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ReinventingMAINE

GovernmentHow Mainers Can Shape a Sustainable

Government and a New Prosperity

ALAN CARON and DAVID OSBORNEWith Joshua Weinstein and Philip Trostel

Commissioned by GrowSmart Maine

R E I N V E N T I N G M A I N E G O V E R N M E N T

ENVISION MAINE is an independent, non-partisan think tankbased in South Freeport, Maine and founded in 2009 to providepublic and private research and strategic thinking on the majorchallenges and opportunities facing Maine. Envision Maine’s goalsare to help Maine people better understand the issues confrontingthe state, provide strategies for moving toward a more sustainableand vibrant economy, and to preserve the state’s unique characterand culture. It wrote and produced this report, through anagreement with GrowSmart Maine, a statewide based non-profit.For further information you can contact Envision Maine [email protected] or visit our website atwww.envisionmaine.org.

ENVISION MAINEBox 231, South Freeport, Maine 04078(207) 865-9511 | www.envisionmaine.org

GROWSMART MAINE is a statewide non-profit organizationbased in Portland. It was responsible for bringing the BrookingsInstitution to Maine in 2006, and for commissioning its report,Charting Maine’s Future. It has also commissioned this report.Since 2006, GrowSmart Maine has been working to implement therecommendations of the Brookings report, with emphasis onbuilding coalitions and promoting action in Augusta that protectsMaine’s quality of place and supports a new prosperity. For moreinformation on GrowSmart Maine and how you can become amember, go to www.growsmartmaine.org.

GROWSMART MAINE309 Cumberland Avenue, Suite 202Portland, Maine 04101(207) 699-4330 | www.growsmartmaine.org

Designed by KAT Design, Camden

Printed by J.S. McCarthy Printers, Augusta

PRODUCED BY

COPYRIGHT 2010, ENVISION MAINE

A Call to Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3The Urgent Need for New Thinking and New ApproachesBuilding on the Brookings Report A Handbook for CitizensIf It Was Easy, It Would Already Be Done

An Action Plan for the Coming Decade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Ending Unfunded LiabilitiesA Smaller, Smarter LegislatureA Flatter, Leaner, More Responsive State GovernmentFewer Counties that Do MoreIncreasing Collaboration Among TownsInnovating in Public EducationA Fully Coordinated System of Higher EducationSlowing the Climb of Health Care Costs

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Authors, Advisors and Supporters

The Hard Work of Building a More Prosperous Future . . . . . . . . . . . . . . . . . .10Two Roads AheadA New Era of Shrinking Resources and Hard ChoicesReinventing Government Isn’t a Choice, It’s Already HappeningManaging Change to Shape a Brighter Future

Ten Myths That Hold us Back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Guiding Principles of Reinventing Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

When it Comes to Spending, Maine Stands Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

The Three Ticking Time BombsThe Aging State: Fewer Workers and Growing Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Unfunded Liabilities: Balloon Payments Are Now Coming Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Health Care: Crowding Out Other Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

The Ineffective Structures of Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36It’s Not the People in Government, It’s the StructureA Short History of GovernmentThe Legislature: Unwieldy and Over-Extended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 State Government: A Slow-Moving, Outdated Bureaucracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Maine’s Sixteen Counties: What Role Do They Have in the Future? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51Local Government: Can We Afford One of Everything Everywhere? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56Public Education: High Costs, Falling Enrollments and Declining Results . . . . . . . . . . . . . . . . . . . . . . . . . . .60Higher Education: Fragmented, Uncoordinated, Inefficient and Under-funded . . . . . . . . . . . . . . . . . . .67How You Can Help Shape the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

Appendix, Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

Contents

You’ve got to go out

on a limb sometimes

because that’s where

the fruit is.

Will Rogers

How Mainers Can Shape a Sustainable Government and a New Prosperity 3

WHILE THIS REPORT is about reinventinggovernment, its purpose is much broader -- reinvigorating the Maine economy, creat-

ing tomorrow’s quality jobs and expanding confidencein the future. It is about creating a place where newideas, new energy and new investments are propellingthe state forward, and tomorrow’s vibrant economy isfinally unfolding.

Reinventing government won’t, by itself, revitalizeour economy. But it’s a critical first step. Without thatstep, as difficult as it may be, we cannot expect tounlock a new economic prosperity for Maine.

Maine faces two great challenges today, which are closelyinterwoven. The first is a fiscal crisis in government thatis unlike any we’ve seen in at least two generations, andthat will be with us for many years to come. The secondis a long-stagnant economy that discourages Maine peo-ple and limits investments in the future.

The budget crisis has announced itself through grow-ing state deficits and a projected shortfall, next year, of asmuch as a billion dollars. Those deficits will get worse, in

coming years, as we absorb the delayed effects of an agingpopulation, billions of dollars of unfunded pension obli-gations, rising health care costs and the unforeseen con-sequences of past political decisions. Those problems, inturn, will inevitably tumble down to critical programs,local communities and schools.

In this report, we have tried to get beyond anecdotesand ideology to a set of facts that can help Mainers hon-estly compare ourselves with similar rural states and thecountry. We have also looked at state, county and localgovernment, schools and colleges as interconnected partsof a holistic, larger system, rather than as a series of inde-pendent silos.

The numbers are troubling, and the trends even moreso. In category after category, Maine spends more on gov-ernment than either similar rural states or the national aver-age. In fact, we may spend as much as a billion dollars more.

There was a time when Maine could afford to ‘reform’government, and to make small adjustments based onthe ebb and flow of tax collections and the economy,combining small programs and trimming here and there.Those days are behind us. Today, we’re in a new and per-

Call to ACTION

The urgent need for new thinking and new approaches

Maine needs a 21st centurygovernment that is not just

smaller, but smarter. One thatis–like the rest of us–constantlylearning to adapt to a changingworld and to do more with less.

The numbers are troubling, and thetrends even more so. In categoryafter category, Maine spends moreon government than either similarrural states or the national average.In fact, we may spend as much as a billion dollars more.

4 REINVENTING MAINE GOVERNMENT

manent fiscal crisis. Not for this year and next, or untilthe economy revives, but a fiscal crisis throughout thecoming decade, and the one after, as baby boomers retire,health costs increase, and the full costs of decisions madeover the last few decades come due.

The good news is that every crisis carries with it newopportunities. This may well be the best chance we’vehad in a generation to take bold action that can get oureconomy moving in a new direction. All the conditionsare in place for us to succeed, if we act. If we don’t, we’llcontinue on a path of declining energy and optimism,and risk a downward spiral in our economy.

Which road we take will be decided by you, and by thepeople you choose to send to Augusta. They can’t do italone. They will need the support of a wide cross-sectionof Mainers, up and down the state, who are willing towork together for a greater good, and to put aside yester-day’s solutions and old differences in order to unitearound tomorrow’s promise.

The first step in a resurgence of Maine’s economy isto get our fiscal house in order. The cost of governmentand, therefore, the cost of doing business and raising afamily in Maine are unsustainably high. And we’re get-ting a predictable result. Young people are leaving. Smallbusinesses are struggling and tomorrow’s employers aregoing elsewhere.

Over the last generation, global forces beyond thestate’s control have shrunk much of the industry thatMaine has depended upon for 150 years, eliminatinggood jobs with benefits and putting stress on families andgovernments at all levels. All across the state, people havehad to adjust. Now government must also.

We need government to do more with less so that wecan free up resources, both public and private, for criticalinvestments in tomorrow’s prosperity. Old structures thatcannot meet our 21st century needs, and that are ineffi-cient and expensive, must change. Government alsoneeds to help create the conditions that will make invest-ments in the private sector grow and ensure that entre-preneurs and inventors can flourish.

If we don’t get the government piece right – and wehaven’t for a long time – every strategy for prosperity thatrelies on additional public funding can only fail.

Let’s imagine a government in Maine that is effective,efficient, flexible and transparent. A government that isopen to change and innovation and constantly improv-

ing and reinventing itself. Where government employeessee themselves as part of a real team, serving the peopleof Maine, and each one understands that every dollarwasted on inefficiency or spent unwisely is one less dollarfor what matters, one less dollar to create a job outsideof government and one less dollar for a new prosperity.

Let’s imagine a government that focuses on the thingsthat government can and must do – educating the nextgeneration, maintaining critical infrastructure, protectingthe character and quality of this place and our greatestasset – our powerful brand.

We can have that government - and a new era of pros-perity in Maine - but it will take hard work, courage,determination and a new burst of creativity and energyall across the state, from the grassroots up.

The first challenge is to better understand what cre-ated this crisis, in the first place, not to affix blame but tofix problems. Then we need to move beyond lamentingwhat hasn’t yet happened to dream of what could be.And to imagine a future as though we were constructingit from scratch.

The good news is that Mainers have a long history ofadapting to new circumstances and challenges. We maybe skeptical, but we’re also resourceful and tenacious.When we put our minds to it, we expect to succeed, andwe do, and have many times led the nation.

Now we need to explore some new and bold ideas andre-examine some old ones. Then we can mobilize the tal-ent and energy and grit of Maine people to lift our sightsout of the day-to-day crisis we’re in, to a larger and morefar-reaching conversation about where we’re headed andhow we intend to get there. It’s time to put our minds,our hands and our voices to work, lifting ourselves upand setting Maine on a new course.

It turns out that whatever you care about—whether

C A L L T O A C T I O N

It turns out that whatever youcare about—whether it’s jobs or

people or the environment orsocial programs—the economymatters. A stronger economy

is the only answer to our many problems.


it’s jobs or people or the environment or social pro-grams—the economy matters. A stronger economy is theonly answer to our many problems.

BUILDING ON THE BROOKINGS REPORTIn 2006, the Brookings Institution, which is perhaps thenation’s leading non-partisan think tanks, released whatbecame one of the most-read studies in Maine history,Charting Maine’s Future. It offered a hopeful vision oftomorrow’s Maine, with a vibrant economy built aroundour native inventiveness and small businesses. A place wherethe character and quality of our towns and environment,combined with growing opportunities in a new ‘innova-tion-driven’ economy, would hold young people here andbecome a magnet for talented entrepreneurs, artists,investors and business leaders from around the world.

But Brookings posed a question that must beanswered. How can a small state with limited financialresources make the investments needed to produce thatbrighter future, in the face of growing demands on gov-ernment? Maine spends much more than the nationalaverage or other rural states on government, Brookingssaid, which leaves us with inadequate resources to buildfor tomorrow. They urged us to dig deeper into theseproblems and to use our limited financial resources morewisely and carefully. “Cut to invest”, they said, and squeezeinefficiencies out of government to redirect the savingstoward targeted investments in tomorrow’s prosperity.

This report picks up where Brookings left off. Itfocuses on the first half of the “cut-to-invest” idea. Wehope to follow it with another major report, next year,that will look at the investment side of that equation,focusing on how Maine can mobilize itself to usher in anew, innovation-driven, bottom-up prosperity for all.But first, we have to confront some difficult and unpleas-ant choices about what really matters, what is a“need”and what is a “want,” and whether we can con-tinue to afford the luxury of inefficiency.

A HANDBOOK FOR CITIZENS AND LEADERSThis report is a handbook for citizens who want to betterunderstand the challenges we face – and do their part tobrighten Maine’s future. It focuses on how Maine canbuild a 21st century government, as the first in a series ofbig steps toward a new and widespread prosperity. It

looks at how government operates, at all levels, and howwe stack up against other rural states and the nation. Andit offers a series of bold recommendations for ‘reinvent-ing’ Maine government.

IF IT WAS EASY, IT WOULD ALREADY BE DONEThe information and recommendations presented here,and the discussions that will follow, will be challenging.Many people will resist confronting these unpleasant real-ities. Others, who are deeply invested in the current struc-tures of government, will instinctively resist change, outof habit or fear. We can expect that they’ll challenge thedata in this report, it’s assumptions and messengers. Butthe facts will not change. There simply isn’t enoughmoney to maintain the status quo and the way we’ve beendoing things. Standing still is not an option.

We’re not trying to address every problem Mainefaces, in this report, or to answer every question on howchange should happen. We’re simply laying out what wesee as some of the major issues to be addressed, as bestwe can see them, at this moment in time.

We also don’t write this story with any joy. We are not“anti-government” people. We simply want Maine toflourish and the people of Maine to feel hopeful and con-fident about the future. Those who are looking for fin-ger-pointing and partisan advantage in this report willbe disappointed. We care less about scapegoats and partyfortunes than we do about the people of Maine enjoyingthe better life they deserve.

We hope that future historians, writing of this decade,will be able to say that Mainers, when faced with unprece-dented challenges and adversity, were able to confrontwhat they had to do honestly and openly. And that wereinvented not only Maine government but Maine’s econ-omy as well, opening the door to a new era of prosperity,and a better life for Mainers in all corners of the state.

Alan CaronPresident, Envision Maine


A SMALLER, SMARTER LEGISLATURELimit the number of bills, shrink the legislature and shorten the sessions

■ Allow no more than 5 bills in each two-year sessionfrom any single legislator, including co-sponsorships.

■ Reduce the size of the legislature by 1/3 to 25 Senators and 75 House Members.

■ Reduce the length of sessions by 50%.■ Impose lifetime term limits of 12 years

on all Legislators.

A FLATTER, LEANER, MORE RESPONSIVE STATE GOVERNMENTCreate a 21st century government by gradually replacing outdated hierarchical bureaucracy with a flatter and more decentralized structure.

■ Engage state employees, managers, elected officialsand the public in a transformation of state govern-ment from the ground up.

■ Measure and prioritize all functions of state govern-ment for value and efficiency, and eliminate outdated and unnecessary programs.

■ Remove unnecessary and outdated red tape.■ Use competition to drive innovation and efficiency. ■ Make service organizations accountable to their

government customers.■ Manage buildings and other assets more efficiently.■ Constantly re-invest in improvements.

ENDING UNFUNDED LIABILITIESPay Our Bills on Time and Stop Adding More Unsustainable Obligations.

■ Resist any effort to change the pension plan payment due date of 2028.

■ For newly hired state employees, continue toallow early retirement with reduced benefits, butraise the eligibility age for full benefits to reflectour longer life expectancy.

■ Automatically enroll all state employees in thestate’s tax-advantaged retirement saving plan, asan important supplement to traditional pensionbenefits, particularly for employees who stillwant the option of an earlier retirement.

■ Change accounting procedures and legislativepractices so leaders and the public know the fullcost and effect of long-term obligations, notonly for pensions but for all new bills.

AN ACTION PLANfor the comingDECADE

Only a stronger economy can allow us to meet our many needs, change thedemographic direction of Maine as an

aging state, and pull the two Maine’stogether. All of the following

recommendations are designed withthat purpose in mind: to free up

resources for targeted investments in tomorrow’s prosperity.

1 3

2

FEWER COUNTIES THAT DO MORECreate Eight Combined Counties, Professionally Run and More Representative, to Become the Regional Service Delivery Provider of the Future.

■ Replace the existing 16 counties with 8 New Counties.■ Set up New Counties to provide more regional services.■ Improve the professionalism of New Counties.■ Increase the number of New County commissioners to 9,

to make them more representative of county-wide interests.■ Appoint, rather than elect, all county managers,

officials and staff.

INCREASING COLLABORATION BETWEEN TOWNSExpand and accelerate regional cooperation and, where it makessense, develop greater regional service delivery.

■ Help towns save money by sharing and regionalizing services, suchas road maintenance, public safety, fire protection, valuation andcommunications. Investments need to be made to accelerate change.

■ Measure cost savings, then demonstrate them.■ When New Counties are organized to better deliver services

regionally, they should become the preferred delivery mechanism.

INNOVATING IN PUBLIC EDUCATIONMove Maine toward the national average on student-teacher ratios, further consolidate administration, evaluate performance and put all savings into the classroom.

■ Transform public schools through innovation and experimentation.

■ Move Maine toward the national average on student-teacher ratios.

■ Reduce administrative expenses with a new round of districtadministrative consolidations, but this time put the savings back into the classroom rather than the state’s general fund.

■ Evaluate teacher performance, rewarding good teachers bybringing their pay to the national rural state average and removing under-performing teachers.

■ Investigate the increase in non-teacher employment over the last decade and move the teacher/non-teacher ratio to thenational rural state average.

■ Create a statewide standard for special education programs that brings Maine closer to a national average.

A FULLY CO-ORDINATED SYSTEM OF HIGHER EDUCATIONIncrease funding while coordinating overlapping systems, eliminating duplicationand reducing excessive autonomy.

■ Maintain separate University of Maine andCommunity College Systems but create oneBoard of Trustees with authority tocoordinate and integrate planning anddevelopment of the two systems.

■ Eliminate the current 40 year old fundingformula that freezes campuses inyesterday’s economy and needs, in favor ofa system that rewards excellence andresults.

■ Establish a true University of Maine Systemrather than a network of largelyautonomous campuses.

■ Provide increasing amounts of futurefunding directly to students, and let themindicate which campuses are best servingtheir needs.

SLOWING THE CLIMB OF HEALTH CARE COSTSEmphasize prevention, pay for health notsickness, increase competition and coordinate care

■ Reduce chronic illness by focusing onchanging personal behavior rather thanjust responding to the symptoms of thatbehavior. This recommendations applies toboth government health care spending andthe overall economy.

■ Use the buying power of the governmentto negotiate lower costs, spur morecompetition, and produce better health,not more procedures.

■ Encourage coordinated care organizationsthat succeed by promoting health andpreventing illness.


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There were many advisors, editors and contributors to this report. While none of them agrees with every observation or recommendation contained, all agree that major steps must be taken to reinvent government and get Maine’s economy moving again.

