reliance on private funding has decreased substantially, total expenditures have increased significantly. From 1994 to 1998, the average candidate spent a total of $4,984 in house races and $20,515 in senate races.

Under MCEA, from 2000 to 2008 the total per candidate expenditures rose to $6,489 and $28,898 in the house and senate, respectively.

Bivariate Analysis: An Initial Look at Competitiveness

As already discussed, one of the chief goals of public financing’s proponents has been to make 50 · MAINE POLICY REVIEW · Summer/Fall 2010

elections more competitive. Numerous studies have shown that U.S. elections, including those for state legislatures, have become less competitive in recent decades (see, for example, Jacobson 2001). One of the chief reasons behind this noncompetitiveness has been the enormous electoral advantage enjoyed by incumbents. The advantages of incumbency are numerous and have been studied exhaustively by political scientists. Undoubtedly, chief among them is the significant advantage that incumbents enjoy over challengers in raising campaign funds. Even in open-seat races, betterfunded candidates are typically in an advantageous position relative to their opponents.

Political scientists have generally measured the broad concept of “competitiveness” in at least three specific ways. In its most basic form, a competitive election is one that is contested. In a healthy democratic system, voters should have different candidates from whom to choose. In situations where incumbents are perceived to hold an insurmountable advantage, however, potential challengers may not be willing to undertake a campaign. Advocates of publicly funded campaigns have argued that such reforms will increase the number of candidates by removing one of the largest barriers to candidate entry—relative disadvantages in fundraising capacity. The margin of victory of winning candidates is another means of assessing the competitiveness of elections. Numerous studies have demonstrated the link between fundraising and votes won. By equalizing the playing field in terms of campaign funding, public financing should lead to narrower margins of victory for winning candidates, other things being equal. Ultimately, electoral competitiveness can be measured by the reelection rate of incumbents. In other words, does public financing actually reduce the advantages of incumbency to such an extent that challengers are more likely to win?

Table 4, which shows the average advantage in total expenditures of winning candidates over their opponents, provides evidence that MCEA has been successful in narrowing the funding gap between candidates. In house races with incumbents running for reelection, winning candidates (almost always incumbents) spent an average of $2,189 more than their opponents from 1994 to 1998. Under MCEA, this funding gap has been cut by more than 60 percent to $896. The senate

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experienced an even more dramatic change. From 1994 to 1998, winning candidates outspent their opponents by more than $10,117. However, from 2000 to 2008, losing candidates actually outspent winners by an average of $656. The changes for both the house and senate were statistically significant. On the other hand, the funding differences between winning and losing candidates in open-seat races, much smaller to begin with, have not changed in a statistically significant way under MCEA in either the house or senate.

As a first test, I examined the three measures of competitiveness by comparing the time periods of 1994–1998 with 2000–2008 for each one. The first question we need to address is: Has the number of contested seats risen under MCEA? The average number of contested house races has increased under MCEA from 125 during the 1994–1998 period to 134.6 in the 2000–2008 period and from 32.3 to 33.2 in the senate over the same period. Neither change, however, is statistically significant. The senate results, in particular, are not surprising given the rate at which senate races have been contested by Republicans and Democrats. Typically, the major parties have made extensive efforts to recruit a candidate for every senate seat. This has been particularly true over the time period examined in this study because of the pivotal nature the senate has played in key state issues and because the parties have been closely divided.

Legislative term limits, in effect in Maine since 1996, have also likely contributed to the large number of contested senate seats. As members of the house have been term limited, many of them have chosen to run immediately for the senate. Further, Moen, Palmer and Powell (2005) found that the power of the Maine senate has increased at the expense of the house under term limits, as more experienced members have migrated to the senate.

The second measure of competitiveness is the margin of victory of winning candidates. I analyzed the average margin of victory in house and senate races by year, broken down by races in which incumbents were running for election and open-seat races in which they were not. Under MCEA, the average margin of victory has decreased slightly in non-open-seat races in both the house and the senate. From 1994 to 1998, races with incumbents running for reelection were decided

by a margin of 22 percent in the house and 23.7 percent in the senate. From 2000 to 2008, this dropped to 21.8 percent in the house and 20.1 percent in the senate. Nevertheless, both decreases were slight and not statistically significant. Similarly, the average margin of victory in both houses in open-seat races did not change in a statistically significant way.

Finally, we need to ask whether these small, statistically insignificant changes in contestedness and margin of victory have resulted in a decrease in the incumbency reelection rate. After all, in races with incumbents, the average margin of victory, although slightly smaller, has remained greater than 20 percent.

My analysis found that incumbent reelection rates have not changed in a statistically significant way under MCEA. In the house, incumbents have actually been reelected at a slightly higher rate under MCEA (88.0 percent compared with 85.6 percent previously), with a modest decrease in the senate (90.0 percent under MCEA compared with 95.4 percent previously).

In sum, a first glance at the data suggests that the goal of MCEA in creating greater electoral competitiveness has not been met. Neither house nor senate races have been contested at a statistically significant higher rate. Further, neither incumbents’ average margin of victory nor their overall reelection rate has changed in a statistically significant way.

By equalizing the playing field in terms of campaign funding, public financing should lead to narrower margins of victory for winning candidates, other things being equal.

These trends provide us with an interesting starting point in assessing the impact of MCEA on electoral competition in Maine. Yet, during this same time period there have been a number of other potentially relevant factors that may have influenced competitiveness. For example, as mentioned earlier, Maine began

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IMPACT OF MAINE’S CLEAN ELECTIONS ACT

imposing legislative term limits in 1996. Increased electoral competitiveness was also one of the primary goals of that reform. Another potentially complicating factor is that Maine’s legislative districts were redrawn following the 2000 census, some of them very significantly due to the large-scale population shifts in some areas of the state since the 1990 census. The new districts took effect with the 2004 election. Obviously, any impact of MCEA in terms of competitiveness may be clouded by changes in voter partisanship in the various districts. For these reasons, it is necessary to subject these initial findings to more rigorous examination using multivariate analysis.

…public funding may not be the panacea that its supporters wished it would be, nor does it substantially reduce the electoral advantage enjoyed by incumbents.

Multivariate Analysis: Assessing Electoral Competitiveness

To isolate the effects of MCEA on whether elections were contested, I analyzed the data using more advanced multivariate statistical modeling, designed to control for the effects of a wide range of variables on one another. For example, my analysis took into account the partisan mix of voters and past voting patterns in each legislative district. In doing so, I expected that the larger the size of the majority party’s advantage in a district, the less likely a race would be contested. In making the choice of whether or not to run, potential candidates certainly weigh the costs of running against their perceived chance of winning.

