Beginning in November 2007 Governor John Baldacci and David Lemoine, the state treasurer, allowed the beleaguered, deficit-ridden Dirigo Health program to borrow up to $20 million from the state treasury. They kept the public and legislators — in whose hands theoretically rests the power to spend taxpayer money — in the dark.
Members of the Appropriations and Financial Affairs Committee, who are supposed to control the state’s purse strings, only learned about the borrowing late this past summer, when their nonpartisan analysts in the Office of Fiscal and Program Review checked into why the state had much less cash on hand than usual. Some committee members are now questioning the legality of the borrowing, especially when Dirigo doesn’t have a sure plan of paying the money back.
Baldacci, a Democrat, may also have misled the public at a State House news conference on December 18, 2007. A month after Dirigo began dipping into the state’s unspent money “cash pool” to keep afloat — in effect, overdrafting its checking account — he said Dirigo was not running out of money. “There’s at least another year” of funding for the program, the governor said, in response to this reporter’s question. (Baldacci did not respond by deadline to a request for comment on what he had said last December.)
Dirigo provides subsidized health insurance called DirigoChoice to about 11,500 Mainers. It has been bleeding red ink, losing $28 million in the last state fiscal year.
GOP lawmakers on the Appropriations Committee are upset about the borrowing.
“Questions of appropriateness, if not outright illegality, need to be addressed,” says Representative Sawin Millet, of Waterford, the committee’s ranking House Republican and a former state finance commissioner.
The committee’s ranking Senate Republican, Karl Turner, of Cumberland, says he may ask the panel at its October 16 meeting to request a written opinion from Attorney General Steven Rowe on the legality of the administration’s use of state funds for the program.
The committee’s chairwoman, Senator Margaret Rotundo, of Lewiston, a Democrat and a Dirigo supporter, says she is not opposed to asking for an opinion from the attorney general. But, she adds, “It does not appear that the administration has done anything illegal.”
A stop-gap
The administration intended the borrowing as a stop-gap until new taxes on beer, wine, soft drinks, and health-insurance claims could kick in to fund Dirigo. Baldacci and the Legislature’s majority Democrats — controversially, without a public hearing — pushed through these taxes in the final hours of last spring’s legislative session. The state’s business community cried foul and easily collected tens of thousands of signatures to force a “people’s veto” referendum on the taxes, preventing them from taking effect until the issue is decided at the November election. Business groups are running an expensive advertising campaign to make sure the people’s veto succeeds and the taxes defeated.
Most political observers expect the people’s veto to be successful. If it is, and no other Dirigo funding source is developed, state controller Edward Karass, the state’s chief accountant, says the program as it is now set up won’t be able to return the borrowed money to the treasury by the end of the fiscal year — June 30, 2009.
The money should be repaid by then, the Attorney General’s Office told Karass in early September — 10 months after the borrowing began — in order to comply with the Maine Constitution. If the people’s veto succeeds, Karass forecasts Dirigo will owe the cash pool $14.2 million at the end of June. In a recent appearance before the Appropriations Committee, he reported that Dirigo owed the cash pool $19.7 million as of this past July.
The amount Dirigo is in debt varies month to month as other income flows into the program — a good deal from what are called “savings offset payments,” which result from a tax on the state’s health-insurance companies. This tax captures savings the companies supposedly enjoy because Dirigo lowers health-care costs by reducing free hospital care and encouraging efficiency, through the program’s planning functions, in the state’s health-care system.
The savings offset payments will continue if the people’s veto passes. But the insurance companies have strenuously disputed the amounts the state annually charges them, and they have paid very slowly — on the average, about two years late. That delay is why Dirigo will not have enough cash, if the referendum passes, to repay its debt by next June.
The new Legislature, of course, could appropriate money to cover Dirigo’s borrowing. But given that an “emergency” two-thirds vote of both houses would be needed to fund the program before the end of the fiscal year, and given that Republicans — who are generally very critical of Dirigo — almost certainly would block such a move, the chances are close to nil. The other alternatives are that Dirigo would have to shut down or be severely curtailed. Already, as its financial woes have mounted, it has turned away would-be new enrollees for more than a year.