Among the people who were most helpful

Angus King former GovernorDavid Flanagan former President, Central Maine Power

Mike Dubyak Chairman and CEO, Wright ExpressJill Goldthwait former Independent State Senator; Director of Government Relations,

The Jackson LaboratoryJohn Porter President, Bangor Region Chamber of Commerce,

former editorial page editor, Portland NewspapersTimothy Hussey CEO, Hussey Seating

Chuck Lawton Senior Economist, Planning DecisionsDick Woodbury Economist, National Bureau of Economic Research

Bonita Pothier Key Bank, Biddeford; Chair, GrowSmart Maine Stephen Lubelczyk Citizens Bank

Tony Payne Executive Director, Alliance for Maine’s FutureAngus King III Vice President, First WindFred Heimann CFO of SenSysnet; Vice Chairman, Maine Angels

(affiliations are for identification purposes only)

Thanks to all who have contributed their ideas and resourcesThis report could not have been possible without the contributions and ideas of many people who are far too nu-merous to mention here. We benefited from the wisdom and knowledge of business leaders, government officialsand ordinary Mainers who call themselves Independents, Democrats and Republicans. Our understanding and con-clusions were informed by people who have worked at every level of government and were willing to pull back thecurtain and share their thoughts candidly.

We also are grateful to our volunteer advisors, an accomplished group that generously devoted many long monthsand countless conference calls to our efforts; to those who helped fund this report and to the many Mainers whotook the time to fill out our surveys online. Each in their own way placed their fingerprints on this report, whichcould not have been possible without them.

A few people deserve special mention David Osborne’s national and international experience in reinventing government, and work with other rural statesacross the country, has provided invaluable insights and cutting edge approaches to this task. Joshua Weinstein hashelped to convert complex and sprawling data into narratives that, we hope, will help our readers better understandthe fundamentals of government. Phil Trostel, of the Margaret Chase Smith Center at the University of Maine, offeredmany hours of counsel, as well as some extraordinary data that compares Maine spending with other states and thecountry.

David Flanagan provided a wealth of ideas and thinking on education and state government. Chuck Lawton’sextensive knowledge of Maine and thoughtful suggestions on the structure of the document were invaluable. Formergovernor Angus King and former State Senator Jill Goldthwait provided both seasoned and arms length views of gov-ernment in Maine. Bonnie Pothier offered her tireless and always optimistic work as the liaison between GrowSmartMaine and Envision Maine. And finally, thanks to Mary Mayo and the staff at GrowSmart Maine for their help in se-curing the funding for this project, through thick and thin.

Acknowledgements


ContributorsAmong the generous contributors, who made this report possible, are:

Wright Express TD Bank

Hussey Seating Company Northeast Bank

Androscoggin Bank Anthem Blue Cross and Blue Shield

CedarWorks Kennebunk Savings

Joe and Carol Wishcamper J.S. McCarthy Printers

Bruce Poliquin Alliance for Maine’s Future

Jagger Brothers Little Diamond Island Enterprises

Bancroft & Company Daniel Hildreth

Allen Insurance and Financial Sanford Institution for Savings

Central Maine Healthcare Corporation

Most contributions were made to GrowSmart Maine, which contracted with Envision Maine to produce this report.

AuthorsALAN CARON is a lifelong Mainer and founder and President of Envision Maine. For over two decades he headedCaron Communications, a strategic planning consulting firm that advised companies and organizations on ways toachieve their goals through better communications, building alliances and engaging the public. His clients rangedfrom some of the state’s largest companies to prominent non-profits, environmental organizations and governmentagencies. Between 2002 and the spring of 2009 he served as the President of GrowSmart Maine, which is best knownfor bringing the Brookings Institution to Maine, in 2006, to produce a major report called ‘Charting Maine’s Future’.He has spoken to audiences in every corner of the state on how to build a new prosperity while maintaining the state’sspecial character. He holds a Masters Degree in Public Administration from the Kennedy School of Government atHarvard University.

DAVID OSBORNE is the author or co-author of five books, including The Price of Government: Getting the ResultsWe Need in an Age of Permanent Fiscal Crisis (2004), Reinventing Government (1992), and Laboratories of Democracy(1988). As a senior partner of The Public Strategies Group, a consulting firm that helps public organizations improvetheir performance, he has worked with governments large and small, from cities, counties, and school districts tostates, federal agencies, and foreign governments. In 1993 he served as a senior advisor to Vice President Al Gore, tohelp run the National Performance Review. He was the chief author of the NPR report, which laid out the ClintonAdministration’s reinvention agenda, called by Time “the most readable federal document in memory.”

JOSHUA WEINSTEIN is a journalist and screenwriter who spent nearly 13 years on the staff of the Portland PressHerald/Maine Sunday Telegram. He also has been a staff writer at Florida’s largest circulation daily newspaper, theSt. Petersburg Times, and written for the respected trade publication Variety. He has been honored with awardsfrom the Maine Press Association and the Associated Press Sports Editors.

PHILIP TROSTEL is a Professor of Economics and Public Policy at the University of Maine, where he holds a jointappointment with the Margaret Chase Smith Policy Center and the School of Economics. He is also a Faculty Affiliatein the Wisconsin Center for the Advancement of Postsecondary Education at the University of Wisconsin-Madison.He earned a PhD in economics from Texas A&M University in 1991. Since then he has worked at North Carolina StateUniversity, Hong Kong University of Science & Technology, University of Warwick (England), Dartmouth College,University of Wisconsin-Madison, and the New England Public Policy Center at the Federal Reserve Bank of Boston.

Phil is an applied micro-economist specializing in public finance. Most of his research focuses on higher educa-tion policy, human capital, and fiscal policy. His research has been supported by grants awarded from the NationalScience Foundation, American Educational Research Association, Brookings Institution, and many others. He haspublished articles in the Journal of Political Economy, Journal of Monetary Economics, National Tax Journal, EconomicInquiry, Labour Economics, Review of Regional Studies, Education Economics, Research in Higher Education, Journal ofEducation Finance, Maine Policy Review, and other refereed journals, together with dozens of newspaper columnsand policy reports.


Despite all of the challengesthat Maine faces today our

future is as bright and full ofpotential as it has been in

decades–if we are willing totackle our problems openly

and honestly.

WE HAVE STRENGTHS in the very thingsthe world is looking for in the 21st century.Resourceful, creative, hard-working, honest

people. Pride in what we do. Safe and friendly commu-nities, a world-class environment and neighbors whocare about one another.

A new prosperity is within our reach. But to getthere we need to dramatically change the way we dothings.

TWO ROADS AHEADThe next governor and State Legislature will look out ata landscape that includes over-extended and unsustain-able governments, an aging population, ever-rising healthcare costs, an economy and schools too often gearedtoward yesterday rather than tomorrow, and growingpublic frustration and discouragement.

What is at stake here cannot be overstated. There aretwo diverging roads on the horizon. If we stay on the one

we’ve been on for the last half century or so, hundreds ofthousands of Mainers will continue to struggle. Morechildren will grow up in poverty. More will leave school.More will become discouraged or dependent. The qualityof this place, its communities and environment willalmost certainly decline. And what is now a trickle ofyounger people leaving will become a 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 nowleaking into the sands of inefficiency and put them intowhat matters. Educating the next generation. Retrainingand retooling ourselves. Creating incentives for entrepre-neurs and support for innovators. On that road, we canbuild a new prosperity that will make Maine the successstory of the next decade, and a place that entrepreneursand dreamers and inventors will point to on a map, in 10years, and say, “That is where I should be.”

A NEW ERA OF SHRINKING RESOURCES AND HARD CHOICESMaine governments are in trouble. State Government isfacing a billion dollar budget deficit in the next budget,budget shortfalls for most of the next decade and a $4.4billion dollar obligation for unfunded pensions andhealth care plans.

We’ve built a government that we can’t afford. Intowns and cities across the state, Mainers have beendebating wrenching changes in local services andschools. The domino effect of deficits and past pol-icy decisions are now cascading from the federallevel to the state and now to towns across the state,forcing hard, but in many cases long-overdue choic-


The Hard WORK

Of Building a More Prosperous Future for Maine

How Mainers Can Shape a Sustainable Government and a New Prosperity

es, everywhere. At the end of that line stand taxpay-ers, who for many years have been paying some ofthe highest taxes in the country, relative to theirincomes, and who simply cannot do more.

We can choose to ignore all the warning signs, hop-ing that the problems will just go away, or use themoment to propel the state forward. For those whowant to maintain the status quo and ‘wait it out’, theprospects are dim. As we look ahead to the next decade,we should expect flat or declining resources for govern-ment, not more.

Our problems aren’t unique to Maine, of course,although our policy decisions and inefficiency have madethem worse. Other states across the country are strug-gling to adjust to new fiscal realities. Some are adapting.Some are in denial. Others are teetering on the verge ofcollapse. All this is driven by the simple fact that over thelast 25 years or so, government spending, public expec-tations and debt have grown to a point that cannot besustained.

In many ways governments have begun to respond bymaking incremental adjustments to the status quo, nib-bling away at budgets through across-the-board cuts,stretching out maintenance, deferring payments, impos-ing unpaid furlough days on workers or manipulatingaccounting rules. Too often, through across-the-boardreductions, they’ve succeeded in equally cutting both theessential and the unimportant.

Thanks to federal bailouts in 2009, many of the reallytough restructuring decisions were put off. A smaller fed-eral bailout in 2010 will have a similar but smaller effect.But we can’t expect federal bailouts to continue next yearor thereafter. The federal government has its own fiscalcrisis to deal with.

REINVENTING GOVERNMENT ISN’T A CHOICE, ITS ALREADY HAPPENINGWhether we want it or not, government is already beingrestructured, as if in a slow-motion movie, one frame ata time. The driving force for change is not political pos-turing, party politics or wishful thinking; it’s simply hardfacts and real numbers.

Because states and local communities can’t printmoney and pile up debt like the federal government can,and must balance their budgets each year, dwindling dol-lars are forcing change upon us. Not to say that the state,

Making One Maine Out of TwoAnyone who’s been in Maine more than a few dayshas probably heard about the two Maines. Usuallyit’s taken to mean northern Maine versus southern,or rural versus suburban. Sometimes it’s coastalversus inland, or people born here versus peoplefrom away. What ‘two Maines’ boils down to,though, is really two different economies.

One Maine is a place with a strong and diverseeconomy. It’s a terrific place to raise a family, withwonderfully vibrant communities, thousands ofengaged citizens and volunteers, hard-workingand dependable people, and a world class naturalenvironment. It’s a place with the chance to turnour native resourcefulness and quality of place intoa center of innovation, where new ideas, new prod-ucts and new jobs are the foundation of a growingeconomy.

That Maine has the essential ingredients tobecome the place that people and entrepreneursfrom around the country will flock to.

The other Maine is a place where for a half centuryor more the economy has been flat. Where forworking families and the less educated, it hasactually grown worse. It is the Maine where millsand agriculture and fishing jobs have succumbedto new technologies, new market demands andcompetition from overseas. Some of the areas inthis Maine are places rife with hardship and hope-lessness. Where stress and anger are on the rise,dropout rates and substance abuse are high andgood jobs and optimism are scarce.

That second Maine can be found in northern, cen-tral, downeast or western Maine, but it also co-exists with the first Maine elsewhere, even incoastal communities and southern Maine.

Whichever Maine you feel you’re part of, this dis-cussion touches us all. It holds the key to whetheror not this state – as one state – will see a resur-gence and whether our children and their childrenwill be Mainers.

in particular, hasn’t found ways to go into debt – mostnotably through under-funded pension and insuranceplans and by not paying its bills to hospitals —but thedays of spending-today-and-paying-tomorrow are rap-idly coming to a close.

Some people still think the question now is ‘how dowe maintain the status quo’? The real question is ‘Arewe going to define our priorities and shape a new andmore modern government, or just hang on through awild ride and hope for the best’?

In a rapidly changing world, the old ways of doingthings and the pace at which we’ve been moving areleaving us further behind each day. Timid changes andsmall fixes only delay what must be done. It’s time totake some big steps forward.


T H E H A R D W O R K

Some people still think the question now is ‘how do we

maintain the status quo’? The realquestion is ‘Are we going to defineour priorities and shape a new andmore modern government, or just

hang on through a wild ride and hope for the best’?

MAINERS CLING to cherished myths and arguethem as though they were inscribed on stonetablets brought down from high mountains.

These myths come from different sources. Some arisefrom ideological or partisan positions, superstitions andsometimes from plain wishful thinking. Whatever thesource, they have long served as powerful brakes againstMaine moving forward.

Here are a few of the most common myths thatstand in our way.

1 WE CAN HAVE IT ALL

This is undoubtedly the most widespread and dan-gerous myth of all. It takes various forms and shapes,depending on where you find it. It allows us to pretendthat we can have unlimited services from government –great schools and communities, good roads and colleges,generous social programs—and still have low taxes, evenwith a weak economy. Or that taxes are an unlimitedresource for any ‘need’ defined as urgent. And there is the

old ‘local control’ notion that we can have one of every-thing in every town, and it won’t cost us more, becausesmaller is always better.

2 OUR CURRENT FISCAL PROBLEMS ARE TEMPORARY

For decades, government balance sheets rose and fell withthe economy. About 10 years ago, that started to change.Now we find governments facing deficits even in goodtimes. That’s because of long-standing structural changesthat are happening all across the world, and also somevery unique ones here. In Maine’s case, they include ouraging population, rising health care spending, unfundedpension liabilities, our tendency toward a bigger ‘safetynet’ than other states have, and the inefficient way inwhich services are delivered.

If you still think that everything will be fine the nexttime the economy comes back, we urge you to read theupcoming section on the Three Ticking Time Bombs. EveryMaine citizen should understand those ominous trends.

3 WE CAN CHANGE SOMEONE ELSE’SPROGRAMS BUT LEAVE OURS ALONE

If Mainers can agree on anything, it’s this: almost every-one is in favor of cutting someone else’s government.Mainers across the state can wax eloquent about howsomeone else is to blame, and we should just cut their pro-grams or their tax break or service. Political parties andcandidates make a living off this one, of course, and votersfall for it every time. It’s as though politicians are saying,“What is it you want? We can give you that! It won’t cost


One of the first things thatMainers need to do, if real

change is going to happen ingovernment, is to confront

our tendency to operate in akind of ‘fact-free’ zone.

10 MYTHSThat Hold

Us Back

a thing, either. And, we’ll cut government spending at thesame time without making anyone unhappy.”

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

4IT’S ALL ABOUT WASTE, FRAUD AND ABUSE

This old chestnut has been finely roasted and relished fordecades. It is mostly about politicians saying somethingwithout saying anything while blaming a faceless ‘them’.Making speeches about ‘waste, fraud and abuse’ allowspoliticians to rail at government without being specificenough to lose any votes.

While there is waste, fraud and abuse in every humaninstitution, and no doubt there’s waste in Maine, we cancount our blessings every day that the level of outrightcorruption and greed here, when compared to otherstates across the country, is remarkably low.

Maine has been stuck here for a long time. It’s timeto move on.

5WE CAN CUT OUR WAY TO PROSPERITY

This is another staple of political talk: “If we’d just cuttaxes and get government out of the way, we’d be fine!”There’s a thread of truth in that, of course, just as thereis in the next myth. But if it were really true, Alabamawould have the most vibrant economy in the nation, andZambia and New Guinea would lead the world. Econom-ic reality is more complicated. Strong economies needgood infrastructure, good schools, healthy communities,effective law enforcement and, in some cases, partner-ships between businesses and government. Where thosethings are not being adequately provided, economiesgenerally remain weak. The notable exceptions are thoseeconomies, like ours over the last two centuries, that relyheavily on the extraction of raw materials, at least untilthose resources are effectively used up or replaced withnewer materials.

6WE CAN INVEST OUR WAY TO PROSPERITY

The counter-view to the last myth is, not surprisingly,“we can invest our way to prosperity.” That has becomethe predictable rallying cry of anyone who wants to addnew programs and expand government functions, pass a

bond issue or otherwise defend a favorite program. Justlike the previous myth, this one has a thread of truth atits core. We do need to invest in critical functions likeinfrastructure and schools. But the line between a trueinvestment and simply more spending is dangerouslyblurred, and the “invest our way to prosperity” argumentis poorly understood and too carelessly used.

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 allows many Mainers to overlook the factthat in today’s world capital and people can and do easilymove. And they have been moving - out of Maine. Youngpeople are leaving. Wealthy Mainers are “residing” inother states half the year. Businesses aren’t growing. Newones aren’t coming. All of it drains our resources.

The fact is that Maine people are taxed out. Our taxesas a portion of our income are among the highest in thecountry and have been for too long, no matter how wequibble with the numbers. There simply isn’t an endlesspool of faceless “rich” people waiting around to be taxedmore for the honor and privilege of living in Maine.Every tax increase drives more people out and acceleratesa dangerous downward spiral in our economy.

8IF WE KEEP DOING THINGS THE WAYWE ALWAYS HAVE, WE’LL BE OK

“We’ve always done it this way, and it worked prettygood, so we need to just keep doing it and we’ll be OK.”If only that were true. Mainers could once again grad-uate from high school and step into waiting jobs at fac-tories, where they’d earn a good living assembling someof the best shoes or fabrics or paper products in theworld, often-times working alongside their fathers. Orwork at the sardine canneries where their sistersworked. They could fish just offshore and bring in fullnets every day.

But that world no longer exists. Maine’s – in fact, thenation’s – last sardine cannery, the Bumble Bee plant inProspect Harbor, closed in April after 100 years. Nowsomething else is going to happen there. Just like thepeople who worked at the Hathaway Shirt Co. in Water-ville, the Edwards Mill in Augusta, and the shoe plantsin Lewiston, the people of Prospect Harbor can’t keep


1 0 M Y T H S T H A T H O L D U S B A C K

on doing what they’ve always done. Times change for all of us, for economies and even for

governments. Some of the old ways still work and haveto be preserved, but others are no longer productive.