As the percentage of voters from the opposite party increases, the chances of winning decrease. Similarly, I expected that a challenger will be less likely to run as the incumbent’s past percentage of the vote increases.3 The results from these analyses show a number of interesting things. For example, in districts with incumbents running for reelection, MCEA has increased the probability of an incumbent facing a 52 · MAINE POLICY REVIEW · Summer/Fall 2010

challenger by six percent in the house, a statistically significant change. MCEA has not been associated with a statistically significant increase in contested senate seats, however, probably due to the high rate of contestedness these races experienced even before public financing.

In open-seat races, public financing does not increase the likelihood of contested seats in either the house or senate. Similar to the senate results, this may be because open seats were already more likely to be contested; there just is not much room for a statistically significant increase to occur in open-seat races. Prior research suggests this may be even truer since the advent of term limits in 1996, as potential challengers wait for open seats, knowing that any incumbent has at most eight years in office.

In relation to the second measure of competitiveness, margin of victory, MCEA has resulted in closer vote margins by just more than three percent in house races when challengers accept public financing, a statistically significant change. The results suggest, however, that incumbents may be able to partially offset that gain by accepting public financing themselves. In the senate, public financing for either candidate did not have a statistically significant impact on margin of victory.

In open-seat races, the acceptance of public financing by the losing candidate narrowed the winner’s margin of victory in both the house and senate. In house races, this resulted in a narrowing of the margin of victory by 3.3 percent; the impact was even greater in the senate with a change of nearly six percent.

Turning to our final measure of competitiveness, I sought to determine the impact of MCEA on the likelihood of an incumbent victory in non-open-seat races. The results show that MCEA funding can have an impact on the likelihood of an incumbent victory, depending upon which candidates participate. The probability of a challenger defeating an incumbent increases by five and ten percent in the house and senate, respectively, when the challenger accepts public funding. Incumbents can more than negate those gains, however, by accepting public funds for their own campaigns. Taken as a whole, the results indicate that incumbents benefit disproportionately from MCEA once they make the decision to accept public funds, regardless of whether the challenger participates.

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Although the advantage for incumbents is diminished when facing an MCEA challenger, the key factor is whether or not the incumbent—not the challenger— participates in MCEA. DISCUSSION

P

ublic financing of legislative campaigns has been touted by supporters as a means of enhancing electoral competition and reducing the influence of donors on the legislative process. My focus here has been the first issue: Does public financing increase competitiveness? In answering this question, I examined the impact of the Maine Clean Elections Act on three measures of electoral competitiveness: contestedness, margin of victory, and incumbent reelection rate. Taken as a whole, the results of my analyses indicate that public financing has had only the slightest effects on electoral competition for the Maine Legislature. Under MCEA, house incumbents are about six percent more likely to face a challenger when running for reelection, but this has not been the case in the senate. Contested elections are no more likely in open-seat races under MCEA than before in either the house or senate. Margins of victory are slightly smaller in races with MCEA candidates, but the average incumbent still wins by a margin of more than 20 percent in the house and senate, and winners of open-seat races still win by about 15 percent in both houses. In terms of actual wins and losses, challengers are only more likely to win if they participate in MCEA and the incumbent does not. When incumbents accept public funding, they are actually more likely to win reelection.

In sum, my study found that MCEA has not had a significant impact on increasing electoral competition for the Maine Legislature even though candidates have relied on substantially less in private contributions and the financial disparity between candidates has diminished significantly. It has not benefited challengers, nor does it appear to be serving as an “incumbency protection act” as some observers predicted (see Goidel and Gross 1996: 130). So why hasn’t MCEA translated into greater competitiveness? The explanation may rest with the old adage that money, like water running downhill, will always find a way around new campaign finance regulations. Like many other efforts to regulate

campaign finance, MCEA has been compromised by some significant loopholes. Despite widespread participation in a system in which candidates are forbidden from accepting private contributions, outside money continues to pour into the system. For example, under MCEA individual legislators are permitted to create leadership political action committees (PACs) that are substantially unregulated. Further, MCEA candidates can raise money for these PACs. Like the soft-money loophole in pre-BCRA U.S. national elections, these PACs have been able to raise large sums of money that can be used to influence particular races. The major restriction is that leadership PACs are not permitted to serve as conduits between specific donors and candidates. In other words, donors are not permitted to have any involvement in how their donations are spent by leadership PACs. In short, private campaign contributions are no longer permitted to candidates accepting public financing, but those funds are still being used to benefit those candidates in an indirect manner. Since leadership PACs are typically used by leaders to further their own political interests, they are most likely to donate to candidates likely to win—usually incumbents and co-partisans in competitive open-seat races.

For the purposes of the present discussion, this loophole seems to be severely hampering the effectiveness of MCEA in reducing the amount of money in campaigns and in increasing electoral competitiveness.

Outside money is still finding its way into legislative elections. It is certainly possible that the other goal of MCEA—limiting the legislative influence presumed to come with contributions—is being furthered since candidates do not have direct links with donors. That particular topic is beyond the scope of the present study, but it is an important avenue for further research.

My findings suggest that public funding may not be the panacea that its supporters wished it would be, nor does it substantially reduce the electoral advantage enjoyed by incumbents. Electoral competitiveness in Maine has not been appreciably affected by MCEA. Over time, it will be interesting to see if the experience of Connecticut—and, perhaps other states considering public-financing laws geared toward high participation rates—will be similar to Maine’s in its first five election cycles with this reform. -

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Please turn the page for notes, references, and author information.

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IMPACT OF MAINE’S CLEAN ELECTIONS ACT

ENDNOTES 1. Candidate data and election returns were obtained from the Maine Secretary of State’s office. Data on campaign funding were obtained from the Maine Ethics Commission, which oversees and enforces Maine’s campaign finance laws.

2. All data on campaign funding and expenditures used in this study have been adjusted for inflation and are presented in constant dollars using 1994 as a base.

Moen, Matthew C., Kenneth T. Palmer and Richard J. Powell. 2005. Changing Members: The Maine Legislature in the Era of Term Limits. Lexington Press, Lanham, MD. Penning, James M. and Corwin E. Smidt. 1983. “Views of American State Legislators on Public Funding of Legislative Elections.” Legislative Studies Quarterly 8:97–109.