9GOVERNMENT CAN’T BE CHANGED

If the Founding Fathers had believed government couldnot be changed, Mainers would still be paying taxes toMassachusetts and raising toasts to the queen. The factis, government can and does change. The U.S. was aminor world power with a small federal government 100years ago. Within a forty year period, through a greatdepression and two world wars, government was trans-formed. In Maine, counties were once the primary officialgovernment of Maine, public education happened inone-room schools and major local issues were almostalways decided in town meetings.

Change is never easy, but it is constantly happening.Even areas with traditions of strong local governancehave managed to change. Denmark had 86 counties and1,300 municipalities until 1970. Today it has five regionalgovernments and 98 municipalities. Closer to home,

changes have also happened in Quebec and NewBrunswick. The people of those areas love their heritageas much as we Mainers love ours. Change wasn’t any eas-ier for them than it is for us. But they did what they need-ed to do.

10 IF ONLY WE HAD A STRONG LEADER

If you’re waiting for Andy Jackson to ride his white horseover the next hill to drive the elites out of governmentand fight for the little guy, take a seat. It could be a while.The reality is, no single person can solve all the problemsMaine confronts, no matter how intelligent, articulateor charismatic they are. We’re a state with a strong tra-dition of popular will. We’re a town meeting state. A ref-erendum state. A place where leaders can move moun-tains, but only when we agree to let them - and thenhelp. That isn’t to say we don’t need strong and effectiveleaders at all levels of government. We do. But none ofthem can do the job that needs to be done, withoutactive public support from Mainers all across the state,in places large and small.


1 Adjust Our Expectations of Government

The problem of inefficiency isn’t entirely government’sproblem. We need to look in the mirror, too. We are, in some ways, our own worst enemy. UnlessMainers take a hard look at what we demand from gov-ernment, it cannot change. That’s because we regularlywant too much, we want it too soon, and we want it atlittle or no cost. Nothing else in these recommendationscan occur unless we decide to change our expectations.

2Push Government Leaders to BeAccountable for Future Effects

We need to change the inclination of public officials toseek short-term benefits without regard to long-termconsequences, by changing accounting, budgeting andlegislative practices to make the full costs of decisionsknown, when they are made.The constant pressure to get re-elected encourages leadersto seek short-term benefits, like givebacks, bailouts, new

programs and ribbon cuttings, often at the expense oflong-term solvency. This has left us with an over-extendedand unsustainable government, pension and health carebenefits we can’t afford, infrastructure that we can’t main-tain, medical bills that aren’t paid and budgets loadedeach year with smaller ticking time bombs.

3 Budget for ResultsDon’t create annual budgets based on last year’s

budget. That just locks in place yesterday’s structuresand approaches.When governments review budgets each year, they aregenerally looking at the cost of inputs – labor, overhead,materials. Too often, annual budgets are simply last year’sbudgets with some across-the-board adjustments,depending upon available resources. That approach per-manently freezes in place yesterday’s structures, andworks against innovation. We need a new ‘zero-budget’approach that constantly re-evaluates needs and fundsprograms that deliver good results for the dollar andeliminates those that don’t.

4 Invest in Constant Improvements

Change costs money. New systems have to bebuilt and people need to relearn how to work withinthem. It takes time, effort and resources.Changing structures and systems doesn’t always produceimmediate results, and it often costs money initially. Theshort-term cost of reinventing institutions and programoften becomes an excuse for inaction. Investing in changeshould become a permanent priority in government.


GuidingPRINCIPLES

For Reinventing Government

For Maine governments tobecome more efficient

and modern, we’ll need afundamentally new approach to

how it’s organized and what itdoes, including the following:

5Measure Performance and Close Outdated Programs

Every level of government needs performance auditingand reviews that ensure that results will be improved.When was the last time that a significant program of stategovernment, in particular, was shut down? New pro-grams are constantly created, but old ones are rarely elim-inated. The cumulative effect is not only inefficiency, it’salso programs that drift in the backwater of government,without real purpose or review. This creates a one-waydirection for government – bigger and less manageable– and a bureaucratic structure that isn’t focused on itscritical mission.

The state has an Office of Program Evaluation andGovernment Accountability, or OPEGA, which analyzesvarious programs. It is far too small, and entirely con-strained by political control by the Legislature, which tellsit what to look at and what to avoid. To make intelligentdecisions about which programs are delivering resultsmost effectively, government leaders need the best dataavailable. Without objective data on results—includinghow performance compares to other agencies—intelli-gent management decisions are virtually impossible.

6Decentralize Government andEmpower Employees

Public organizations and systems in Maine need to pushauthority down, encouraging those who deal directlywith citizens to make more of their own decisions. We need to empower employees to make more decisionsabout how to produce the best value for taxpayers, andto reward them when they do. State government, needsto become more ‘decentralized’, making it smaller andshifting some of its responsibilities to more effectiveregional governments.

7Reward Excellence and RemoveIncompetence

Move beyond a bureaucratic culture that makes it vir-tually impossible for government to grow and change. Too many managers in government today cannot man-age. They don’t have the tools or the power that the pri-vate sector has to elevate talent, to move people fromwhere they are to where they’re needed, and to constantlyadjust teams and schedules to increase efficiency andimprove results. Without a fundamental rethinking of

how government operates, and the removal of archaicand unnecessary restrictions, government cannot becomemore efficient and effective.

8Use Competition to Drive Improvements

Require service providers within government to competefor their business, based on their performance and price. Competition is the fundamental force that gives publicorganizations no choice but to improve. Many governmentsacross the country and globe now require their public agen-cies to compete with private firms every few years for theright to deliver particular services. No matter who wins thecompetition, savings of 10 to 25% are common.

9Make government more accountable to taxpayers

Public organizations in Maine should treat those theyserve—the parents whose children they teach, the peo-ple who line up to renew driver’s licenses, the citizensthey are trying to protect from pollution and the smallbusiness owner trying to get started — as they wouldcustomers in a business they owned. They should listen to them, through surveys and focusgroups; set standards of service and guarantee them tocustomers; provide redress when they fail to deliver; givecustomers a choice of service providers; and wheneverpossible, let customers take public dollars with themwhen they choose a different service provider.

10Use Market-Oriented Strategiesand Public-Private Partnerships

to Solve ProblemsTo get better results with less money, Maine govern-ments need to use the marketplace and partnershipsto solve problems, not just government programs andregulation. They need to use financial incentives—matching pay-ments, tax incentives, vouchers, and the like—to driveother governments, private organizations, and individu-als to behave in ways that solve societal problems. Theyneed to pursue public-private partnerships wheneverthey are more cost-effective than government monopo-lies, engaging both nonprofit and for-profit partners indelivering public services.


If Maine spending on government were at the national and rural

state average, we wouldsave over one billion

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When it ComestoSPENDING

Maine Stands Out

AS A PERCENTAGE of our income,Mainers spend about 13 percent

more for state and local gov-ernment than the national average, and16 percent more than other rural states,making us the 6th highest spender in thenation in that category. Unfortunately,that doesn’t mean that we get betterresults. In some cases, we simply spendmore and get less.

If Maine spending were at the nationallevel in just three categories, welfare andmedicaid, K-12 education and solid wastemanagement, we’d save over half a billiondollars each year. At the national average,we’d spend $361 million less on welfareand medicaid, $141 million less on K-12education and $29 million less on solidwaste.

When we compare Maine spending toother rural states the numbers don’t getmuch better.

THE COST OF GOVERNMENT IN GENERALAs a percentage of income, Mainers spend 15% of their income on stateand local government, which ranks us 13% above the national average and16% above the average of the similarly rural states.

In actual dollars spent, as opposed to a percentage of income, we rank6th in the country. In this measure Mainers spend $14.98 of every $100 theyearn on state and local government. The national average is $13.21. We alsopay 25 percent more than the New England average of $12.03.

HOW MAINE SPENDING COMPARES WITH OTHERS

From 2002 to 2007 the trends moved in the wrongdirection, as Maine moved slightly further away fromthe national averages of state and local governmentpayroll and expenditure. Like other rural states, Maineprovides relatively more public services through thestate government than through local governments.

STATE GOVERNMENTState government payroll, as a percentage of income,is 36% above the national average, reflecting a surpris-ing number of public services for which expendituresare higher than national or rural averages.

One possible reason why Maine state governmentpayrolls and expenditures may be higher than in therest of the nation is that Maine’s state governmentmay be performing duties that are done by county orregional governments in other states. In other words,Maine’s weak system of county government may forcerelatively more duties on to the state government.

Although this may help explain some of the instanceswhere Maine’s state government seems to have high-er-than-normal costs, it does not appear to be thewhole explanation. In most of the services notedbelow, Maine’s combined state and local governmentpayrolls and expenditures are higher than in moststates, and those services are primarily the duties ofthe state government in Maine.

The LegislatureMaine’s state legislative expenditure relative to incomeis 132% higher than the U.S. average and 68% higherthan the average of the similarly rural states. If Mainehad the same legislative expenditure as a percentageof income as the average of the other rural states, $8million would be saved.

Welfare and MedicaidMaine clearly has a high level of welfare benefits (pre-dominantly Medicaid) in comparison to the rest of

The Source of Data in this ChapterThis source of data in this section is from a report releasedin June, 2010 entitled State and Local Government Payrolland Expenditure in 2007, which systematically examinesinterstate data on payroll and expenditure in 21 categoriesof state and local government services. The report (Schoolof Economics Working Paper No. 588, University of Maine,June 2010) was written by Philip A. Trostel, a Professor ofEconomics and Public Policy at the University of Maine.

The data here updates a background analysis that Mr. Trostelwrote in 2006 for the Brookings Institution as part of theirwork in writing their widely-read study called ChartingMaine’s Future. In that report he examined state and localgovernment spending in Maine in comparison to the rest ofthe nation using data for fiscal year 2002. His most recentreport examines data for 2007.

The intention of both this and the earlier report is to providereadily available factual information about Maine’s state andlocal government spending practices, and to help replaceanecdotes and impressions of wasteful government in Mainewith more fact-based analysis. The new report systematicallyexamines interstate data on payroll and expenditure in 21categories of state and local government services.

All expenditure levels reported here are expressed as a per-centage of personal income in the state and are net of rev-enues from both direct user charges and intergovernmentaltransfers from the federal government. Netting out these rev-enues is important for some service categories (such as high-er education, welfare and Medicaid, highways, housing andcommunity development, etc.) to provide an accurate pictureof how service levels contribute to states’ tax burdens.

Total expenditures reported here also do not include spend-ing on quasi-private enterprises that are financed mostlythrough direct user fees, such as public hospitals, public util-ities, public transit, and state liquor stores. The “total” report-ed here only includes services that contribute to tax burdenson a near dollar-for-dollar basis. Including quasi-privateenterprises in the total would produce a misleading resultand make comparison with other states inaccurate, sincethere are substantial differences across states in thepublic/private mix of these services.

For further information on methodologies and findings of thereport, see Appendix A on page 74.


State government payroll, as apercentage of income, is 36%

above the national average

the nation and to other rural states. Maine’s welfare andmedicaid spending, as a percentage of income, is 66%higher than the national average, and it grew slightly fasterthan in the rest of the nation from 2002 to 2007. Maine’sspending per single-female family (the strongest predictorof states’ spending on welfare and medicaid) is 69% higherthan the national average, and grew significantly fasterthan in the rest of the country since 2002.

It also appears that Maine has become unusually costlyin administering these benefits. Maine was below thenational average in public welfare payroll (the people andsystems that deliver welfare and Medicaid payments) as apercentage of personal income in 2002, but in 2007 Mainewas the 2nd highest in the nation and 68% greater thanthe average. Maine’s public welfare payroll increased45.9% since 2002. Nationally it decreased 13.2%.

If Maine’s expenditure on welfare (including bothadministration and benefits) was the same as the nationalaverage, $361 million would have been saved in 2007.

Health (other than Medicaid)Maine’s expenditure on health care relative to income is125% higher than the national average and 80% higherthan the average of the other rural states. If Maine’s healthexpenditure (netting out federal transfers) was the same asthe average of other rural states, $184 million would havebeen saved (and the cost differential would be considerablylarger if the national average was used as the benchmark).

CorrectionsMaine’s corrections cost per inmate is very high whencompared to other states. Maine’s annual expenditure perinmate is about $93,500, while the national average isroughly $46,400. Expenditures per inmate are also morethan double the rural-state averages. Understanding howMaine spends so much can first be explained by thisanomaly: while we have 67% fewer inmates than thenational average, relative to residents, we spend just 25%below the U.S. average. If Maine spent at the national aver-age in this category, it would save about $100 million.

Other and Un-allocableThis is a catch-all category that Maine makes great use of.It includes everything that isn’t in another category ofspending, within census data. It is a budget category deserv-ing of a closer look and a better understanding. For every$100 we earn every year, we spend $1.18 on this catch-allcategory, which is just slightly below the New England aver-age, but 62% higher than the national average.

If Maine had the same ‘other and un-allocable’ expen-diture relative to income as the national average, $205 mil-lion would have been saved.

PUBLIC EDUCATIONCompared to the rest of the nation, Maine spends a highamount on primary and secondary education, more than$1.9 billion in 2007.

Public education is by far the largest local governmentservice. Nationally, 58.1% of total local-government pay-roll is in primary and secondary education. In Maine, pri-mary and secondary education payroll is 71.4% of thetotal. In this ratio, Maine is 4th highest in the nation.

Expenditures per student in Maine are 8% higher thanthe national average, and Maine’s payroll per student is18% higher than the national average, despite per capitaincome in Maine being 11% below the national average.Maine’s expenditure per student exceeds the average ofthe other rural states by 11%. If Maine’s expenditure perstudent were the same as the national average, it wouldcreate $141 million in annual cost savings.

After controlling for inflation, spending per studentgrew 9.3% in Maine, versus 8.9% nationally, from 2002 to2007.

Compared to the national averages, Maine has 2.92times as many school-district administrators per student


W H E N I T C O M E S T O S P E N D I N G . . .

and 1.73 times as many school administratorsper student. In these measures Maine is respec-tively the 5th and 2nd highest among the states.Moreover, Maine is higher than all of the simi-larly rural states in school administrators perstudent, and higher than all but one of the otherrural states in school-district administrators perstudent.

Fire ProtectionMaine’s fire expenditure relative to personalincome is 10% greater than the average of theother most rural states. If Maine had the samefire expenditure relative to income as the averageof the other rural states, by a conservative esti-mate $11 million would be saved.

From 2002 to 2007 Maine’s spending on fireprotection increased 19%, while the nationalaverage increased 8%.

SewerageSewerage costs are greatly affected by density andare generally higher in rural states. But Maine’scost, when compared to the average of the otherrural states, is 14% higher. If Maine had the sameexpenditure relative to income as the average ofthe other rural states, $18 million would be savedannually. Spending on sewerage relative toincome in Maine increased 14% from 2002 to2007, compared to a 5% national increase.

Solid Waste ManagementIn the provision of solid waste managementservices Maine is high relative to the rest of thenation. Expenditure as a percentage of incomeon solid waste management in Maine is 32%greater than the national average and 33%greater than the rural-state average. If Mainehad the same expenditure as a percentage ofstate income as the national average, $29 millionper year would be saved.


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Higher EducationWhile Maine spends heavily on K-12 education, as a percentage ofincome we spend 18% less on higher education than the nationalaverage and 37% less than the rural state average.

That isn’t to say that the funds to higher education are well used.Maine has the nation’s 2nd highest ratio of non-instructional payrollrelative to instructional payroll in public higher education. For every$1 going to instructional payroll, $1.75 goes to non-instructionalpayroll in Maine, compared to $1.15 nationally and $1.04 in similarlyrural states. Having fifteen separate university and community col-lege administrations serving a cumulative student body of around35,000 full-time equivalent students, in 2007, may indicate at leastpart of the problem.

If Maine had the national average amount of non-instructionalpayroll per student, $13 million would have been saved in 2007.

LibrariesThe provision of library services in Maine is relatively low in com-parison to other states. Libraries expenditure as a percentage ofincome in Maine is 23% below the national average and 30% belowthe rural-state average. From 2002 to 2007, though, Maine’s expen-diture on libraries increased slightly more than its increase in incomeand slightly more than in the rest of the nation.

Judicial and LegalIn judicial and legal services relative to income, Maine has thenation’s 7th lowest expenditure. Maine’s level is 31% below thenational average and 25% below of average of the other most ruralstates. Much, but not all, of this difference is evidently due to Maine’srelatively low crime rate. After taking this into account, though,Maine still appears to be somewhat below the interstate norm in pro-viding judicial and legal services.

Natural ResourcesMaine’s natural resource expenditure relative to incomeis 6% above the national averages, but 52% below theaverage of the other rural states. Relative to the ruralcomparison states, Maine does not appear to have unusu-ally high costs in this service category. Moreover, Maine’sprovision in the category of natural resources declinedsignificantly 2002 to 2007.

The Effects of Being a Rural StateIt is sometimes asserted that Maine’s higher-than-normalcost in providing some public services is an unavoidableconsequence of being rural. That is, being rural to someextent creates an inherent cost disadvantage and excessduplication of services because economies of scale cannotbe fully realized. That appears to be the case with spend-ing on natural resources, financial administration, other

government administration and public buildings. Oth-erwise, the data suggest that rural states have moreimportant cost advantages than cost disadvantages.

As a percentage of income, rural states generallyspend less than on fire protection, sewerage, and housingand community development and judicial and legal cost(due to low crime rates). Maine’s relatively low crime rateputs us 44th in crimes per capita and 31% below thenational average, and creates an important fiscal advan-tage for the state. It allows Maine’s spending relative toincome to be low in police protection, corrections, andjudicial and legal services. Nationally, 12.4% of total stateand local government payroll goes to police protection,corrections, and judicial and legal services. In Maine, thatnumber is 7.9%. The difference is a savings of $312 mil-lion per year, or 0.7% of the state’s personal income.


W H E N I T C O M E S T O S P E N D I N G . . .