3. The results of the multivariate models are summarized here. More detailed information about the statistical models employed can be obtained from the author.

ciate professor of political

REFERENCES

of Maine. He is the author

Richard J. Powell is assoscience at the University of numerous academic

Corrado, Anthony, Thomas E. Mann, Daniel R. Ortiz, Trevor Potter and Frank J. Sorauf. 1997. Campaign Finance Reform: A Sourcebook. Brookings Institution Press, Washington, DC.

articles and books on American politics, including Changing Members: The

Dahl, Robert A. 1996. “Equality vs. Inequality.” PS: Political Science and Politics 29:639–648.

Donnay, Patrick D. and Graham Ramsden. 1995.

“Public Financing of Legislative Elections: Lessons from Minnesota.” Legislative Studies Quarterly 20:351–364.

Maine Legislature in the Era of Term Limits (coauthored with Matthew C. Moen and

Kenneth T. Palmer).

Goidel, Robert K. and Donald A. Gross. 1996.

“Reconsidering the ‘Myths and Realities’ of Campaign Finance Reform.” Legislative Studies Quarterly 21:129–149.

Jacobson, Gary C. 2001. The Politics of Congressional Elections, 5th ed. Addison, Wesley, Longman, New York.

Jones, Ruth S. 1981. “State Public Campaign Finance: Implications for Partisan Politics.” American Journal of Political Science 25:342–361.

Malbin, Michael J. and Thomas L. Gais. 1998. The Day after Reform: Sobering Campaign Finance Lessons from the American States. Rockefeller Institute Press, New York.

Mayer, Kenneth R. and John M. Wood. 1995.

“The Impact of Public Financing on Electoral Competitiveness: Evidence from Wisconsin, 1964– 1990.” Legislative Studies Quarterly 20:69–88.

54 · MAINE POLICY REVIEW · Summer/Fall 2010

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Volume 19, Number 2 · MAINE POLICY REVIEW · 55

PUTTING EQUITY BACK IN REVERSE MORTGAGES

Putting Equity Back in Reverse Mortgages: Helping Seniors Retire with Dignity

by Andrew C. Helman

Policymakers can help some seniors age in place through policies to strengthen private-sector reverse mortgages. In reverse mortgages, individuals who may be “house rich but cash poor” can use their home’s equity to receive regular income or get money through a credit line. Andrew Helman argues that state legislatures can help seniors avoid the “tricks and traps” of reverse mortgages by establishing programs in which lenders who agree to play by rules that ensure the safety and security of such mortgages are placed on a “preferred” list for seniors seeking a loan. He observes that laying the groundwork now can help a larger group of seniors age with dignity.

56 · MAINE POLICY REVIEW · Summer/Fall 2010



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PUTTING EQUITY BACK IN REVERSE MORTGAGES

…the reverse We should provide for our age, in order that our age may have no urgent wants of this world to abstract it from the meditations of the next. It is awful to see the lean hands of Dotage making a coffer of the grave!

—Edward Bulwer, Lord Lytton (Bulwer 2006) INTRODUCTION

A

s the great recession continues to linger, financial pressures are putting the squeeze on Maine seniors for basic needs such as gas, groceries, and medical expenses (Morin and Taylor 2009). And retirement for baby boomers is right around the corner, even as their parents’ wealth evaporates. Given these realities, Maine, like many other states, is at a crossroads: How do policymakers ensure seniors retire with dignity in spite of a down economy, evaporating wealth, and diminished resources for social welfare programs?

Given emerging data showing that the vast majority of seniors would prefer to age in place (Bayer and Harper 2009), one option some seniors will likely consider is a reverse mortgage. Reverse mortgages are rising debt/falling equity mortgages through which seniors can turn the equity in their homes into a stream of cash or credit line. In light of recent reports of fraud and abuse with reverse-mortgage transactions, however, significant reforms are needed to make reverse mortgages safe and secure for seniors.

This essay will discuss tricks and traps1 plaguing reverse mortgages along with concrete steps that can be taken at the state level to remedy the problem for Maine seniors. While the private and public sectors are both able to help cash-strapped seniors, this essay argues that the reverse-mortgage market presents an option that is likely to become more popular and, therefore, would benefit from consumer-protection reforms. The basic premise is that legislators could induce private-sector lenders to agree to lend on terms that are free from common tricks and traps in exchange for placing lenders participating in this program on a preferred list that would be maintained by the appropriate state agency such as MaineHousing.

Seniors would benefit from safe and secure loans, while lenders would benefit from the imprimatur of state

government when accessing this largely untapped market.

THE SCOPE OF THE PROBLEM

M

mortgage market presents an option that is likely to

any seniors face a threebecome more fold problem. First, for the vast majority of seniors, popular and, therewealth tends to be tied up in the equity of their homes fore, would benefit (Hammond 1993). As a result, much of their financial resources from consumerare in the form of an illiquid asset that is often unable to protection reforms. produce income—a problem compounded by the fact that seniors have higher rates of homeownership than other age groups (U.S. Census Bureau 2005). Yet, at the same time, housing costs are seniors’ largest expenditure (Loonin and Renuart 2007). Second, according to an article in the July 2, 2008, issue of USA Today by Lynn O’Shaughnessy, expenses for necessary items such as food, fuel, and medicine “have galloped beyond reach,” and many seniors are “living on fixed incomes” and “just getting crushed on food and medicine that they can’t do without.” Third, incomes tend to be lower for those over 65 years old, and about 75 percent of all seniors have incomes below $33,000 (DeNavas-Walt, Proctor and Smith 2009; Purcell 2009). For seniors, lower incomes make it especially difficult to keep up with rising expenses such as property taxes, which tend to increase as property values go up, because seniors’ incomes usually do not rise correspondingly (Loonin and Renuart 2007).

Unfortunately, there is every reason to believe that we are looking at the tip of the iceberg (Brandon 2008). On one hand, “the population of seniors will increase 35 percent to nearly 55 million by 2020” (Salkin 2009: 292). On the other hand, from October 2007 to October 2008, retirement accounts lost between $1.6 and $2 trillion, which will disproportionately affect baby boomers nearing retirement because they have less time to recover their wealth (Brandon 2008).

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PUTTING EQUITY BACK IN REVERSE MORTGAGES

On top of that, according to an article in Baby Boomer Magazine (www.babyboomer-magazine.com/ news/119/ARTICLE/1108/2009-02-10.html) many boomers can expect smaller inheritances because the generation before them is living longer and also has been hit hard by the current financial crises. And that does not take into consideration that many boomers expect retirement to be more active than the preceding generation, which means their expenses will likely be about 15 percent higher.

Taken together, the problem stands in stark relief.

The current group of seniors is “sitting on a large amount of home equity,” but face trouble making ends meet (Loonin and Renuart 2007: 180). The baby boomers, who are rapidly approaching retirement, are facing diminished retirement savings due to the economic downturn and have no substantial hope of being bailed out by inheritances from their parents.

Given the relatively high rates of home ownership and stagnant or declining incomes among seniors, many “face the dilemma of being ‘house rich, but cash poor’” (Hammond 1993: 76).

MAINE’S FAILED PUBLIC SECTOR SOLUTION

P

olicymakers in Maine have tried to help seniors cope with financial stress in the past (L.D. 1088, Statement of Fact [114th Legis. 1989]; House Amend.

H to Comm. Amend. A. to L.D. 1088, No. H-388 [114th Legis. 1989]; Legis. Rec. 1890 [1989]). In 1989, the legislature enacted the Elderly Tax Deferral Program, which called on state government to pay local property taxes for some low-income seniors in exchange for liens on the seniors’ homes that were enforceable upon transfer of the property or death of the senior.2 But due to the costs, the program proved to be unsustainable, and for the same reason, efforts to revive it

58 · MAINE POLICY REVIEW · Summer/Fall 2010

have mostly stalled (David Ledew, personal communication). While the state has recouped virtually all of the money invested in the program, it tied up scarce resources that could have been directed to other programs, and it essentially put the state in the business of lending, which the private sector may be better equipped to do.

The details of the program were fairly simple. For seniors who met eligibility criteria—at a minimum, 65 years old and earning less than $32,000 a year—Maine state government picked up the municipal property taxes, which allowed the senior to defer payment. In exchange for accepting the state’s help, seniors agreed to repay the amount of money advanced plus interest, which was set at six percent per year. Four major classes of events triggered a repayment obligation: death of the participant; sale of the property; the participant moved for reasons other than health; or the property, such as a mobile home, was removed from the state.

The state secured its interest by recording a lien on the property. If the state did not recoup its money

by April 30 of the year after the repayment obligation matured, the lien was treated as a mortgage with priority above all other encumbrance. While the program provided for a non-judicial foreclosure process, the state only foreclosed on one property in the program’s history (David Ledew, personal communication).

Despite the program’s modest enrollment—for example, 73 participants in year one, 90 in year four, and about 175 at the program’s height—the legislature quickly became concerned about the growing cost of the program (David Ledew, personal communication).

Thus, the legislature authorized the state tax assessor to pay less than the total amount due to municipal taxing authorities, which, to many people, signaled a lack of confidence in the program (David Ledew, personal communication). However, the real death knell came a few years later, in the wake of a fiscal crisis that led to a shutdown of state government in 1991 (David Ledew, personal communication). In 1994, as part of a supplemental budget bill, the legislature established a retroactive moratorium on new claims under the program. There was no floor debate or discussion in the press of this issue.

Recently, Rep. Kathleen Chase (R-Wells), attempted to breathe new life into the Elderly Tax

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Deferral Program, but she was unable to win support from the legislature’s Taxation Committee because of the cost of the program, even though she proposed raising the minimum age for participation to 70 (David Ledew, personal communication). Rep. Chase’s effort was not entirely without success, however. The Taxation Committee amended her proposal and voted to allow municipalities to establish optional tax-deferral programs based on guidelines that are similar to the Elderly Tax Deferral Program (Comm. Amend. A. to L.D. 1121 [124th Legis. 2010]). But even this modest proposal may be a questionable use of public resources.

It would tie up millions in scarce public resources; it could give lenders cold feet and add to borrowing costs; and it would likely add to administrative costs for enforcement proceedings.

A PRIVATE SECTOR SOLUTION

The Options

Given the relatively high rates of home ownership and stagnant or declining incomes among seniors, many “face the dilemma of being ‘house rich, but cash poor’” (Hammond 1993: 76). The private sector, however, provides seniors with different ways to turn locked-up equity into cash through sales, sale-leasebacks, retaining a life estate, a support mortgage, or a reverse mortgage (Nelson and Whitman 1994; Hammond 1993; Thompson v. Glidden, 445 A.2d 676 [Me. 1982]). There are distinct advantages and disadvantages to each, especially for homeowners in states with housing costs similar to Maine, where the median sale price for a home in 2008 was $178,000, and the average monthly rent for a two bedroom apartment in the same year was $846.95.3 A sale is “the most obvious way for the elderly homeowner to convert home equity to an incomeproducing use” (Hammond 1993: 79). A homeowner can then invest the proceeds to generate income, or simply live off of the sale proceeds and buy or rent less expensive housing (Hammond 1993). Based on the 2008 median sale price and monthly rent for Maine, a senior would need to realize a return of 5.7 percent from investing the proceeds of a sale in order to cover rent—and that does not account for investment

expenses or any return to principal needed to hedge against a further decline in the financial markets.

Given that seniors have a relatively short time horizon for investing, however, their corresponding risk tolerance should be low, which rules out stocks and leaves as investment options cash, cash equivalents, or bonds. Yet, current interest rates are too low to generate the levels of income needed from cash, cash equivalents, or bonds.

Sale-leaseback transactions present another option, but they are often complex to navigate. In a sale-leaseback, a homeowner sells the house to an investor, often a family member, who then leases the home back to the senior (Hammond 1993). The senior-seller usually gets a down payment from the buyer, followed by monthly principal and interest payments, which may be used to offset payments due as a tenant (Hammond 1993).

These are complex transactions that could put seniors in risky situations. For example, as tenants, seniors may be vulnerable to evictions or unscrupulous and inattentive landlords. Additionally, seniors who finance the sale-leasebacks themselves could be forced to take legal action if payments are delinquent.

For those seniors with good family relations, retaining a life estate or a support mortgage may be viable options, though both have the potential to create adversarial relationships with family members (Nelson and Whitman 1994; Hammond 1993). Retaining a life estate entails selling the right to possess and use the property upon the senior’s death, while keeping an ownership interest for the remainder of the senior’s life.

This option would almost certainly require legal assistance, thus adding to the transaction costs. A support mortgage can be similarly complicated. Under this option, a senior would sell his or her home, and the buyer would grant a mortgage on the home to the senior; if the buyer-mortgagor failed to provide support for the senior-mortgagee, then the senior could foreclose upon the home. Even assuming the best of intentions, a support mortgage sets up a potentially adversarial relationship among family members.