1 in 5 Maine adults are now at or nearretirement age. By 2030, it will be close to 1 in 3.

MAINE HAS AN AGING PROBLEM. A serious one. We’re theoldest state in the nation. The median age here is 42, whichis 5 years older than the national average and 13 years older

than the median age of Utah, the nation’s youngest state. Over the nexttwo decades more people will be retiring and fewer people will be leftto pay taxes that support public infrastructure, education, social pro-grams and the environment. Estimates from the State Planning Officeproject that the number of Maine residents 65 and older will increasefrom 188,140 in 2003 to 335,602 in 2028.

The reasons why the state is aging can be traced to three things, allof which are tied to a weak economy, which has been unable to provideenough quality jobs to sustain our population mix.


The Three Great Ticking

TIME BOMBS A Perilous Moment for the State

If the only challenges we confronted over the next 5-10 years were the habitof spending too much and large budget deficits each year, we might be able

to muddle through. Unfortunately, we also have three major ticking timebombs that are converging to create enormous new challenges for the state.

OUR AGING POPULATION, coupled with $4.4 billion dollars in unpaid obligations to public employees forpensions and rising health care costs for retirees endanger many of the things that we need government todo. In the not too distant future, we may not be able to adequately fund education, roads, public safety, the

safety net or environmental protection. Without dramatic action to squeeze out inefficiency and prioritize needs,these three ‘ticking time bombs’ may well consume as much as half of the state’s budget within a decade.

The Aging

STATEFewer Workers

and Growing Needs.

WHY MAINE IS AGING■ We now have the second-lowest percentage of

residents younger than 19 in the country.■ We can’t replace Mainers who die with a birth

rate that is about 25 percent below the national average.

■ Young people are leaving.

The first is that young people are declining as a partof Maine’s population. Between 1990 and 2000, Mainewas one of just five states that saw a decline (about 3 per-cent) in its under-19 population. As a result, Maine nowhas the second-lowest percentage of residents youngerthan 19 in the country and the number of Mainers inthat age group is expected to drop from about 160,000 in2007 to 135,000 in 2030.

The second is that Maine isn’t reproducing itself.According to a 2007 report by the State Planning Office,“Maine’s birth rate is about 25 percent below the nationalaverage: 1.7 births per woman in 2000. Part of the reasonthat we’re not keeping up is that we have the second-highest percentage of non-Hispanic white residents inthe country, who tend to have lower birth rates than eth-nic and racial minorities.”

The Population in Decline chart is hardly over-state-ment. It’s projection showed a flat growth, or a slightpopulation increase, through 2018. We now know that

was optimistic. In 2009, Maine was one of three states –along with Michigan and Rhode Island – to see its pop-ulation decrease. That happened because of low birthrates but also because new and younger people aren’tcoming here to replace the ones we’re losing.

What this all adds up to is a looming crisis in publicspending and government revenues that will drive fur-ther reductions and restructuring in government. As thebaby boomers age, there are not enough younger replace-ment workers to balance the older population. Thatmeans fewer taxpayers carrying bigger burdens. Withoutmassive changes, it is easy to see that the situation isbecoming unsustainable, both fiscally and economically.

What does this trend-line mean for Maine govern-ment? Services targeted at children will diminish andthose that serve older people will grow. School enroll-ments will continue to shrink, as will the number and sizeof schools. Health care costs, and the need for assisted liv-ing and nursing homes will continue to rise, while trans-portation and other in-home assistance programs will beunder greater pressure.

Rural parts of Maine are already feeling the earlyadvance of this wave of change. They’ve lost more youngpeople than the rest of the state and their populations arealready older. School enrollment statewide has declined

T H E A G I N G S T A T E

2008

1.2

0

1.3

1.4

2013 2018 2023 2028

Population in millions

1,316,456

1,307,181

Source: U.S. Census Bureau


Population in Decline

from about 240,000 in 1978 to about 185,000 in 2009.In rural parts of the state, some towns are having a dif-ficult time keeping schools open. It’s increasingly com-mon, also, that towns that have relied on volunteers andelected officials to meet their ‘staffing’ needs are findingit harder and harder to manage as local volunteers ageand aren’t replaced with younger energy.

The greatest challenge raised by an aging popula-tion, though, goes beyond the effects on government.Maine’s economy could further shrink, if this phenom-enon isn’t reversed. With fewer workers available, it willbecome harder to meet the needs of in-state businessesfor quality employees, and harder still to attract newbusinesses to the area.

In a 2007 column in the Bangor Daily News, formerstate economist Catherine Reilly wrote that Maine’s lackof young people “jeopardizes long-term prosperity.” Shenoted these points:

■ Businesses are drawn to places with growing customer bases and ample workers.

■ Without increases in productivity, fewer workers means slower economic growth.

■ People between 25 and 34 are the most likely to pursue new entrepreneurial endeavors. “As Maine strives to compete in an innovation-based economy,” she wrote, “the pool of mostlikely entrepreneurs will shrink.”


Source: U.S. Census Bureau

Population

20-64 Year-olds Will Decline for the Next Two Decades

Working Population in Decline

600,00

800,00

1,000,00

2010 2030

0

843,678

755,005

WHAT CAN BE DONE?There is only one answer to this ticking timebomb. We need to grow an economy that iscreating more jobs, allowing younger peopleto stay here and attracting entrepreneurs andothers from outside Maine.

Without a strong economy, everythingelse is window dressing and wishful thinking.If there aren’t jobs to keep people here andattract new residents to Maine, we can’t sim-ply cheerlead our way forward by talking upour beautiful natural surroundings and smalltowns. Nor can we shame or even incentivizeyoung people to stay here when they havebrighter prospects elsewhere.

The state will pay almost half a billion dollars next year for retiree pensionand health care costs. Within a decade that

figure will be closer to a billion dollars.

UnfundedLIABILITIES

Rapidly Increasing Payments are Coming Due.

UNFUNDED LIABILITIES are anonrushing train that too fewMainers understand, and that will

dominate discussion in Augusta in the com-ing months and years. The state currentlyowes approximately $4.4 billion for unpaidobligations for public employee pension andhealth care plans. Those costs now consumeabout 10% of state budgets, and could easilyconsume 20% within 6 to 8 years.

In the last budget, the cost was $315 mil-lion per year. Those payments are about todramatically increase each year from nowon, to an estimated $448 million by 2012,$732 million in 2017, $896 million in 2020and $938 million dollars in 2021. Whilethese amounts also include the current costof the plan, the majority of the increase is topay the past debt or these liabilities.

Unlike other obligations that the stateincurs, state employee and teacher retire-ment plan costs now must be paid by 2028,as a result of a constitutional amendmentpassed in 1995. That means that the cost ofpaying the unfunded liability comes off thetop of the state budget, crowding out spend-ing for education, roads, support to towns,social services and the environment.

How did we get into this mess? It startednearly 100 years ago in large part becausepoliticians love to give things to constituentstoday and let someone else pay for it tomor-row. What did they give? Steadily expandingpension and health care deals to govern-ment employees and teachers, guaranteedagainst economic or investment downturns,that include the cost of 100% of retirementhealth care.

Maine’s retirement system, like manystates – and all New England states – offersits retirees a “defined benefit plan” ratherthan, like many private employers, a“defined contribution plan.” That meansthat they get paid the same pension whetheror not their ‘investments’ go up or down. All


Cost (in millions)

Year

Maine’s Pension Plan Liabilities

Source: Maine Public Employees Retirement System

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

02010 2028

Annual costs Unfunded liabilities

$981,000,000 in 2028

of the risk of low returns on investments are shoulderedby the taxpayers. In most private sector plans, under a so-called defined contribution plan, such as a 401(k),employers set up individual accounts for retirees and con-tribute specific amounts of money into them at specificintervals. In those plans, the employee shoulders all of therisk of low returns on investments.

There was a time when private sector plans offeredguaranteed benefits, but by and large the private sectorhas moved on. Not so government. As a result, publicpension plans today are more generous than almost allplans in the private sector, primarily because of the ageat which employees can retire, with substantial, guaran-teed benefits.

It turns out that an early and generous retirement isone of the great perks of working for the government.Maine lets employees retire at 62, when life expectancyfor men is another 20 years and for women another 23years. With Mainers living longer than they once did,those retirement benefits have become increasinglyunsustainable.

State retirees in Maine are entitled to 2 percent of theirpay for each year they have worked. Employees who retireafter 30 years with the government and who retire at orabove their normal retirement age are entitled to receive60 percent of the average of their top three year’s salary,every year for the rest of their lives. Employees who workfor 35 years get 70 percent per year, and so on.

Additionally, the state provides its retirees up to 100percent of the cost of their single-person coverage healthinsurance, and provides teachers up to 45 percent oftheirs.

According to a February, 2010 study by the Pew Cen-ter on the States, most states got themselves in this posi-tion the same way that Maine did - through policy choic-es and a lack of discipline. The state failed, for decades,to make adequate payments into its pension programs,while expanding benefits and offering cost-of-livingincreases without fully considering their long-term pricetag or knowing how to pay for them.

Maine deserves some credit, though, for tackling thisproblem earlier than other states, including passing aconstitutional amendment in 1995 that doesn’t allowstate government to backslide on the schedule of catchingup to what it owes. In 1997, total pension obligations

were 64 percent funded, with the State and Teacher Planfunded at 58 percent, a significant increase from an earlierlow of nearly 30 percent. By 2008, these numbers were 80percent and 74 percent. But the overall payment schedulewas based on rosy stock market projections, and the mar-ket collapse a few years ago changed everything.

We’re not doing so well when it comes to paying forretiree health insurance, either.

Currently, Maine pays 100 percent of its retirees’health insurance and 45 percent of retired teachers’ healthinsurance. That is projected to cost $1.53 billion for stateemployees and $1.2 billion for teachers. Maine doesn’thave nearly the money to cover that: According to thestate’s consultants, the unfunded liability as of June 30,2009, was $1.31 billion for state employees and $999 mil-lion for teachers.

A March, 2010 report by a task force looking into theMaine state employee and teacher retirement planexplains that “pension funds rely on three sources offunding to pay for future promised benefits: 1) employeecontributions; 2) employer contributions; and 3) invest-



There are three different problems here. One is thepolitical habit of paying for things in the future ratherthan when liabilities are incurred. The second is a statepension plan that pays people for a much longer periodof retirement, because people live longer than they usedto. And the third is a plan that puts all of the risk of adownswing in the stock market on taxpayers.

■ Resist any effort to change the pensionplan payment due date of 2028.Maine did the right thing when it passed a consti-tutional amendment forcing state government topay its unfunded liabilities by 2028. We probablyshould have been paying more than we have sincethen, and now the payments are increasing steeply.Some will call for extending or over-riding thatrequirement. We shouldn’t do that.

■ For newly hired state employees, continueto allow early retirement with reducedbenefits, but raise the eligibility age for fullretirement and health benefits to reflectour longer life expectancy.Maine’s pension and health care plan is beyond ourmeans. We have to scale it back to something closerto private sector plans, but do it in a way that is fairto current employees. Start by changing the system,now, for new employees.

■ Automatically enroll all state employees inthe state’s tax-advantaged retirement sav-ing plan as an important supplement totraditional pension benefits, particularlyfor employees who still want the option ofan earlier retirement.Private pension plans rely on a combination ofsocial security and investment accounts like 401ks.Maine needs to move in that direction, so that loss-es and gains in the stock market go to retirees andeveryone has a basic security net –whether socialsecurity or some equivalent.

■ Change accounting procedures andlegislative practices so leaders and thepublic know the full cost and effect oflong-term obligations.Maine can’t keep offering benefits to governmentemployees – or anyone else for that matter – withoutknowing the full and honest costs of those benefits,and taking responsibility for them. At a minimum,the state needs to include five or ten year projectionsof all spending items in the budget, and change toaccrual accounting, under which all future obliga-tions incurred are counted as expenses.

U N F U N D E D L I A B I L I T I E S

ment earnings in the trust fund in which the contribu-tions from employers and employees are invested.”

In other words, employees put money in, at a rate of7.65 percent of their salary, and government puts moneyin, at a rate of 5.5 percent. The public employees retire-ment system takes that money and invests it.

When the stock market is doing well, the Maine Pub-lic Employees Retirement System does well. As of June30, 2010, it had assets of $8.9 billion, up from a low of

$6.7 at the depths of the 2008 market crash. When thestock market drops, though, as it has over the last fewyears, the effects on Maine’s budget can be catastrophic.

As Pew reported, “Although investment income andemployee contributions help cover some of the costs,money to pay for public sector retirement benefits alsocomes from the same revenues that fund education, pub-lic safety and other critical needs – and the current fiscalcrisis is putting a tight squeeze on those resources.”

WHAT CAN BE DONE?


OUR SPENDING certainly isn’t high because therest of the country spends little. Since 1960,total U.S. health care spending has accelerated

10 percent a year—doubling every 7.5 years. Nationally,we now devote 16 percent of our gross domestic productto health care, almost double the European average. Ifcurrent trends continue, health care (Medicare and Med-icaid) will consume as much as half of all federal revenuewithin 15 years.

Yet all this money does not always buy us quality care.A Rand Corporation study found that patients receive theright care only about half the time. Between 48,000 and98,000 patients die annually because of medical errors inhospitals. And almost one of every six Americans has nohealth insurance. (After federal reform is implementedin 2114, that number should drop to one of every 17.)The Institute of Medicine reports that 18,000 Americansdie prematurely every year because they can’t get thenon-emergency care available to those with insurance,and many more suffer poor health because they lack care.Because of problems like this, the World Health Organi-zation ranks the U.S. 37th in the overall quality of itshealth-care system.

We pay more and get less than other developednations for three principal reasons.

1Our health care system responds to illness ratherthan preventing it.

We spend most of our energy and money treating thesymptoms of illness, rather than their causes. Yet ourlifestyles are creating an epidemic of expensive, avoidablechronic conditions, such as diabetes and heart disease.

The rising cost of health care isslowly bankrupting the country and

states from Maine to California.Maine spends 24 percent more perperson on health care than the U.S.

average. In New England, onlyMassachusetts spends more. The

state share of Medicaid, the largestsingle health care expenditure, rose

from 4.9 percent of total statespending in fiscal year 1985

to 10.4 percent in 2008.

HealthCare

COSTSAre Crowding Out

Other Needs.

2 We pay for procedures, not for health.

Under the kind of payment system we use in America, aso-called ‘fee-for-service’ system, we reimburse doctorsand hospitals for each medical procedure. They makemore money by performing more services. If a hospitalmakes a mistake and the patient has to be treated again,the hospital generates more income. If a medical groupfigures out economical ways to keep its patients healthy,it goes broke. As a consequence, America leads the worldin medical procedures, but is far behind in health.

Doctors John Wennberg and Elliott Fisher at Dart-mouth University have studied Medicare data fordecades. Their research shows that in regions with morephysicians per capita, rates of hospitalization and proce-dures are far higher—often twice the level of regionswith fewer doctors. Yet this higher spending does notyield better outcomes or more satisfied patients—ityields just the opposite. Other studies show the same pat-tern with Blue Cross Blue Shield insurance. Wennbergbelieves that up to a third of the $2.4 trillion we spendon health care each year is wasted on unnecessary treat-ments, overpriced drugs, and end-of-life care that yieldsnothing.

3Our system is fragmented, but today’s problems demand coordinated care.

Our fragmented system of medical practices, hospitals,and insurance companies produces enormous waste.Complex administrative processes, such as billing, con-sume 25-30 percent of all health-care dollars. As theMaine State Health Plan reports, different doctors andhospitals treat the same conditions in very different ways,at very different prices. And because multiple specialistsdealing with the same patient rarely coordinate theircare, patients fall through the cracks and quality suffers.

Yet teamwork is more important today than ever be-fore. Our medical institutions evolved to provideepisodic or crisis care for acute illnesses, but the real bur-den has shifted to ongoing chronic problems that needcontinuing, coordinated care. “In fact,” report health-care experts Alain Enthoven and Laura Tollen, “about 45percent of non-institutionalized Americans have chronicillnesses, and they account for 75 percent of personalhealth care spending.” More than 40 percent of themhave more than one chronic condition.

According to the State Health Plan, “Nearly 37 per-cent or $1.2 billion of Maine’s increase in health spend-ing from 1998 to 2005 is attributable to the leadingchronic illnesses, which are often preventable: cardiovas-cular disease, cancer, chronic lung disease and diabetes.”Yet our health care institutions were not designed to pro-vide coordinated care for chronic conditions.

Maine government has begun to take some steps inthe right direction, over the last decade, by rolling outnew strategies to prevent illness, studying alternativesto fee-for-service payment, and pushing hospitals toimprove their quality and coordination and controltheir costs.

Between 2003 and 2008, family premiums paid byMaine employers increased only 9 percent (compared to51 percent in the previous four years), with no increasein average deductibles, while employer premiums na-tionally increased 14 percent and deductibles grew by 31percent.

The new federal reform bill could help in some ofthese areas, by taking the pressure off states like Maine


H E A L T H C A R E C O S T S

Annual premium cost

Average Annual Health Insurance Premium Costs

Source: 1999, 2003 and 2008 Medical Expenditure Panel Survey (MEPS) insurance component

Note: Family definition excludes employee plus one after 2001

Maine U.S.

$3,000

1999 2003 2008

$6,000

$9,000

$12,000

$15,000

$0

$7,829

$7,989

$12,062

$10,822

$13,102

$12,298

that have been trying to ‘go it alone’ through programslike Dirigo Health and expanding access to Medicaid.The federal health care legislation is designed to subsi-dize health insurance for an estimated 32 million Amer-icans and change the rules of the marketplace so thatinsurance companies cannot deny coverage to peoplewith pre-existing illnesses or cancel their policies whenthey get sick.