Complicating any analysis is the fact that, according to a recent AARP survey, about 84 percent of those 55 or older want to age in place and stay in their homes if that is possible (Bayer and Harper 2000). In fact, the data strongly suggest that “the desire

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to remain in their current residence for as long as possible” is “more prevalent as age increases” (Bayer and Harper 2000: 25). About 82 percent of survey respondents would prefer to have help given to them in their current home, if it eventually becomes necessary, as opposed to moving to a skilled nursing facility or moving to a friend’s or relative’s home (Bayer and Harper 2000). Moreover, of the roughly 30 percent of survey respondents who said they do not expect to stay at home, 72 percent made no plans for when that day arrives—a statistic that seems to have held steady over more than a decade of repeated surveys (Bayer and Harper 2000).

For those seniors wishing to stay in their homes, reverse mortgages present a viable alternative, in part because the government and financial institutions have helped to create financial products to fill this niche.

Broadly speaking, a reverse mortgage is a rising-debt/ falling-equity loan that “allows a homeowner to withdraw the equity in her home in the form of a loan with a balance that increases rather than decreases over time” (Nelson 2009: 340). In a typical reverse-mortgage transaction, a homeowner can borrow money against the equity in his or her home and does not have to repay the loan until a triggering event occurs, such as selling the home (Nelson 2009).

Scholars, news reports, and senior advocates, however, have drawn attention to serious concerns about predatory and abusive lending practices along with significant costs associated with reverse mortgages (Twomey and Jurgens 2009; Nelson 2009). According to an article by Tara Siegel Bernard in the April 16, 2010, issue of The New York Times, some of the concerns focus on the cost of origination fees, the cost of insurance premiums designed to protect the lender if the home value declines, and the impact on intergenerational wealth transfer.

With prodding from state policymakers, however, reverse mortgages have the potential to be useful financial products that could help some seniors age in place.

The key is eliminating tricks and traps, so that seniors and senior advocates can evaluate the financial costs associated with reverse mortgages and make informed decisions as to whether a reverse mortgage makes good financial sense in any given situation.

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Reverse Mortgages and the Home Equity Conversion Mortgage (HECM) Program

Reverse mortgages function like a mirror image of traditional residential home loans. With a traditional residential home loan, lenders typically make single, lump-sum payments to borrowers at the beginning of the loan term, and that money is often used to purchase the property against which a mortgage is granted (Nelson and Whitman 1994). This traditional “forward mortgage,” or rising equity/falling debt, loan is based on a borrower’s personal credit-worthiness, personal guarantee, and projected income, which is used to make payments throughout the life of the loan.

As the borrower makes payments under the terms of a traditional forward loan—excluding, for example, interest only loans, where borrowers’ payments only cover the interest accruing—the amount of principle owed will slowly decline, and the homeowner’s equity in the property will increase.

In contrast, reverse mortgages are typically nonrecourse4, 5 loans secured by an elderly person’s primary residence, and a balloon payment typically is not required until a specified event occurs such as transfer, death, or the senior moves out of the home permanently. Unlike traditional forward financing with regular, even monthly payments made by the borrower to the lender, reverse-mortgage lenders may make regular monthly payments to the borrower that increase the amount owed to the lender and are secured by the collateralized property (Nelson and Whitman 1994).

To be eligible for insurance under the HECM program, however, a mortgage loan must allow for payment based on a line of credit, for a term set by the senior, for the tenure of the senior’s ownership, or a mix of monthly payments and a credit line. Additionally, the lenders must allow the borrower to convert the method of payment during the term of the mortgage.

Three ingredients helped to make reverse mortgages more popular and accessible. First, in 1998, Congress made the Federal Housing Authority’s (FHA) HECM program permanent (Nelson 2009). Second, “Fannie Mae established a secondary market for home equity conversion mortgages, which by increasing liquidity, helped increase the number of lenders willing to provide home equity conversion mortgages” (Nelson

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2009: 340). Third, in 2006, the first reverse-mortgagebacked securities entered the market, with two private securitizations (Nelson 2009). Additionally, at the beginning of October 2006, Ginnie Mae announced that it also intended offer securities backed by FHA-approved reverse mortgages (www.ginniemae.gov/ news2006/10-17presshud.asp?Section=Media).

Today, the bulk of all reverse-mortgage loans— about 90 percent—are insured by FHA and must meet the administration’s standards for participation in the HECM program (Nelson 2009; Redfoot, Scholen and Brown 2007). FHA’s standards are set by statute and rule and include lengthy requirements for borrowers and lender-loan originators, otherwise the loans cannot be insured by FHA . Under these guidelines, for example, the loan originator must be approved by the HUD Secretary, and mortgagors or the mortgagor’s spouse must be at least 62 years old. Additionally, in terms of programmatic substance, a loan is only eligible to be insured by FHA if it meets consumer protection standards prescribed by statute. For example, the senior-mortgagor must receive counseling from an independent third party without an interest in the transaction along with a disclosure of all costs.

Moreover, prepayment must be accepted without penalty; the loans must be nonrecourse, which means homeowners are not personally liable for the difference between the amount of indebtedness under the mortgage and the amount the mortgagee recovers at the time the mortgage is discharged; lenders must allow homeowners to select the way they wish to receive their distributions, whether in the form of a line of credit, on a monthly basis, or on some other basis; and mortgagees must allow mortgagors to convert the method of payment. Similarly, homeowners must be guaranteed payment, even if the lender defaults; lenders must agree to adhere to caps on origination fees of $6,000; and lenders must put firewalls in place so that loan originators have no financial incentive to provide other financial or insurance products.

Tricks and Traps

In the past few years, the reverse-mortgage industry has earned bad press for predatory practices.

Some of the criticism has centered around poor adherence to pre-borrowing counseling standards set by

FHA, concerns about fraud by individuals and predatory practices within the industry, and misleading marketing. As a result, leading senior advocacy organizations, such as AARP, have issued strong warnings against reverse mortgages. Bluntly put, AARP said: “A word of caution to older Americans considering reverse mortgages: Tread carefully” (Fleck 2009).

Counseling is an important safeguard to inform seniors and help them to steer clear of transactions that may not be in their best interest. In June 2009, however, The General Accounting Office (GAO) cautioned Congress that “HUD’s internal controls do not provide reasonable assurance that counseling providers are complying with HECM counseling” requirements (Scirè 2009). An undercover investigation

by GAO revealed that nearly half of the counselors failed to cover all of the topics required by HUD, such as other financial products and options that could be a better fit for some seniors, and some counselors misstated the length of the counseling sessions in their officially filed records (Scirè 2009).

With prodding from state policymakers… reverse mortgages have the potential to be useful finan­cial products that could help some seniors age in place.

Fraud and predatory practices continue to be a problem in the industry, garnering headlines in newspapers and cautions from the Federal Bureau of Investigation (FBI). For example, according to an article by Anne Tergesen in the August 27, 2009, issue of The Wall Street Journal, a Florida mortgage broker scammed seniors out of about $1 million by diverting money that should have gone to repay their conventional forward loans as part of reverse mortgage refinance transactions. Similarly, in a March 2009 bulletin, the FBI cautioned that “unscrupulous loan officers, mortgage companies, investors, loan counselors, appraisers, builders, developers, and real estate agents are exploiting Home Equity Conversion Mortgages

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(HECMs) . . . to defraud senior citizens” (Federal Bureau of Investigation 2009: 1). Scholars and consumer advocates believe the problem extends beyond a few bad apples (Nelson 2009; Twomey and Jurgens 2009). With the economic downturn, “[s]ome lenders view reverse mortgages as a replacement for subprime lending as a new way to generate revenue” (Nelson 2009: 360). In fact, “[m]any of the same players that fueled the subprime mortgage boom— ultimately with disastrous consequences—have turned their attention to the reverse market” (Twomey and Jurgens 2009: 1). Considering that the penetration of reverse mortgages as a product is about one percent of its potential market, lenders “forecast tremendous growth due to the 10,000 baby-boomers turning sixtytwo every day” (Nelson 2009: 360-361).

Furthermore, misleading advertising also plagues the industry (Scirè 2009). GAO found that lenders and HUD use broad language that can mislead seniors about the security of their homes or misrepresent reverse mortgages as a government benefit program, rather than a private sector lending option (Scirè 2009).

…state legislatures have an oppor­tunity to establish programs in which lending institu­tions that agree to play by newly established rules aimed at ensuring reverse-mortgage loans are safe and secure could be placed on a list of preferred lenders provided to seniors seeking a loan.

Making Reverse Mortgages Safe and Secure

Despite the concerns discussed above, the reversemortgage market is expected to grow significantly over the next decade (Nelson 2009). The anticipated growth of this market presents an opportunity to transform 62 · MAINE POLICY REVIEW · Summer/Fall 2010

home equity conversion products into safe and secure borrowing options for seniors, the vast majority of whom would prefer to age in their homes (Bayer and Harper 2000).

Broadly speaking, state legislatures have an opportunity to establish programs in which lending institutions that agree to play by newly established rules aimed at ensuring reverse-mortgage loans are safe and secure could be placed on a list of preferred lenders provided to seniors seeking a loan. Those rules could require, for example, strong consumer protection standards, a ban on yield spread premiums, a suitability analysis, a “lite” product geared toward property taxes, prohibitions on inappropriate cross-selling of annuities and other financial or insurance products, and a private right of action for damages plus attorneys fees for violations of the program rules. For the vast majority of reverse-mortgage loans, these state standards could wrap around the basic requirements of FHA’s HECM program.

Seniors would benefit from reverse mortgages provided by known lenders that agree to make sure their products meet these standards. Lenders would benefit from the imprimatur of the state government or agency administering the program and easy access to the expanding market of seniors. States would benefit by directing private resources to a problem that has beguiled legislators.

Among the many possible directions to go, here are a few recommendations that could form the basis of a discussion: 1. Require participating lenders to meet tough consumer protection standards. Ideally, HECM program standards could serve as a starting point to this discussion, especially because about 90 percent of the reverse-mortgage market already adheres to FHA’s standards in order to benefit from insured loans.

There would be several advantages to using HECM’s standards as a starting point. First, consumers would be guaranteed that FHA will step in to provide performance if the lender defaults, and the lender would have a guarantee of a minimum return on its investment, in case real estate prices drop. Second, while GAO certainly raised valid concerns about

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HUD’s counseling requirement, the existence of the requirement benefits consumers and adherence can be improved through separate state standards or inducements. For example, the legislature could demonstrate how seriously it takes strict adherence to this requirement by suspending any lender making loans despite knowing that counseling was insufficient for a particular loan. This could be ensured by requiring loan originators to ask targeted questions for data collection about the substance of the counseling actually received and submit that paperwork to the state oversight agency for auditing purposes. Third, the program has reasonable caps on origination fees, and the legislature could always tighten these standards. Fourth, lenders are subject to substantial disclosure requirements, such as Truth in Lending.

However, HECM standards may not be appropriate in all instances. For example, current program standards limit the maximum amount a senior can borrow to $625,000.

Requiring strict adherence to the program’s standards would leave some asset-rich seniors out in the cold. But this may be a largely illusory problem in states like Maine, where the median sale price for a home in 2008 was $178,000.

2. Require lenders or broker-originators to engage in a suitability analysis for reverse mortgages. Arguably, seniors are in need of protection in a reverse-mortgage transaction.

Seniors are considered to be more likely the victims of financial fraud or abuse, and the complexities of the transactions can be difficult to navigate (www.fbi.gov/majcases/fraud/ seniorsfam.htm). Many brokers and lenders are trained to emphasize “the importance of building trust with potential customers” (Twomey and Jurgens 2009: 19). Because reverse mortgages are business deals “where each party ostensibly protects his or her own economic interests, in many states brokers and lenders owe no fiduciary duty to borrowers,

and when problems arise brokers and lenders disavow any relationship of trust and confidence with borrowers” (Twomey and Jurgens 2009: 19).

Requiring a suitability analysis would address some of these issues. A suitability analysis would establish “[a] standard of conduct that would require brokers and lenders to have reasonable grounds for believing that a reverse mortgage is suitable for the borrower” (Twomey and Jurgens 2009: 19). Consumer advocates have argued that it “is necessary to counteract market forces that favor profitability over responsible lending” (Twomey and Jurgens 2009: 19). Imposing a suitability analysis requirement emerged as a significant recommendation of the National Consumer Law Center and AARP for making the reversemortgage market safe (Twomey and Jurgens 2009; Redfoot, Scholen and Brown 2007).

The use of a suitability analysis is well-established in securities law, imposing a duty on a securities broker only to sell securities that are suitable based on the buyer’s financial wherewithal, tax status, overall investment objectives, and other factors (Hirsch 2008). But the use of a suitability analysis is only now gaining traction in the area of mortgage law due to the subprime mortgage meltdown (Hirsch 2008).

3. Require appraisals conducted for reverse mortgages to be truly independent. To avoid inflated values and abuse of the borrowinglending process, it would be wise to require truly independent value appraisals for loans originated through this program. Doing so would remove another recently emerging area of fraud in the reverse-mortgage market: instances where speculators buy properties at low prices and, using inflated appraisals, sell them to seniors willing to take out a reverse mortgage as part of the transaction.