It also promises $1 to $2 billion a year for state and

local prevention and wellness programs, to attack under-lying causes of illness. Medicare will launch demonstra-tion projects to develop alternatives to fee-for-servicereimbursement, and the bill offers financial support forstates to experiment with new payment solutions andmore coordinated care, among other things.

To take maximum advantage of these new opportu-nities, Maine should pursue three key strategies.


■ Reduce chronic illness by focusing onchanging personal behavior rather thanjust responding to the symptoms of thatbehavior.The single biggest driver of health care costs is ourbehavior. According to the U.S. Centers for DiseaseControl and Prevention, four big factors influenceour health: personal behavior (diet, exercise, alco-hol and tobacco use, etc.); the environment (ele-ments in our air, water, homes, communities,workplaces and food); access to health care; andsocioeconomic and genetic risk factors, such aspoverty or a predisposition to heart disease orbreast cancer. Of these four, personal behavioraccounts for 50 percent of the variance in ourhealth. The environment and risk factors accountfor about 20 percent each, health care for only 10percent.

As a nation, we spend almost 90 percent of ourpublic and private sector health dollars on treat-ment. Yet if we want better health, common sensetells us we must invest in changing behavior. Weall know that smoking causes cancer, heart disease,and other health problems, and for 40 years ourgovernments have been working to reduce smok-ing rates, with some success. But obesity, whichleads straight to diabetes, heart disease, and otherhealth problems, has become the 21st century epi-demic. According to the Centers for Disease Con-trol, by 2008 about two-thirds of Maine adults andone-third of our children are overweight or obese.

We also recognize that it is an uphill swim to getto and maintain a healthy weight, to keep our chil-dren free of toxins, to quit smoking, and to keepour youth free of alcohol. There are also popula-tions who face huge disparities with many of thesehealth issues. For instance, while Maine hasenjoyed great success in reducing its smokingrates, people who are Native American, are gay orlesbian, have a mental illness, or live in povertysmoke at two to four times the rate of all adults inMaine.

The answers to addressing many of these healthissues involve two overarching strategies: educat-ing about and promoting personal responsibilityfor healthy behaviors and building health into thefabric of our society by making it easier for all ofus to make healthy choices (sidewalks, multiusetrails, smokefree public places).

Maine’s leaders have begun to attack thesehealth issues, over the last decade. They have cre-ated 28 local Healthy Maine Partnerships and eightpublic health districts, streamlined 150 grant pro-grams down to 28, and asked the new districts tocreate improvement plans, including plans to pre-vent avoidable hospitalizations. If the plans fail,however, the state reforms have no teeth. Weshould create financial rewards for success andpenalties for failure, for both public health districtsand hospitals. The Healthy Maine Partnershipsand the health care system (hospitals, health cen-ters, physicians, etc) should also be required to

WHAT CAN BE DONE?

work closely together to improve health in theareas they serve. Maine is still at risk for havingtoo many competing efforts that drain resourcesand reduce effectiveness. Additionally, those incommunity-based public health and those inhealth care have much to learn from each other onhow to help improve the health of individuals aswell as of the entire community.

State leaders should also pick the top five behav-iors that undermine health—such as poor diet,inadequate exercise, smoking, drinking, and druguse—and lead massive public campaigns to changethem.

The bottom line: If we invest in changing behav-ior today, we will prevent illness and save moneytomorrow.

■ Use the buying power of government tonegotiate lower costs, spur more competi-tion, and produce better health, not moreprocedures.Governments in Maine already purchase healthinsurance for more than one resident in three. Thenew federal health care legislation will raise thatfigure to about 45 percent. Why not use this vastpurchasing power to steer the market toward high-er quality and lower costs?

Maine should use every bit of leverage it has, asa consumer and purchaser of health care, to shiftthe market from fee-for-service reimbursement toa payment system that rewards providers for keep-ing patients healthier. This means using someform of “global payments,” which offer set annualpayments to provide all care for an individual.

In a famous Rand Corporation study, groupmedical practices that charged a set, prepaid feecost 25-30 percent less than those operating on afee-for-service basis. The fundamental reason wasthat the prepaid physicians had clear financialincentives to become more cost-effective, ashealth-care experts Alain Enthoven and LauraTollen explain:

Prepayment rewards doctors for keepingpatients healthy, for solving their problems ineconomical ways, and for avoiding errors. Itencourages superior ambulatory care forpatients with chronic conditions, therebyreducing their need for hospitalization. In con-trast, the fee-for-service payment system givesdoctors powerful financial incentives to domore (and more costly) procedures, which maynot be in patients’ best interests, financially orclinically.

Entire delivery systems that receive set annual feesto care for patients, such as health maintenanceorganizations (HMOs), have similar incentives andeven more weapons to improve quality, Enthovenand Tollen add. “[A] system prepaid for total costscan examine the full spectrum of care to findopportunities for cost reduction, not just shiftingcosts to other parts of the system. For example, aprepaid delivery system can evaluate new tech-nologies for their cost-effectiveness and impact onquality and can deploy them as needed.”

Maine does not have a large number of HMOsor other prepaid delivery systems, but the new fed-eral bill offers an opportunity to accelerate theirgrowth. It will require Maine to create a health care“exchange,” through which small businesses andfamilies earning less than $88,200 can purchasesubsidized health insurance.

What is an “exchange?” Think of it as a websitewhere a pool of consumers can shop for the bestdeal on health insurance, in a market regulated bythe state.

Experience shows that an exchange with 20-25percent of the market can use its purchasing powerto reshape the entire medical marketplace. To doso, Maine should create a purchasing pool involv-ing several exchanges that use the same purchasingstrategies—thus acting, in effect, as one pool.

1. The first would be the new federallyrequired exchange, for small businesses and



individuals. Federal law allows states to com-bine these two markets into one exchange andinclude employers with up to 100 employees,both of which Maine should do.

2. The second could include most or all publicemployees and retirees, from state govern-ment, state colleges and universities, local gov-ernments, and school districts.

3. The third would include Medicaid (calledMaineCare in our state) and the State Chil-dren’s Health Insurance Program (SCHIP); itshould be developed incrementally, for rea-sons we will discuss later. The state shouldinvite private employers to join the pool aswell, by creating a fourth exchange they coulduse until federal law allows expansion of theexchange for individuals and small businesses,in 2017.

The exchanges should then ask health insuranceplans to compete for this vast market, based onboth price and quality. Because one health insur-ance company, Anthem, now has 60-70 percent ofthe market in Maine, the exchanges might want tostimulate more competition by setting a limit onhow much of their business one company couldwin. This would help enhance competition andmight even lure new health plans into Maine.

Wisconsin’s insurance program for stateemployees shows how these exchanges couldstructure the competition to bend the cost curve.Wisconsin defines a basic benefit package, askshealth plans to submit bids specifying the monthlydollar amount they would charge individuals andfamilies for this package, then ranks those bidsinto three tiers. Plans in tier one, which are low inprice and high in quality, cost the least for stateemployees.

If they prefer a more expensive plan—becausetheir family physician is not part of a tier-one plan,for instance—they are free to choose it and pay

part of the difference. The vast majority of mem-bers choose tier-one plans, and this fact creates anincentive for health plans to lower their prices.(Maine recently switched to such a tiered approachfor state employees, but its financial incentives forpicking a tier one plan are not as strong as Wis-consin’s.)

Wisconsin put this three-tier approach intoeffect in 2003. In Dane County, which includes thestate capital and the largest state university, thestate employee plan covers more than 20 percentof the private (non-Medicare and Medicaid) mar-ket. State employees there have a choice of fourhigh quality HMOs in tier one. By 2009, HMOpremiums charged state employees in Dane Coun-ty had fallen 16 percent below the average in theother 71 counties.

Wisconsin’s experience indicates that bothpatients and doctors can be satisfied in such a sys-tem, as long as they have choices. It also demon-strates that a government can restrain costs byincluding just 20 to 25 percent of the non-Medicare, non-Medicaid market in this kind of“managed competition” arrangement. This is truebecause most health plans compete for that 20 to25 percent, and when they strive to become moreefficient to capture that market, the changes theymake affect the rest of their business.

There are many wrinkles Maine could use tomake such an approach even more effective. Forexample, to make consumers more careful aboutwasteful use of emergency rooms and doctors’offices, the basic benefit package could include aHealth Savings Account. For more detail on thisand other issues, see Appendix B on page 79.

■ Encourage coordinated care organizationsthat succeed by promoting health and preventing illness.The exchanges described under step two wouldpush hospitals, doctors, and insurance companiesto create the kind of health care organizations thatdeliver better results for less money: integrated,



managed delivery systems that coordinate care fortheir patients. Federal reform requires Medicare toincentivize the creation of such organizations—dubbed “accountable care organizations” (ACOs)in the bill—by allowing them to share the savingsthey generate. Maine’s exchanges should piggy-back on this federal initiative by actively catalyzingthe formation of ACOs.

According to Wennberg and Fisher, who helpeddevelop the ACO concept, regions dominated byintegrated, managed systems have costs up to one-third lower than other areas. Examples of such sys-tems include HMOs like Kaiser Permanente, med-ical groups like the Mayo Clinic, the ClevelandClinic, and Geisinger Health System, and emergingnetworks such as North Carolina’s CommunityCare, which serves 745,000 Medicaid patients.Some of these systems employ physicians as staffmembers, while others pay independent practi-tioners. Some, like Kaiser, are fully integrated, evenowning their hospitals. Others, like CommunityCare, are virtual networks that knit together manyprivate practitioners and hospitals to act as onecoherent system.

Rather than charging fees for procedures, ACOsagree to care for all of a person’s health care needsfor a set price per month. Delivery systems paidthis way have a built-in incentive to bring downtheir costs. They embrace prevention, evidence-based care, electronic health records, a more cost-effective mix of doctors, nurse practitioners, mid-wives, and medical assistants, and other bestpractices.

These factors help such systems deliver higherquality as well. Their integrated nature also helps:Patients fall through the cracks less often. In thefragmented world of most private practices, whena physician refers a patient to a specialist, there isoften no coordination. But integrated, managedsystems typically require that every member havea medical “home”—a physician who acts as his orher primary caregiver and is responsible for coor-dinating his or her care. Maine has already

launched a Medical Home Pilot Project with 26primary care practices. It could boost use of thismodel by requiring that every person buyingthrough an exchange have such a medical home.

Some systems go even further, providing “casemanagement” for patients who consume a greatdeal of health care. Nationwide, one percent of thepopulation uses 27 percent of all health care dol-lars, and five percent consumes more than half ofall medical expenditures. These are people withchronic conditions who require a great deal ofcare, often by multiple doctors. Sometimes thedoctors are unable to coordinate the complex care.Sometimes patients are unable to comply withtheir physicians’ instructions—because they havebehavioral or physical disabilities, for instance. Asa result, they may not take their medications prop-erly; they may not return for follow up visits; andthey may not be following diet or exercise instruc-tions. Case managers work with such patients toensure they do what’s necessary to maximize theirhealth.

Eventually, Maine’s exchanges could require thatall bids come from integrated, managed ACOs. Togive doctors and hospitals time to adapt, however,the exchanges could start by simply creating incen-tives for health insurance plans to shift from fee-for-service reimbursement of doctors and hospi-tals to lump sums for cycles of care for specificmedical conditions (such as nine months ofobstetrical care and delivery, a knee replacement,or a year of treatment for diabetes).

If medical groups had to compete based onprice and the results they produced over a full cycleof care (which could be multiple years), theywould face very different incentives. They wouldbe rewarded not just for performing procedures,but for driving down their costs by eliminatingerrors, managing chronic patients more effectively,providing care in doctor’s offices rather than hos-pitals, helping their patients make healthy lifestylechoices, and the like.

To create this incentive, Maine could dock


insurance plans that stick with fee-for-servicereimbursement in its rating system. To spur con-version to payment for cycles of care, it could cre-ate a web site on which physicians and hospitalswould list their prices and outcomes for each cycle

of care, enabling health plans (and individuals) topurchase the most cost-effective options. TheMaine Health Data Organization already does thisfor procedures.

For more detail on this proposal, see Appendix 2, p. 79.


First, we must keep toxins out of our environment andlive healthier lifestyles—avoiding obesity, tobacco use,abuse of alcohol and drugs, risky sexual practices, andother behavior that leads to disease. Second, the statemust use its enormous purchasing power, through a

series of coordinated exchanges, to force health insuranceplans to compete based on their price and quality. Third,these exchanges must push the market to create integrat-

ed, managed delivery systems that are accountable forkeeping people healthy for a set monthly fee.

If we do these things, we will unleash tremendousinnovation in our health care institutions. They will stopcompeting to deliver the most procedures and begincompeting to dream up new, cheaper ways to preservehealth.

This future is not pie-in-the-sky. It represents anemerging consensus among health care experts, andalmost every idea in this chapter is already workingsomewhere in the country—many of them in Maine. Allare achievable, with the proper application of politicalwill. However, if we follow these steps, we will unleashtremendous innovation in our health care institutions.They will stop competing to deliver the most proceduresand instead begin competing to dream up new, lessexpensive and better ways to improve health.

If we fail to meet the challenges to our health system,health care costs will continue to cannibalize our busi-nesses, our governments, and our schools, devouringbudgets the way Pac-Man once devoured computergraphics. As costs march upward, we will lay off policeand teachers, eliminate extracurricular programs in ourschools, defer maintenance of our infrastructure, andraise taxes. And, we will likely live shorter and unhealthierlives. That is a future none of us want.

ConclusionHealth care is complex, but the outlines of a better future are relatively simple.

THEY ARE also our neighbors, our friends andour relatives. It is time to turn the discussion tothe larger question of the structure of govern-

ment itself and how it functions.

A SHORT HISTORY OF GOVERNMENTIn order to reinvent government, it helps to understandhow it became what it is today. Why is the legislature thesize it is? Why do we have 14 campuses of higher educa-tion? Why do we have almost 500 towns and 16 countiesin Maine?

Most people would be surprised at how often gov-ernment has evolved to reflect changing demands andexpanding or contracting resources. Technology has

played a particularly large role. Throughout history, newadvances in transportation, communications and organ-ization have transformed the lives of individuals, com-panies, communities and – eventually, but usually last -governments.

Maine counties, at one point, were simply verticalstripes down the state. Towns were once immense dis-tances from each other, by the technology of the day, andwere expected to provide most, if not all, of the servicesthat people needed from government. Governors inMaine, along with Presidents in Washington, had almostno staff.

HOW STATE GOVERNMENTS BECAMEBUREAUCRATIC Governments in the U.S. started by doing very little, andby today’s standards they were incredibly limited andsmall. They began to grow in the 1830s, at about thetime of the election of Andrew Jackson, who ran andwon on a pledge to drive the elites and the aristocratsout of government, and return power to the people.

‘To the victors go the spoils’, declared Jackson. Andthat meant patronage jobs to supporters, preference incontracts, and influence. It also meant a change in whatit meant to win elections, the rise of political machinesand an expanding government.

The system of government that came to dominate inthe 19th Century, not surprisingly, came to be known asthe “spoils system.” Tammany Hall and Boss Tweed in


The InefficientSTRUCTURES

of Government It’s not the people in government,

it’s the structures.

The people who work in government care about

the state and its future as much as anyone else. Sometimes more.

They’re generally not any more pleased with inefficient

government, than taxpayers are.

New York City remain the spoils system’s enduring sym-bols. But as the 1800s wore on, the spoils system broughtrampant corruption and began to wear out its welcome.That fueled the rise of a wave of government reformers,from both parties, that became known as the Progressivemovement. Over the decades around 1900, Progressivereformers like Republican Teddy Roosevelt and Democ-rat Woodrow Wilson rallied the public, fought the partybosses of the spoils system and eventually prevailed. Theyinstituted a new way of organizing government that tookpower away from political ‘tribes’ and arbitrary and cor-rupt machines and put it in the hands of professionalcivil servants, operating under a set of rigid rules.

While Maine was largely spared the worst excesses ofthe spoils system, the state hasn’t avoided the worstaspects of the solution that followed.

The Progressives’ main cure for the ills of the spoilssystem was bureaucracy, which became the dominantsystem of American government in the 20th century.Odd as it sounds today, the word “bureaucracy” actuallyenjoyed a positive connotation then, because it overcame

that era’s most pressing government problem: corruptionand the abuse of power.

Reformers turned to industry for inspiration andmodels, copying bureaucracy from the private sector,where it represented the best and brightest in businessmanagement theory and practice, at that time. HenryFord’s assembly line was the epitome of bureaucracy.Other prominent features were hierarchy, specializationand monopoly.

So remember this irony when you next hear com-plaints that government needs to run “more like a busi-ness.” It actually is being run like a business—a businessfrom 100 years ago.

While the spirit of the spoils system was tribal, thespirit of bureaucracy is mechanical. The task of bureau-cratic leaders is to design andbuild optimal machines, keepthem in good repair, and crankout uniform transactions free oftaint.

Discretion had been the keyto the bosses’ ability to hire theirrelatives and friends, selectivelydeliver services, pocket kick-backs, and otherwise do whatthey wanted with public funds.To close any semblance of loop-holes, and to promote “fair-ness,” rules now had to treat everyone the same. Discre-tion by public servants had resulted in abuse, sodiscretion would be exorcised. Government workersneeded to be shielded from political influence and pres-sure. Workers couldn’t be hired or fired, punished orrewarded without strict rules.

Gradually, bureaucratic DNA replaced spoils DNAand reformers curbed the abuse and corruption. Moneywas spent according to the rules—though not every-where or immediately, of course.

With the passage of time, bureaucracy’s benefitsbegan to decline. The private sector realized it first, in the1970s and 1980s. Workers became more educated; theywanted to do much more than bolt part A to part B andsend it on down the line for a 35-year career. Consumersbecame more affluent and demanded more from prod-ucts and services and more in customer service. Theindustrial era gave way to the information age, and tech-


nology created amazing new products and services,along with the capacity to individualize them based oncustomer preferences.