A cost-effective way to tackle this issue would be to have the agency administering this program maintain a list of appraisers. During

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the application process, the lender or borrower could call the agency, which could then dispatch an appraiser directly to the property. The basic idea is to remove control in selecting appraisers from lenders. While appraisers are typically paid by and work for borrowers, as a de facto matter, lenders and broker-originators often set up the appraisal, which leads to an informal business incentive to keep the lender happy.

4. Ban bonus payments to brokers for steering seniors to loans with interest rates higher than they could obtain. Yield-spread premiums are payments from lenders to brokers “in exchange for the broker selling the borrower a loan with a higher interest rate than the borrower could have received” (Twomey and Jurgens 2009: 19). As it currently stands, neither HUD nor Congress have banned yield-spread premiums in the HECM program. Simply put, yield-spread premiums should be prohibited because they are an unscrupulous practice, especially in a market made up of seniors.

5. Create a “lite” reverse-mortgage product specifically geared toward property taxes.

This suggestion would target one of the chronic complaints of many homeowners— that property taxes are too high for seniors to remain in their homes. A limited or “lite” product could be created with a streamlined application process, reduced origination fees, and an explicit requirement for quick and easy pay-off. Doing so would help seniors get targeted relief for property taxes, which could be made even more effective if lenders offer to escrow property taxes for borrowers. This suggestion would build on one of the key recommendations of AARP (Redfoot, Scholen and Brown 2007).

6. Prohibit the sale of annuities, insurance, or other similar financial products; prohibit

64 · MAINE POLICY REVIEW · Summer/Fall 2010

directing borrowers to other services where the broker, lender, or an affiliate would gain, directly or indirectly, in conjunction with a reverse-mortgage transaction. Mostly, this is a belt-and-suspenders approach to piggy-back on recent changes to the HECM program. A state legislature, however, could expand the prohibition so that lenders, brokers, or their affiliates would be banned from directing borrowers to contractors or purveyors of other services, if the lender, broker, or an affiliate would gain financially.

At its core, the motivating principle is that brokers and lenders should not gain from a transaction in which they help seniors tap into the equity of their homes only to redirect it back to themselves or an affiliate.

7. Require adherence to advertising regulations aimed at eliminating misleading advertising. As mentioned above, GAO identified six commonly appearing misleading claims in reverse-mortgage advertising materials. Lenders participating in this program should forgo all misleading advertising and claims, or lose their status as a preferred lender.

To help with enforcement of this requirement, the agency administering the program could be authorized to deal with complaints of misleading advertising administratively, subject of course to judicial review.

8. Lenders that are the subject of repeated substantiated complaints resulting in findings of program violations or other evidence impugning trustworthiness lose their preferred status. This suggestion is aimed at providing recourse against a lender that flouts program regulations either as a matter of policy or as a result of a few bad apples. The carrot extended to lenders is participation as a preferred lender. If lenders fail to adhere to the program’s guidelines, they should lose the benefit of that status.

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9. Provide the appropriate agencies with enforcement power as well as authorize a private right of action with the lender/ broker paying attorney fees for the borrower if they are found to have preyed upon a senior. This suggestion is a counter-point to (8) and serves as the stick. For consumer protection laws to be effective, there must be a punishment for action that harms consumers.

With that in mind, legislatures should consider providing the appropriate agencies with enforcement powers to seek civil or even criminal penalties if conduct by lenders warrants it.

Consumers should also be empowered to bring actions, with the lender bearing the cost if it turns out the lender has violated program rules and brought harm to the consumer. For example, in Maine, the state’s Unfair Trade Practices Act provides a ready legal rubric within which these goals could be achieved, and it would be worth considering whether the most effective approach would be to deem violations of the reverse-mortgage program violations of the Maine Unfair Trade Practices Act, or a similar statute in another state.

Even if reverse mortgages can be successfully reformed to eliminate tricks and abusive practices, there are significant limitations to the product in the context of a broader analysis for seniors. Seniors, advocates, and those helping seniors through these decisions should give serious consideration to all available alternatives, especially when there are family members who could help to facilitate other alternatives. The New York Times article by Bernard provides an example of how to analyze whether a reverse mortgage makes sense in a given financial situation (www.nytimes. com/2010/04/17/your-money/mortgages/17money. html?8dpc).

CONCLUSION

the Elderly Tax Deferral Program, but it lacked staying power, in part because it tied up significant resources.

And recent efforts aimed at reviving the program— even with a higher minimum age for eligibility— demonstrate that policymakers are less than excited about the prospect of committing substantial public resources to this problem.

Whether now or later, state policymakers will be faced with the daunting task of planning for the support of an aging population.

That leaves the private sector, and state legislatures have a unique opportunity to help shape market forces so that seniors are offered a safe and secure financial product. Given the overwhelming desire of most seniors to remain in their homes, one way to guide the market would be for state legislatures to offer to place reverse-mortgage lenders on a preferred list if the lenders agree to play by rules designed to ensure fair transactions for seniors. Those rules could include, for example, tough consumer-protection standards, a ban on yield-spread premiums, a suitability analysis, a “lite” product geared toward property taxes, prohibitions on inappropriate cross-selling of annuities or other financial products, a private right of action for damages plus attorneys fees for violations of the program rules, along with the other suggestions discussed in this article.

Whether now or later, state policymakers will be faced with the daunting task of planning for the support of an aging population. By taking active steps now to get in front of the problem before it grows further, policymakers will be laying the groundwork for a larger group of seniors to age with dignity. -

M

aine, like many states, is at a crossroads when it comes to policy options to help cash-strapped seniors. Maine tried a public sector solution through

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Please turn the page for notes, references, and author information.

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ACKNOWLEDGMENTS

REFERENCES

Bayer, Ada-Helen and Leon Harper. 2000. Fixing to Stay: A National Survey of Housing and Home Modification Issues. American Association of Retired Persons, Washington, DC. http://assets. aarp.org/rgcenter/il/home_mod.pdf [Accessed November 21, 2010]

This article is substantially similar to ideas in an article that was previously accepted for publication and will appear in Marquette’s Elder’s Advisor, Volume 12, No. 12 (Spring 2011).

ENDNOTES 1. “Tricks and traps” is a phrase often used by Harvard Law School Professor Elizabeth Warren to refer to murky arrangements and agreements in credit card contracts. A transcript of an interview with Elizabeth Warren about credit card “tricks and traps” is available on the PBS Web site: www.pbs. org/now/shows/501/credit-traps.html. The term seems equally as useful here.