By the end of the 20th century, the private sector hadlargely made the leap from the top-down, hierarchical,industrial model to a much flatter, moreentrepreneurial, employee-empowered,and customer-focused way of doing busi-ness—though certainly not everywhere.Some industries, particularly among thelargest manufacturers, resisted the changeand paid the price—the ‘old’ GeneralMotors being a prime example.

What about government? Without thepressures of customer choice and compe-tition—and with powerful political forcesprotecting the status quo—government’s ability tochange itself has lagged.

As the private sector transformed over the last fourdecades, the disconnect between the way the private andpublic sectors “did business” became more apparent.People became more and more frustrated with publicbureaucracies. Many in politics simply railed againstgovernment and sought to “starve the beast” throughrepeated tax cuts. Citizens created anti-government,anti-tax movements. Today’s “Tea Party” movement isbut the latest expression of the disconnect between the

way people live their lives and the way governmentseems to function.

Much of what is happening today mirrors the move-ments of a hundred years ago, when the public rose upand demanded that the spoils system change. Today the

potential exists for a similar transformation.But the critics still too often mistake theproblem as ‘government’, when a large partof it is actually ‘bureaucracy’.

In most organizations, you get what youreward. In the public sector, we above allreward employees who understand and fol-low rules. We reward longevity over perform-ance. We reward keeping your head downrather than your sights high. There is practi-cally no incentive in government for employ-

ees and managers to innovate, to take risks, and toimprove outcomes or efficiency. The downside of suchbehavior is often swift and severe. We fund the statusquo, not innovation.

If government were a private company, dependentupon sales and investors, it would have fixed its prob-lems years ago. But it isn’t. instead, we have to createpressure for improvement through the politicalprocess.

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I N E F F I C I E N T S T R U C T U R E S O F G O V E R N M E N T


A Tale of Two OrganizationsA good way to understand the difference betweenbureaucratic structures and more entrepreneurialones, in the 21st century, is to hold two organizationsside-by-side: the Postal Service and FederalExpress. The Post Office is built on the old bureau-cratic model and FedEx on a newer, more adaptableone. The post office turns out essentially the sameproducts for everyone. It finds change extremely dif-ficult—thanks in no small part, to be fair, to politicalinterference. It can’t close failing locations servingsmall populations, can’t change or reduce its hoursof operation, is saddled with requirements to serveeveryone, everywhere, and operates under rigid rulesand job classifications. It’s slowly being killed byemail and competitors.

FedEx, on the other hand, must stay nimble andresponsive to survive. For FedEx employees, it’s allabout what the customer wants and when they wantit. Constant experimentation, trial and error and orga-nizational change are in their DNA.

Ironically, with FedEx you pay more and you don’tcomplain. When the post office tries to raise ratesanother two cents, everyone grumbles.

The Postal Service made great sense in the last cen-tury, given the technology of the time. The peoplewho work there probably work as hard as those atFedEx. But they are trapped in a bureaucratic modelthat doesn’t serve them or the public very well. Con-sumer expectations change. Technology changes.And organizations have to change. The public hasbeen moving toward the FedEx model, right down toour cell phones, email and Internet purchasing. Toomuch of government is stuck in the post officemodel.

York

Cumberland

Lincoln

Hancock

Washington

Maine County Map From the Year 1790


WHERE COUNTY GOVERNMENTS FITS INCounty government is an old form of government, withroots in the Anglo-Saxon period of Britain, when kingsdivided their realms into districts called “shires”, whichlater became counties. Over time, sheriffs emerged as thedominant officials of counties. (The word “sheriff” comesfrom “shire reeve.” The reeve was a royal official who keptthe peace.)

Early American settlers, familiar with county govern-ment, brought that form of government with them. In1634, the first county government in the New World wasformed at James City, Virginia. Just two years later, Maine’sfirst county, York, was incorporated. Nine of Maine’scounty boundaries existed by the time of our breakawayfrom Massachusetts, in 1820. The current 16 counties have

been in place since justbefore the Civil War, in1860, when Knox Coun-ty was carved out of Lin-coln and Waldo Coun-ties. In many cases,

counties were incorporated well before towns were.Each county was initially the place where important

papers were held, as they are now, including records ofland ownership, probate and deeds. County seats tendedto be a day or two away – by horseback – from mostmunicipalities.

Despite their history, counties in Maine are far lesspowerful and have far fewer responsibilities than coun-ties outside of New England, where counties grew tobecome the regional government responsible for deliv-ering a wide range of services. In Maine, and in NewEngland, most services continue to be supplied by localand state governments.

HOW LOCAL GOVERNMENT TOOK ROOTEven though the first official governments in Maine werecounty government, power and public participationhappened at the local level. The reason why Maine hasnearly 500 towns and cities is almost entirely a reflectionof geography and technology. When towns were form-ing, and until about 150 years ago, travel and commu-nications were limited by how far people could travel,with a horse or a boat, into town and back before dark.

Where the distance totown became too great, orcrossed a river or other natu-ral barrier, another town usu-ally emerged.

The size of towns wasalso limited by the commu-nications technology of thetime. How did people com-

municate over distances? Aside from word of mouth,there was a primitive early ‘internet’ in those days, even

before electricity andcomputers. That technol-ogy was the bell. The townor church bell could signalupcoming gatherings,attacks or fires. That tra-dition of “sounding thealarm” carried on well into the late 20th century withtown-wide fire sirens and mill whistles.

These two technological limitations – in transporta-tion and communications - is why the standard size oftowns is approximately 6 miles by 6 miles. Limitationson travel and communications also meant somethingelse, which is critical to the discussion of governmenttoday. It meant that almost everything that town resi-dents needed had to be provided in their town. Peoplecouldn’t go two or three towns over for goods or schoolor town meetings. They needed one of everything, in thetown they were in.

Today, of course, we don’t travel by horse, and mostof us don’t live on family farms. We certainly don’t listenfor the town’s bell for major news. Instead, we drive carsand trucks on fast roads, communicate by cell phones thatbeam our voices into space and across the world. Andwhile we might have a home address in one town, few ofus actually live, work, go to school, shop and worship sole-ly within that town’s boundaries. We now live in regionsand we live regionally.

But the habit of having everything in one town hasbeen slow to change. The debate about school adminis-trative consolidation and local dispatch changes illus-trates how difficult it is to let go of that three century-old habit.


I N E F F I C I E N T S T R U C T U R E S O F G O V E R N M E N T

THE KEY to understanding why theLegislature doesn’t work well is tolook beyond size and length of ses-

sions to the number of bills and issues it triesto take up. Under the legislature’s currentrules, legislators, no matter how inexperi-enced or knowledgeable, can submit as manybills as they want each year.

That is an invitation to chaos and ineffi-ciency.

The results of this over-extension shouldnot be surprising. Unimportant work clogs themachinery of government, while critical issueslanguish or get pushed to the future becausethey would take up too much time. Programsand benefits to constituents or governmentemployees, as well as tax breaks to well-orga-nized interests, are created or extended withouta good sense of their long-term cost.

It’s not that legislators aren’t dedicated andcaring, or that they don’t work hard. The Legis-lature is full of good, well-meaning people whoare giving much to the state. But the system isfailing legislators, and the rest of us, at the sametime. The frantic schedule that results from tak-ing up too many bills each year discouragesstrategic thinking and prevents prioritizing andpromotes poor decisions. Over the long-term,extended sessions also make it difficult, if notimpossible, for a representative cross-section ofMaine people to participate in the system.

HOW THE LEGISLATURE IS ORGANIZEDLike every state except Nebraska, Maine splitsits Legislature in two: A Senate, which has 35members, and a House of Representatives,which has 151 members. That means each sen-ator represents about 37,600 people and eachrepresentative has about 8,700 constituents.The state Constitution specifies the size of theHouse, but allows the Senate to consist of 31,33 or 35 members.

All legislators in Maine serve two-yearterms—unlike most states, where representa-tives serve two year terms and senators serve


Maine ranks 40th in totalpopulation in the country, but our

legislature is the nation’s 10th-largest. The cost of the legislature,relative to income, is 132% higher

than the U.S. average and 68%higher than the average of

similarly rural states. Part of thereason why is that the Legislature

tries to tackle too many issues for a“part-time” citizen body.

THELegislature

Unwieldly and Over-Extended

four year terms. Most legislative work is done in 17 commit-tees, ranging from the Committee on Agriculture, Conserva-tion and Forestry to the Committee on Utilities and Energy.Before a bill goes to the full House and Senate for a vote, itmust first go to one of those committees.

Committees hold public hearings where interested partieshave the chance to provide insight – and to argue for oragainst particular pieces of legislation. The Legislature has tworegular sessions during its two year existence. The first year isa “long” session that usually goes from December to late June.The second year’s “short” session goes from January to lateApril.

SUBMITTING BILLSIn the first session, legislators may introducepretty much any bill they’d like, and asmany as they’d like. Typically, they collec-

tively introduce 1600 to 2600 in the first session. In the secondsession, to introduce new bills, they must receive permission

Imagine RunningYour Organizationor Company This WayHere’s one way to look at the problem. Imaginethat you are running a large corporation with15,000 to 20,000 employees. You have a boardof 151 people, most of whom have never run anorganization of any size. Your board meets formore than 100 days each year and divides itselfinto 17 committees. It is also divided into ‘cau-cuses’ that are in constant opposition to eachother.

Peculiarly, nobody establishes the agenda for theboard. Instead, each member is allowed to addagenda items – as many as they wish - and eachitem requires a hearing before one of the com-mittees, and perhaps in front of the entire board.Consequently, the board takes up 2,000 or soitems each year. In any one of them, any boardmember, and for that matter anyone in the state,can come and speak.

The board makes lots of decisions – sometimesin very short time frames - including some of itsmost important ones during the last hours of thelast day of its work each year. But the quality ofthe decision-making is often suspect. Thatleaves thousands of talented leaders and across-section of the state, including people whohave experience running organizations, unableand unwilling to participate.

The company is a mess.

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from the 10-member Legislative Council,made up of the Senate President, the HouseSpeaker and the majority and minority floorleaders and assistant leaders of both houses.The ability to ‘carry over’ bills from the firstsession, though, has become a major loopholein the constitutional intent that the secondyear should be just for emergencies.

TERM LIMITSWhile the governor ofMaine has long beensubject to term limits,

Maine is one of 15 states—and the only onein New England—to impose term limits onlegislators.

Six states – Arkansas, California, Michi-gan, Missouri, Nevada and Oklahoma –impose lifetime term limits, which meansthat once legislators “termed out,” they maynever run for House or Senate again. In Col-orado, Montana and Wyoming, lawmakersmust leave the legislature for at least fouryears before they may run again.

Maine legislators had no such restrictionsuntil 1996, when voters passed a law to pre-vent legislators from serving more than fourconsecutive 2-year terms. The word “consec-utive” is key: Legislators are allowed to serveas long as voters will allow them, but cannot


T H E L E G I S L A T U R E

Maine needs to reduce the legislature’s scope ofwork, so it can spend more time on critical issuesand less time doing paperwork and runningaround frantically. That would also provide anenormously helpful side benefit of allowing abroader cross-section of the population to serve.

■ Allow no more than 5 bills in each two-year session from any single legislator.No single action can more effectively improve theoperations and quality of decision-making of theLegislature than to reduce the workload and pri-oritize what matters. Many states do this, in var-

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serve more than eight consecutive years in the House or eight con-secutive years in the Senate. A too-familiar pattern has emerged,where long-term legislators serve the maximum number of yearsin the House, then flip move to do the same thing in the Senate,and so on.

Most people would agree that term limits have allowed morepeople to serve in the legislature. But they have also decreased insti-tutional knowledge by legislators and shifted power toward bureau-cracies and the governor.

Legislative PayAccording to the National Conference ofState Legislatures, Maine pays lawmakers$13,526 for the first session and $9,874 for

the second. During session, they also receive a per diem rate of$38 a day for housing (or mileage and tolls in lieu of housing)and $32 a day for meals. Legislators also receive the state’s healthand dental insurance and a retirement benefit.

WHAT CAN BE DONE?


T H E L E G I S L A T U R E

ious ways, as does the federal government. Some-times it’s by an overarching committee designedfor that purpose. Other times it’s through legisla-tive leadership or committee chairs. We think it’sbest to let each individual legislator decide whatthey see as their highest priorities. How the num-ber of bills is limited isn’t nearly as important assimply getting it done.

■ Reduce the size of the legislature by onethird, to 25 Senators and 75 HouseMembers, with three house districts ineach Senate district.In the twenty-first century, it simply isn’t necessaryto have a legislature this big. When people traveledby horse and communications were more difficult,it made sense to have many smaller districts. Withcars, email, telephones and the internet, it just isn’tnecessary.

■ Reduce the length of legislative sessions by 50%.If the steps above are implemented, the legislaturewon’t need as much time to conduct its business.Sometimes smaller is better. Limiting the number

of bills that each legislator can sponsor to five ineach two-year session would reduce the overallnumber of bills submitted by as much as 80%.That should allow the Legislature to cut its sessiontime by 50% and still have more time for each bill.

■ Impose lifetime term limits of 12 years on all Legislators.People inside government make a compelling casethat term limits have weakened institutionalknowledge and empowered the people who stayaround the longest – bureaucrats, legislative staffand revolving door legislators. The public gener-ally seems to have another view, which is that peo-ple who spend too much time in Augusta tend tolose touch with ordinary lives. Both argumentshave merit. Term limits have reduced institutionalmemory in the legislature and removed good lead-ers prematurely. But that needs to be weighedagainst people who make government a career,blocking new blood, new energy and new ideasfrom entering the debate. All things considered, alonger term makes sense, but it shouldn’t includea revolving door loophole that allows people tojump from one body of the legislature to the next.

State government pays some of those peo-ple pretty well - by the standards of central,western or northern Maine, very well. Accord-ing to an analysis by the Maine Heritage PolicyCenter, 1007 state employees earned salariesand benefits worth more than $100,000 in2009. We pay $70,000 per year to our gover-nor—the lowest governor’s salary in thenation. But we pay the Secretary of State$83,844, the Attorney General $92,248, theTreasurer $83,844 and the Comptroller$90,355.

The problems of state government are com-plex and difficult. They can’t be solved by mov-ing boxes around on an organization chart orcutting programs across the board. We need torethink the scope of what state governmentdoes, then recode its bureaucratic DNA toincorporate new technologies, modern man-agement approaches and the expectations ofthe 21st century.

A few decades ago, you could still findmajor corporations that were organized andrun like state government. Think 1970s steeland auto companies and you won’t be far off.Top down. Rigid work rules and classifications.It was almost impossible for managers toreward talent and remove incompetence. Fewpeople could do someone else’s job. Customer

WITH ROUGHLY 20,000 full time employees,state government is by far Maine’s largest sin-gle employer – and its largest, most diverse

industry. It is roughly twice the size of our largest privateemployer, Hannaford Bros. Corp, and it employs every-thing from physicians and janitors to road crews, inves-tigators, engineers, clerks of all types, prison guards,economists, counselors, detectives, geologists, judges,librarians…and a governor.


STATEGovernment

A Slow-Moving, Outdated Bureaucracy

Maine has one of the most inefficientrural state governments in

the country.

Cents / $ personal income

The Total Cost of State Government, Maine State vs. National State

10

12

8

6

0

Source: U.S. Census, total town own-source revenue (taxes, fees and charges) as a percentage of aggregate personal income

1972 2008

Maine

8.43

National

7.16

10.89

8.73

Revenue Sources Fiscal Years 2005-09

Sales & use tax: $88.96 M

Service provider tax,General fund: $4.47 M

Estate tax: $5.95 MTobacco tax: $0.6 M

Telecommunications personal property tax: $18.39 M

Real estate transfer tax: $2.0 MGeneral fund: $1.0 M

Other special revenue funds: $1.0 M

Gas tax: $14.3 M

Special fuel: $4.7 MIndividual income tax: $57.34 M

Corporate income tax:$2.44 M

service and quality were posters on the walland little else. Despite decent pay, the culturewas often deadening and morale was danger-ously low.

Companies that operated that way anddidn’t reinvent themselves are largely gonenow. A few were bailed out by government orforeign investors, which almost always forcedthem toward long-overdue changes. The restcollapsed or shrunk to irrelevance.

WHAT STATE GOVERNMENT DOES AND HOW IT’S FUNDEDLike other rural states, Maine provides rela-tively more public services through the stategovernment than through local governments.Maine state government has more than 200agencies, boards, departments and commis-sions that range from the Accountancy Boardto the Workers’ Compensation Board.

Maine’s largest expenditure is education,followed by social services. A May, 2010report estimated spending, see chart at right.

WHO IS IN CHARGE OFIMPROVEMENTS, OUTCOMESAND EFFICIENCY?Listen to an elected official running for re-election and you’re likely to hear of the newprograms and activities created during theirterm. But if you ask them – or virtually any-one in government – when the last substan-tial program was closed down, you’re likelyto get a long pause.

Government sometimes seems frozen intime; able to add but not to subtract. Part ofthe problem is that state government rarelymeasures the efficiency of its work, and con-sequently doesn’t know what to change, evenif it could.

Ask someone in government: How manypeople in your agency have as their full-timejob the task of ensuring that each dollar isspent within the rules? Then ask: How manypeople have as their full-time job the task ofensuring that each dollar produces the best


S T A T E G O V E R N M E N T

results for the people it serves? The contrast is alwaysdramatic.

It’s not that government doesn’t care how the moneyis spent. It just cares that they are spent within the rules.Only one small fragment of government has as its pri-mary responsibility looking at whether or not governmentis maximizing the results achieved with each tax dollar.

CREATING A FLATTER AND LEANER STATE GOVERNMENTMost people who have looked at state governmentsacross the country know that there is a better way to dothings. The problem is getting there. There are powerfulinstitutions that are invested in bureaucracy and the sta-tus quo. Some exist to benefit workers, or protect pro-grams, while others have contracts with state govern-ment. Together, they tend to block change wherever theycan. The status quo is good for them.

The main causes of inaction are predictable. Inertia.Fear. Lack of vision and confidence. And a media envi-

ronment hostile to risk-taking, which is essential to anentrepreneurial government. That isn’t to say that allemployees or organizations that benefit from govern-ment spending resist change. Many are just as frustratedwith bureaucracy and inefficiency as the rest of us. Andthey have an important place at the table.

If you read the earlier section on history, you knowthat our current state government structure and cultureis a product of reforms a hundred years ago that sweptaway corruption and abusive power by installing rigidbureaucracies and insulating them from political mis-chief. That system has since then evolved, primarilythrough labor and work rules, to an institution whichfunctions about as inefficiently as creative human mindscould imagine.

So what is the next stage of evolution for government,and how do we get there? Here are some steps that wouldhelp, based on successful transformation in other gov-ernments.


■ Gradually replace outdated hierarchicalbureaucracy with a flatter and moredecentralized structure.This is not an overnight objective, but a long-range goal that needs to be kept squarely in frontof decision-makers, to guide future changes instate government. It is about changing the ‘DNA’of the organization of government so that it focus-es on results.

■ Engage state employees, managers,elected officials and the public in atransforming state government from the ground up.Most employees know how to save money. Theysee waste all around them. They are not oftenenough asked for their input, so they keep theirmouths shut. a) Finding efficiencies and lowering costs

Many organizations have dramatically

improved their productivity by training theiremployees in process improvement andempowering them to make changes, then shar-ing the savings they generate with them,through a “gainsharing” program. ConsiderSan Jose, California’s self-managed road mark-ing crew—the people who paint the stripes andput the safety dots on the streets and highways.The city trained them to analyze the cost ofeverything they did, while also helping themdevelop the skills to work in a team. In a fewshort years, the team tripled its productivity,which translated into millions of dollars thecity could spend on other priorities.

b) Improving operationsA small set of government processes, such asthe Department of Motor Vehicles in manystates, inflict high-profile pain on citizens. Byidentifying and fixing them, states canimprove citizen satisfaction with government

WHAT CAN BE DONE?


services and save money. Maine should createprocess employee teams and train them inquality management, to improve their workprocesses. Other tools for larger improve-ments include business process reengineeringand information technology.

■ Measure and prioritize all functions ofstate government for value and efficiency. a) Beef up measuring results and audits

Maine government employs lots of people tospend money and track spending, but very fewto independently review results and efficienciesthrough auditing and investigation. The onenotable exception is the Office of ProgramEvaluation (OPEGA) that is controlled by theLegislature. OPEGA should be expanded andmade independent of, and immune from,adverse budget action when it reports its find-ings.

b) Budget for Outcomes, Not Costs Most budgets buy more or less of the statusquo: they start with last year’s numbers, askfor more to pay for rising costs, get denied,and cut costs and services to make the budgetmath come out. Budgeting for outcomesfocuses on outcomes that citizens value, notcosts. It starts with an agreement on totalspending (the price citizens pay for govern-ment) and outcomes (the priorities citizenswant from government). Programs don’tmake status quo budget requests, they makeproposals to deliver specific results at a specificprice. Through a ranking process, those pro-posals that deliver the most value for themoney are included in the budget; those thatdeliver the least value are eliminated. Thecompetition between programs for scarceresources drives creativity, as program man-agers look for new ways to deliver betterresults for less money.

This process should include all forms ofspending, including all tax incentives andother subsidies, such as fees that do not fully

cover the cost of services. By examining sub-sidies, Maine’s leaders could make consciousdecisions about who should be subsidized andwho should not.

c) Manage for Results State governments needs to measure theresults (outputs and outcomes) of all of itsactivities and review performance regularlywith the relevant managers. Every unit of stategovernment should have a “balanced score-card” of performance goals, against whichprogress should be reviewed at least quarterly,to examine what is working, what isn’t, and tolearn how to improve results. Rewards shouldbe established for high performance, withpenalties for low performance.

d) Contract for ResultsPerformance contracts make contractorsaccountable for the results they produce byincluding rewards for high performance andpenalties for poor performance. They shift thestate’s focus from paying for inputs or meetingspecifications to producing outcomes. Per-formance contracts can be written for manyrelationships: The governor’s office with cab-inet secretaries, secretaries with departments,department heads with managers, state gov-ernment with local government, and state gov-ernment with private contractors. These con-tracts should be accompanied bysimplification of reporting and red tape, tomaximize performance. Opportunities toemploy performance contracting exist in allaspects of state government, particularlyhuman services, health care, construction, andmaintenance.

■ Eliminate outdated red tape andunnecessary programsa) Sunset all programs for full review every

five years.Times change and so do expectations of gov-ernment. But we can’t only grow governmentin response to new demands, we also need to



learn to shrink it, by allowing programs that areno longer serving a vital function, or that areduplicating other programs, to simply go away.

b) Create “Charter Agencies”Agencies regularly complain about the redtape and bureaucracy that frustrates their abil-ity to perform. Charter Agencies pioneer anew, bureaucracy-busting deal. Agencieswishing to be chartered commit to producingmeasurable improvements in results at lowercosts. In return, they are freed from red tapeby being given waivers to certain rules, as wellas special authorities (for example, to borrowfrom a loan fund to invest in improvement).Iowa’s six Charter Agencies saved taxpayersmore than $90 million in their first three years,while dramatically improving results.

c) Reform Administrative SystemsAdministrative systems, including budgeting,accounting, procurement, human resourcesand auditing are, in the current systems, theprimary keepers of the bureaucratic rules.They are far more powerful than all the pro-nouncements made by elected officials ordepartment heads. That’s why governmentemployees often call those organizations “con-trol agencies.” They were designed as an anti-dote to the corruption and administrativechaos that reigned 60-100 years ago, but theyhamstring managers and employees, ignoreresults, and oftentimes create colossal waste.

Their first assumption is that people cheatand therefore must be controlled—that’s whyit often takes as many as nine signatures torelease an expense check. It’s also why driversin some states can get a license renewed in 15minutes, but it can take an employee sevenweeks to get reimbursed for a travel expense.By modernizing these systems based on prin-ciples of flexibility and accountability for per-formance, the state can get significantly betterresults for less money.

■ Use Competition to Drive Innovation and Efficiency Not every part of government can be subjectedto competition. Some things should be exclusive-ly done only by government. But there are stillplenty of areas where internal and external com-petition can sharpen thinking, reduce costs andimprove results. a) Competitive Contracting

Competitive contracting opens up servicedelivery decisions to the power of competition.The most obvious method is simply outsourc-ing to the private sector. (This should not bedone when it would jeopardize important pub-lic goals like safeguarding rights, create a pri-vate monopoly, or leave critical public capabil-ities like emergency services at risk). A betterway, in most cases, is to allow public agenciesto bid against their private competitors, anapproach called “managed competition.” Thistypically yields 20-30 percent savings on its firstiteration, no matter who wins.

If a full contracting process is not possible,the effect of outside competition can be simu-lated using a ‘bid to goal’ process that usesexternal benchmarking to set a target for inter-nal bids. A labor-management team is thenformed and asked to figure out how to meetthat target. If its bid meets the goal, the con-tract proceeds. If not—or if the agency fails todeliver on the bid price—a second roundinvites outside bidders.

b) “Entrepreneurial Management” of Internal ServicesEntrepreneurial management makes someinternal service organizations “earn” their rev-enue by selling to other agencies, often incompetition with private providers. Suddenly,survival depends on how well they please theirfellow government customers and at whatprice. Many governments have turned theirmaintenance, printing, training, data process-ing, vehicle fleet, and other internal service


operations into competitive enterprises. Iowa,Minnesota, Milwaukee, the Edmonton schooldistrict, even Australia and the United King-dom have used this approach, which can save10 percent a year for several years.

■ Make Service Organizations MoreAccountable to the PublicThe public often expects lousy service from gov-ernment, and it too often meets their expectations.The public deserves better. State agencies thatserve the public should ask what they want, thencreate service standards and guarantees, defininghow long they must wait, turn around times, qual-ity levels, and so on. To be effective, these must bepublicized, and they must come with conse-quences, as part of the overall performance man-agement system. When they are not met, agenciesshould be expected to make it up to the customerthrough some form of redress, such as refundinga permit fee. Publication of service standards actsas a pledge of accountability, motivating staff andbuilding trust with clients.

■ Manage Buildings and Other Assets MoreEfficientlyIn most jurisdictions, capital dollars are budgetedseparately from the operating budget. Further,debt service, maintenance and operating costs areoften not paid by the department or agency con-suming the capital. The result is that capital(buildings, vehicles, machines, computers, etc.)looks ‘free,’ and departments want as much asthey can get. However, a state could requiredepartments to pay their own debt service, oper-ating and maintenance costs out of their annualbudgets, while also giving them the flexibility to

reallocate resources to support their capital/investment needs. Or the state could charge thedepartments a set asset fee (for example, 1.5 per-cent of the asset value per year) to cover some ofthese costs, as New Zealand does. This wouldreduce capital requests and encourage depart-ments to sell unused and low value assets. To fur-ther encourage sales, departments should beallowed to keep -- or at least share -- proceedsfrom asset sales.

■ Re-invest in ImprovementsIn business, it takes money to make money. Ingovernment, it takes money to save money. Cap-turing savings while providing citizens with thesame or better results requires changing the wayservices are delivered, financed and managed.This usually requires one-time, up-front invest-ments.

In the midst of fiscal crisis, finding money forsuch investments is difficult. The best approachis to fund change from the savings it generates. InIowa, for example, former Democratic GovernorTom Vilsack cut a deal with the Republican-ledlegislature for the FY 2004 budget. He proposedbroad opportunities for reinvention that were like-ly to save money, estimated the savings, and put anegative line item in the budget for ongoing sav-ings of $88.5 million, minus a one-time $25 mil-lion investment to achieve them. The legislatureagreed to make the eventual statute changes nec-essary to accomplish the reinvention. The savingswere taken and the investments promised beforethe actual program changes were worked out. Ver-mont’s Republican governor and Democratic leg-islature did the same thing this year.


ASK PRETTY MUCH any schoolchild in Maine toname the Maine counties and he or she likely will

start singing the “Maine Counties Song.” Sung tothe tune of Yankee Doodle, it begins, “The sixteen countiesin our state are Cumberland and Franklin,” and goes on tolist the other 14. Ask the same schoolchild – or manygrownups, for that matter – what the counties do, and you’remore likely to get a stumped look.

County governmentin Maine – really in allNew England – is apeculiar creature:Counties are physicallylarge but have limitedauthority over the terri-tory they encompass.They are governed byelected commissionerswho, in some cases,

cannot set budgets. They provide important servicesbut can’t pass ordinances or send tax bills directly totheir residents.

New England has a tradition of limited countygovernment. State and local governments in theregion have far more authority than counties. Thethree southern New England states have even morelimited county government than Maine. In Con-necticut, Rhode Island and half of Massachusetts,counties are exclusively geographic areas; they donot have governments.

Maine’s Constitution says very little about thestate’s counties. In fact, the Constitution uses theword “county” or “counties” only four times. TheConstitution says that sheriffs, judges of probate andregisters of probate “shall be elected by the peopleof their respective counties.” In addition to an elect-ed sheriff, judge of probate and register of probate,each county elects a register of deeds; a county treas-urer; and a three-member board of commissioners(except York, which has five commissioners). Countyofficials are elected to four-year terms. Unlike localgovernment, most county elections are party-based,which can be a cause of friction with towns, whichare generally non-partisan.

The counties, of course, employ other people, aswell. Each county has an emergency managementagency, communications department and, depend-ing on the county, some others. The most populouscounty, southern Maine’s Cumberland, employs 406people and has a budget of $40 million. The leastpopulous county, western Maine’s Piscataquis,employs 76 people and has a budget of $4 million.

Otherwise, county authority – such as it is – is

Maine needs more services to bedelivered at a regional level, but

most of today’s counties aren’t setup to take on a larger regional role,

and too many towns and stateagencies lack confidence in their

ability to do more. So while manytowns are working with counties,

others are forming regional andmulti-town collaborations. Thischaotic pattern of change could

become a fourth level ofgovernment, if we’re not careful.

Maine’sSixteen

COUNTIESWhat Role Do They Have in the Future?


granted by the state Legislature. They are allowed to enact their own chartersand through the creation of agreements with local communities can delivervirtually any service. Counties are funded primarily by property taxes,although they collect other money from fees they charge for services. Of thesixteen counties, 12 now have full-time professional managers.

So what do counties do? Registers of deeds collect real estate transfer taxesand handle real estate documents. Probate Courts are responsible for wills,name changes, adoptions and certain other legal matters. (A past proposal totransfer responsibility for real estate matters to the Secretary of State’s Officegained little traction. Several proposals to have the state take over probatecourts have also failed.)

Additionally:■ Sheriff’s deputies patrol roads and handle law enforcement for unorgan-

ized territories and for many towns. Just this past February, voters at aspecial town meeting in Bethel decided to disband their police depart-ment and contract with the Oxford County Sheriff’s Office for service.

■ Counties provide most of Maine’s District and Superior courtroom space.■ All 16 counties share a “risk management pool” – a self-insurance plan

providing property and liability coverage.■ Hancock, Knox and Oxford County operate county airports. Aroostook,

Somerset and Washington Counties help fund airports.■ Until 2008, counties operated jails. They now substantially fund the newly

created state/county unified corrections system, which is overseen by theState Board of Corrections. The state operates jails, but counties own them.


M A I N E ’ S S I X T E E N C O U N T I E S

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■ In unorganized territories – parts ofMaine that have no municipal gov-ernments of their own – countiesmaintain roads and provide policeservice and garbage disposal.

FRICTION BETWEEN COUNTIES AND LOCAL GOVERNMENTMaine gives “home rule” to municipal-ities, but not to counties. That means theMaine constitution says that powers notspecifically given to the state belong tomunicipalities. Cities and towns areallowed to pass local ordinances, butcounties are not.

State law prohibits counties fromsending tax bills directly to residents.Instead, counties bill individual munic-ipalities for services, and towns then billcitizens on behalf of counties. In somecounties, budget committees made up ofmunicipal officials have the authority to

reject county budgets. As a result, tension occasionallyerupts between commissioners and budget committeemembers.

COOPERATION BETWEEN COUNTIES AND MUNICIPALITIESWhile tension exists between counties and municipalities,the two forms of government do occasionally and suc-cessfully work together. Although some municipalitiescontinue, for example, to maintain their own public safe-ty answering and dispatch services, counties, increasingly,are handling that task.

In Cumberland County, the county communicationscenter provides dispatch service for 13 of 28 municipal-ities. The largest of those municipalities is Windham.Gorham, which began making use of the county’s dis-patch services in 2005, claims to have saved $1 milliondollars by working with the County. In the years since,officials estimate Gorham has saved $1 million. Gray isalso saving about $200,000 per year by contracting withthe county dispatch center, and Casco, Naples and Ray-mond have recently jumped on board. Additionally, 10counties are the sole “Public Safety Answering Points” or

dispatch centers for their individual municipalities.Counties have expressed a willingness – even a desire

– to provide creative new services.

For Example:■ Cumberland County is the only county in New Eng-

land to have its own community development blockgrant program. Of the county’s 28 municipalities, 24participate. The program, overseen by officials fromeach of the 24 participating communities, received$1.4 million from the federal Department of Hous-ing and Urban Development in 2007 and again in2008, to disperse. Among other projects, it funded$30,000 toward a playground in Harrison, $65,000for septic system replacements in Harpswell and$200,000 toward a sewer leach field reconstructionin Bridgton.

■ A number of counties operate their own solid wastemanagement systems. Lincoln County has operateda recycling program for 20 years. Franklin, Oxford,Penobscot and Piscataquis Counties have regionalsolid waste planning commissions. The formerRegional Waste Management in Cumberland Coun-



■ Replace the existing 16 Counties with 8 New CountiesJust as is the case with the Legislature districts, theold district lines have very little relevance today.We have eight counties with over 1,500 squaremiles of territory, while eight others are less than1,000 square miles. The largest county, Aroostook,

is 6,672 square miles, which is equivalent to 258miles x 258 miles. The smallest is 254 squaremiles, or the equivalent of 16 miles x 16 miles.The boundaries of counties, when they wereestablished, had more to do with land grants andthe limitations of travel by horse or boat thananything else. Now you can travel through 3-4

M A I N E ’ S S I X T E E N C O U N T I E S

ty, now called Ecomaine, is owned by 21 municipal-ities, has another seven “associate members” andservices an additional 10 contract members, includ-ing municipalities in Androscoggin, Kennebec,Oxford and York Counties.

Maine has other examples of regionalization, as well.■ Until 1975, each county had its own elected county

attorney, who prosecuted crimes. In 1975, the countyattorney system was replaced by a district attorneysystem. Under the new plan, the state created eightregional Prosecutorial Districts. Of the eight, three –Aroostook, Cumberland and York – cover a singlecounty each. The others are:

■ Androscoggin, Franklin and Oxford Counties■ Kennebec and Somerset Counties■ Penobscot and Piscataquis Counties■ Knox, Lincoln, Sagadahoc and Waldo Counties■ Hancock and Washington Counties

HOW COUNTIES WORK ELSEWHEREIn many Southern and Western states, counties handlemajor responsibilities for human services such as welfare,food stamps, child protection, and health care. Los Ange-les County, with 9 million residents, 110,000 employeesand an annual budget of $23.6 billion, is larger thanmany state governments.

New England’s reliance on towns and cities, ratherthan on regional governments, hasn’t made counties irrel-evant, but has made it more difficult for them to emergeas true regional service providers. The problem is not so

much that counties don’t have the authority to engage inmore regional activities - they could provide far moreservices than they do now, through agreements withtowns within their county and with the state - but townsand state agencies haven’t turned to counties, in manycases, to do that. Many town and state officials seem tohave a widespread lack of confidence in the ability andreadiness of counties to do more than they do now.