2. Details about the Elderly Tax Deferral Program is found in Maine Revised Statutes, Title 36, Chapter 908: Deferred Collection of Homestead Property Taxes, particularly §§ 6250, 6251, 6254, 6255, 6257, 6259, and 6267. This information is available at www.mainelegislature.org/legis/statutes/36/ title36ch908sec0.html.

Brandon, Emily. 2008. “3 Ways the Economic Crisis is Destroying Baby Boomer Retirement,” U.S. News & World Report (October 14). http://money.usnews. com/money/retirement/articles/2008/10/14/3-waysthe-economic-crisis-is-destroying-baby-boomerretirement_print.html [Accessed November 21, 2010] Bulwer, Lord Lytton, Edward. 2006. Miscellaneous Prose Works by Edward Bulwer, Lord Lytton.

Kessinger Publishing, LLC., Whitefish, MT. DeNavas-Walt, Carmen, Bernadette D. Proctor and Jessica C. Smith. 2009. Income, Poverty, and Health Insurance Coverage in the United States: 2008.

U.S. Census Bureau, Washington, DC. http://www. census.gov/prod/2009pubs/p60-236.pdf [Accessed November 21, 2010]

3. Housing cost information comes from the Maine State Planning Office, Maine Economics and Demographics Program, which provides access to U.S. Census data and allowing users to build spreadsheets for particular data sets. Data cited comes from the housing data set for 2008. http:// econ.maine.gov/index/sheet.

Federal Bureau of Investigation (FBI). 2009. Home Equity Conversion (Reverse) Mortgages Exploited to Defraud Senior Citizens. FBI, Washington, DC. http://www.fbi.gov/scams-safety/fraud/seniors/intelbulletin_reversemortages [Accessed November 29, 2010]

4. Nonrecourse financing refers to those arrangements where the borrower is not personally liable, and in this context means the estate of a deceased senior would not be responsible for any amount owed under the promissory note.

Fleck, Carole. 2009. “Reverse Mortgages Ripe for Abuse.” AARP Bulletin Today. American Association of Retired Persons, Washington, DC. http://www.aarp.org/money/credit-loans-debt/info10-2009/reverse_mortgages_ripe_for_abuse/ [Accessed November 21, 2010]

5. Specific legal information about reverse mortgages can be found in U.S. Code Title 12-Banks and Banking, 13-National Housing, Subchapter II-Mortgage Insurance §§ 1715z-20: Insurance of home equity conversion mortgages for elderly homeowners. This information is available at http:// www.techlawreporter.com/toa/codes/usc/titles/ TITLE12/12USC1715z-20.html.

Hammond, Celeste M. 1993. “Reverse Mortgages: A Financial Planning Device for the Elderly.”

Elder Law Journal 1:75-108.

Hirsch Jr., Frank A. 2008. “The Evolution of a Suitability Standard in the Mortgage Lending Industry: The Subprime Meltdown Fuels the Fires of Change.”

North Carolina Banking Institute 12:21–44.

Loonin, Deanne and Elizabeth Renuart. 2007. “The Life and Debt Cycle: The Growing Debt Burdens of Older Consumers and Related Policy Recommendations.” Harvard Journal on Legislation 44:167–203.

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Andrew C. Helman is an attorney with the law

Morin, Rich and Paul Taylor. 2009. Not Your Grandfather’s Recession—Literally. Pew Research Center, Washington, DC. http://pewresearch.org/ pubs/1223/not-your-grandfathers-recession-literally [Accessed November 21, 2010]

firm of Bernstein Shur, working in their businessrestructuring and insolvency practice group.

Nelson, Annie E. 2009. “Reverse Mortgages: Changes Brought About by the Housing and Economic Recovery Act.” North Carolina Banking Institute 13:337–363.

Nelson, Grant S. and Dale A. Whitman. 1994. Real Estate Finance Law. West Publishing Company, St. Paul, MN.

Previously, he served as an aide to two of Maine’s House majority leaders, Hon. Glenn Cummings and Hon. Hannah Pingree.

Purcell, Patrick. 2009. Income and Poverty Among Older Americans in 2008. Congressional Research Service, Washington, DC. http://benefitslink.com/ articles/guests/RL32697_Oct_2009.pdf [Accessed November 21, 2010] Salkin, Patricia E. 2009. “A Quiet Crisis in America: Meeting the Affordable Housing Needs of the Invisible Low-Income Healthy Seniors.”

Georgetown Journal on Poverty Law and Policy 16:285–314.

Scirè, Mathew. 2009. Reverse Mortgages: Product Complexity and Consumer Protection Issues Underscore Need for Improved Controls over Counseling for Borrowers. Statement at Hearing Before the Senate Special Committee on Aging.

111th, Congress, Washington, DC. Redfoot, Donald L., Ken Scholen and S. Kathi Brown.

2007. “Reverse Mortgages: Niche Product or Mainstream Solution?” Report on the 2006 AARP National Survey of Reverse Mortgages Shoppers.”

American Association of Retired Persons, Washington, DC. http://assets.aarp.org/rgcenter/ consume/2007_22_revmortgage.pdf [Accessed November 21, 2010] Twomey, Tara and Rick Jurgens. 2009. Subprime Revisited: How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk. National Consumer Law Center, Boston, MA. U.S. Census Bureau. 2005. American Housing Survey for the United States. U.S. Government Printing Office, Washington, DC. http://www.census.gov/ prod/2006pubs/h150-05.pdf [Accessed November 21, 2010]

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Volume 19, Number 2 · MAINE POLICY REVIEW · 67

Thanks to Our Reviewersâ&#x20AC;Ś

We would like to extend our sincere thanks and appreciation to all those who took time to review articles submitted for consideration for Volume 19 of Maine Policy Review.

Their insights and recommendations assist us in our editorial decisionmaking, and provide valuable feedback to authors in revising their articles to be suitable for publication in the journal.

The following individuals reviewed articles for Volume 19 (2010):

James M. Acheson

James Melcher

Kathleen P. Bell

Charles Morris

Andrew Coburn

Kenneth Palmer

Gordon A. Donaldson Linda Silka Leslie A. Forstadt

Andrew E. Smith

Gregory P. Gallant

Elizabeth Squibb

Kathryn Hunt

Philip A. Trostel

Mark Lapping

Elizabeth A. Wilson

Michael LeVert

Wendy J. Wolf

David P. Littell

Richard Woodbury

Robert G. Marvinney

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