WHAT CAN BE DONE?


counties, in some cases, with a two hour car ride.We need counties that better reflect the way the

state has developed, economically and demo-graphically, and that better reflect the way thateconomic ‘regions’ of the state have developed.

The state also needs to agree on where thoseregions are. Currently, state government agencieshave a mind-numbing array of ‘districts’ thatthey work within, in many cases only barely relat-ed to current counties lines or administrations.At the same time, towns are increasingly cooper-ating with other towns, and sometimes withcounties, to create new regional collaborations. Ifyou put all of those things on a map, overlaid,you’d have the definition of chaos.

The best way to begin to seriously movetoward regional service delivery – where it makessense – is to re-imagine counties. We can start bycombining some of the smaller ones, and othersthat cross natural regions.

■ Set up ‘New Counties’ to provide moreregional servicesFew counties are ready to emerge as the regionalservice deliverers of tomorrow, providing region-al solutions to problems like road maintenance,plowing, public safety, communications oradministration. If they were, more of those activ-ities would already be provided by counties.Counties need to be re-organized to step into anew and more challenging role.

■ Improve the professionalism of NewCountiesOne part of preparing New Counties for a largerregional role is to ensure that they are betterstaffed, trained and organized to take on greaterresponsibilities. This means new and higherstaffing expectations, training and goals, consis-tently applied across all counties. All countiesshould also have professional management.

■ Increase the number of New Countycommissioners to 9, to make them morerepresentative of county-wide interestsPart of the disconnect between counties andtowns is the fact that most towns, even the small-est of them, have 5-9 elected officials to run andadminister the town. Most existing counties haveonly 3 commissioners. One way to make countiesmore representative and responsive, and toincrease the confidence that towns and the statehave in counties, would be to increase the size oftheir boards to 9. This is an area where the repre-sentative body of government, unlike the Legis-lature, is simply too small.

■ Appoint, rather than elect, all countymanagers, officials and staffOne way to ensure a transition to professionalismis to move beyond the anachronistic notion ofelecting staffers for the county. We don’t elect thehead of the local police force, or the librarian intown, and we shouldn’t be doing that for coun-ties, either. Let’s elect commissioners to overseecounties, and leave the hiring of professionals andmanagers to them.

many towns and cities Maine has, you’re likely toget five different answers. The U.S. CensusBureau says Maine has 489 local governments.The Maine state government website lists 491cities, towns and townships. They range fromPortland, which has a population of just morethan 64,000, to Frye Island, which has no year-round residents (the island is in Sebago Lake,which freezes in winter, making the island inac-cessible by ferry).

We do know that Maine has more local gov-ernments than any other state in New England –roughly one town, township or city for every2,500 people, and more than one local electedofficial for every 800 people. Massachusetts,which has a population five times larger thanMaine’s, has 138 fewer governments. At the timeof the last national Census of Governments, thenation averaged about one local government forevery 5,500 Americans. Still, when Maine is com-pared to similarly rural states across the country,four out of five have more towns per capita, anda high number of towns isn’t unusual for smallrural states.

Why do we have so many towns? It is mostly

Local government in Maine, if youinclude schools, employs about

twice as many people as stategovernment. If you take out

schools, local government is about2/3 the size of state government.

LOCALGovernment

Can We Afford One ofEverything Everywhere?


AGOOD DEAL is made about how manytowns we have (just under 500) and

how expensive there are, or at least seemto be to local taxpayers. The numbers, though, tell amore complicated story. If you took schools out oflocal budgets, which represent 71% of local budgets,the remaining 29% of spending—on public works,public safety and municipal services—matches upwell with other local governments across the coun-try. In fact, Maine town services cost 33% less thantowns in other rural states.

That isn’t to say there isn’t more that can be donethrough collaborations and regional service delivery,to bring costs down and improve services at the sametime. The key is to figure out how to help towns dothat, and how to evolve a system that has been work-ing well, in many areas, for more than two centuries.

HOW MANY TOWNS DOES MAINE HAVE?If you ask 5 agencies in Augusta or Washington how

about the horse. Towns were created toaccommodate how far citizens could travelby horse or cart from the farm to town andback, before dark. The answer isn’t muchmore complicated than that.

HOW MANY PEOPLE WORKFOR LOCAL GOVERNMENT?Most cities and towns in Maine are small –about half of all Mainers live in towns withpopulations of less than 5,000. Local gov-ernments in Maine have 258 professionalmanagers or administrators, 114 policedepartments and 405 fire departments.Many also have public works departmentsand recreation departments.

Especially in the smaller towns, localofficials do a pretty good job of keepingcosts down. But studies in the last decademake it clear that once a town gets to a cer-tain size, somewhere around 2,500, costsbegin to climb as residents demand moreservices and the limits of voluntary servicesare reached. That is one of the reasons whyit’s difficult to generalize about the ‘cost’ oftowns. Small towns with limited servicesand many volunteers have very low costs.Rapidly growing communities withexpanding demands for services, on theother hand, can quickly become veryexpensive to run.

HOW DO WE PAY FOR LOCALGOVERNMENT?Cities and town collect about 85 percent oftheir income from property taxes; in 2009,that worked out to $1,750 per year for eachMainer, or 4.8 percent of personal income.Most of the additional 15 percent ofmunicipal revenue comes from excise taxeson motor vehicles and boats.The nonpartisan Tax Foundation in Wash-ington, D.C., estimated in 2007 that Maine

How Much Local Control is there, Really?Local control is a cherished concept in Maine. Discussions of politicsand government often include a reverent tribute to its importance. When people use the term ‘local control’, they tend to be talking aboutdifferent things. To some people it means local government whereelected officials are more accessible. To others it means local spend-ing and programs that employ people in town.

Whatever the definition, in the 21st century local control isn’t exactlywhat it used to be. We still elect people at the local level, and theyhave lots of meetings and make plenty of decisions, but more andmore matters are outside of their control. Here’s why. When peoplelived, worked, shopped, learned and played in one town, it was a loteasier to exert ‘local control’ over events. Now, of course, while we allreside in one town or another, we rarely do everything in that town.We may live in one town but work in another. Perhaps we shop in stillanother town or go to school somewhere else. With modern trans-portation and communications, we increasingly ‘live’ in regions. Thatmay be one of the reasons why interest in local politics seems to bedeclining in many towns and cities across the state.

Decisions that we used to think were locally controlled are now decid-ed elsewhere. The federal and state government set environmentalstandards. State funds direct and influence school decisions. Majortransportation decisions are often made in Washington and Augusta.

Even local priorities such as zoning aren’t really fully under the controlof local communities. The flow of traffic today almost always extendsacross municipal boundaries, and the decisions that one communitymakes to site a development can often have major effects on neigh-boring towns. Consider, for example, the Maine Mall, which drawstraffic from many communities and affects traffic in nearby municipal-ities. Those nearby municipalities have no “control” over South Port-land’s decisions about the mall – even though those decisions directlyaffect them. Nor does South Portland have anything to do with deci-sions affecting them that are made in Scarborough or Portland.

When it comes to the important, money-driven decisions, many issuesthat affect our day-to-day lives are not decided by our – or any single- local governments. Towns and cities more often react and respondto others, rather than control their destinies. What towns are left with,that they do control, really boils down to providing local services likepolice, fire, road maintenance and dispatch.


had the ninth highest per-capita local property taxes inthe country. Five of the 10 states with the highest percapita local property rates were in New England (the soleNew England state not in the top 10 is Vermont, whichhas one of the lowest per capita local property tax ratesin the nation).

Maine has the lowest per capita income on this list,and its property tax burden is 4.55 percent of personalincome. Connecticut, with the highest per capita incomein the nation in 2007, had per capita property taxes equalto 4.27 percent of personal income. New York's rate is3.44 percent.

REGIONAL COLLABORATION TO IMPROVEEFFICIENCY AND LOWER COSTSWhen Maine organized its towns, distance and weathermade travelling by horse difficult, so people needed tohave everything they used most in one place.

As Maine moved into the automobile era and morepeople moved from farms to towns and from towns tosuburbs, we began to live more “regionally.” But it hasbeen a struggle for towns to adapt to these new regionalrealities.

Most people still want everything to be done in theirtown, but they also want lower taxes. With shrinkingpublic resources, frustrated taxpayers and growing pres-sures on towns as the population has aged and volunteers

have dwindled, many have been seeking out new ways toreduce costs. One of the most obvious ways has been tocooperate in service delivery, either through multi-townagreements or through their county.

Over the last 20 years, Mainers in virtually every cor-ner of the state have been discussing how to regionalizemore services. It’s been a difficult and complicated dis-cussion, to say the least, mostly because there isn’t any‘one-size-fits-all’ approach. Some small towns that relyon volunteers have costs far lower than larger service cen-ters. For them, regionalizing service delivery might actu-ally drive up their labor costs, though it might save themin other ways or improve services overall. On the otherhand, larger towns and cities reflect an entirely differentset of problems, as they tend to build and maintain inde-pendent, redundant public safety, public works and fireprotection services, in some cases almost directly besideeach other.

In other parts of the country, counties are the naturalregional level of government. But many towns have beenreluctant to turn to counties to provide more of theirservices. The reasons for that go beyond a desire to main-tain local control of services. It is also a result of wide-spread perception among local officials, fair or otherwise,that counties have archaic organizational structures,unclear and unpredictable management systems and lim-ited oversight from voters.

That lack of confidence in counties, by both state andlocal officials, is leading to a patchwork of local collabo-rations by towns, and a myriad of regional definitions bystate agencies. The Maine Department of EnvironmentalProtection, for instance, has broken the state up into fourregions. The state Department of Transportation has bro-ken Maine up into five regions. The Department ofHealth and Human Services has divided Maine into eightregions.

Here are just a few examples of recent efforts to collab-orate, which seem to be accelerating across the state:

■ Recently, the towns of Falmouth and Yarmouthagreed to have Falmouth handle their public safetydispatching, while Freeport contracted withBrunswick.


L O C A L G O V E R N M E N T

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■ Fort Fairfield, Limestone, Connor and the Lime-stone Development Authority share fire depart-ment personnel and equipment in an inter-localrelationship called Aroostook Fire District #1.

■ Interest by city and town managers and businessleaders in Rockland, Camden and Belfast resultedin a regional group to address the economicdevelopment needs of the area.

That trend will need to expand and accelerate,given the demographics described under the TickingTime Bombs section.


■ Help towns save money by sharing andregionalizing services, such as RoadMaintenance, Public Safety, Fire, Valua-tion and Communications. Investmentsneed to be made to accelerate change. Most towns in Maine are pretty close to the groundand have done a good job of holding down costs.There are exceptions, of course, particularly insome of the suburban areas in faster-growingsouthern Maine and in some service centerregions. Many towns have been working to region-alize services, where they could and when they hada good partner. And most towns will do more, ifthey can see savings for their taxpayers. But changeinvolves more than creative ideas and courage. Italso costs money. The state should create financialincentives and assistance for towns to implementmore regional service delivery.

■ Measure cost savings, then demonstrate themThere are many instances in which an economy ofscale will lower costs to taxpayers. And there areundoubtedly some that won’t. Many people haveassumptions about savings, on one side or the other,

that aren’t borne out by investigation or fact.Regionalizing services can’t be done simply becauseit intuitively make sense, or for its own sake. It hasto be done where it can improve services and lowercosts.

To enable that to happen, Maine needs independ-ent and trustworthy research on where savings canoccur, by regionalizing, that would provide the sameor better services. Absent that neutral, trusted data,it’s hard for anyone to move forward, and we endup with little more than competing anecdotes andstrongly-held opinions.

■ When New Counties are organized tobetter deliver services regionally, theyshould become the preferred provider ofregional services.The last thing the state needs is to continue downits current path of a mishmash of county, regional,quasi-regional and multi-town districts. To theextent possible, the New Counties ought to handleregional service delivery. That isn’t to say therewon’t be times when multi-town cooperation willwork better, but that shouldn’t become the begin-nings of a fourth layer of government.

WHAT CAN BE DONE?

In 2008, Maine spent $2 billion, in combinedstate and local dollars, on K-12 education. Thatworked out to $13,513 per student – 25 percentmore than the national average of $10,259 perstudent, and more per student than all but nineother states. During the last few years, eighth-grade math scores plummeted from 1st placenationally a decade ago to 24th place in 2007.The dropout rate increased from 3.09 percentin 1998 to 5.17 percent in 2007.

In 2009, only 37 percent of Maine’s eighth-graders tested as “proficient” in reading – whichmeans 63 percent failed to meet standards. Thatsame year, only 36 percent of our fourth-graderstested “proficient” in reading. Maine college-bound seniors scored below the national aver-age in mathematics, writing and critical readingon the 2008 SAT taken by 11th graders. Part ofthe reason is that in Maine all students take theSAT, along with New York and Massachusetts.But both of those states scored much better thanMaine.

It’s tempting to attempt to blame our highcost for public education on geography, sincesome parts of Maine are so sparsely populated.It’s also wrong. Maine ranks 38th in populationdensity nationally, with 42 people per squaremile. Alaska, Idaho, Kansas, Montana, Nebraska,Nevada, New Mexico, North Dakota, Oregon,South Dakota, Utah and Wyoming each have

While those investments in public education need tocontinue, and perhaps even expand with moreattention on early childhood development,

streamlining and refocusing the system – and getting morereturn on our investment - is essential.

Mainers have made a big and criticallyimportant investment in public

education over the last 30 years. Mainenow ranks 4th highest in the nation in

the percentage of local governmentpayroll devoted to education.

PUBLICEducation

High Cost, FallingEnrollments and

Declining Results


lower population density than Maine, and in the 2003-2004 school year, each of those states spent less per stu-dent than did Maine.

DECLINING ENROLLMENTS BUT GROWING STAFFINGBetween the 1997 and 2009, enrollment in Maine schoolsfell from 213,867 to 184,936 in 2009. But districts didnot make commensurate reductions in their teaching oradministrative staffs. In fact, net spending per studentgrew 9.3 percent between 2002 and 2007 (versus 8.9 per-cent nationally), If we’re spending so much money andgetting such poor results, what are we doing wrong? Thenumbers and experts point to several areas of concern:

Student-teacher ratiosMaine has the second highest ratio of teachers to studentsin the country, with 11.3 students for every teacher. Thenational average is nearly 15.8 students for every teacher.

Other rural states, including Iowa, Kansas, Montanaand South Dakota, perform as well or better than Maineon the National Assessment of Educational Progress andhave a ratio of about 13.5 students per teacher. A decadeago, Maine’s ratio was closer to those states – about 14students per teacher.

Teacher to non-teacher ratiosIn 2009, about 16,000 teachers worked in schools inMaine, along with roughly 22,000 non-teachers: admin-istrators, aides, nurses, custodians, and other staff. Mostof the growth in funding of schools in recent years hasgone to non-teacher employment.

The Number of School DistrictsMaine people have long valued local control of schooldepartments, even when it has prevented them from tak-ing advantage of economies of scale. In 2007, the MaineLegislature passed a school reorganization law thatreduced the number of school units from 290 to today’s215. Of the 215 school units in Maine, 40 do not operateschools of their own, but instead send students to schoolsin neighboring districts. Of the 178 school units thatactually operate schools, 60 have fewer than 25 teachers.


2006-2007 Average School SizesIn many cases, excessive local control comes not only atthe cost of economies of scale, but of quality. As theMaine Center of Education Policy and Applied Researchreports, “There are approximately twice as many lowerperforming, less efficient schools and school districts asthere are higher performing, more efficient schools anddistricts; lower performing districts are only about 1/3the size of higher performing districts, yet the lower per-forming districts have approximately 25 percent more

staff per pupil; system administration costs per pupil inlower performing districts are 80 percent higher thanthey are in higher performing districts.”

Special EducationOur percentage of students designated as special educa-tion students is 30 percent greater than the national aver-age, and we now rank 3rd in the country in that category.

Research by the Maine Center of Education Policyand Applied Research shows that Maine’s comparativelyhigh poverty levels do not account for the high incidenceof students in special education here. Rather, our iden-tification guidelines make more students eligible for spe-cial education than do national guidelines. Further,guidelines are inconsistently applied even within thestate. The same student would be placed in special edu-cation in one district, but not in another.

Maine children with special needs deserve appropri-ate services, and the state should continue to ensure thatthey receive such services. But the way we do that shouldmake sense. Former Maine Education CommissionerSue Gendron estimates that if the state’s identification

guideline matched the national average, Maine couldsave more than $60 million per year.

Two factors may be driving this high use of specialeducation in Maine schools. One is the desire to getmore money into the local system. The other is theabsence of ‘alternative’ schools, forcing parents towarda special education designation to get additional servicesfor their child.

Length of school yearMaine’s allows its school year to be as short as 175 daysper year. The national average is 180 days, both of whichare well short of the federal government’s suggested 200days per year.

The ‘One Size Fits All’ DilemmaWe have public schools built largely on a “one-size-fits-all” model, because they must try to meet the needs ofall students in their community. We once thought thiswas the only fair way to provide public education: totreat every student the same. But educational psychol-ogists have long since proven that there are multipleforms of intelligence and multiple styles of learning—which means a one-size-fits-all school may be profound-ly unfair to the majority of its students.

To deal with this reality, many states have createdhundreds of alternatives to the traditional publicschool: charter schools, alternative schools, magnetschools, even “second chance” schools for those who


P U B L I C E D U C A T I O N

have dropped out or are in danger of doing so. YetMaine has very few alternative schools. This may be onereason why school districts have classified so manyMaine young people as needing “special education”—because they don’t fit the typical school model, andthere is nowhere else to put them.

Maine cannot afford to educate only 37 percent of itsstudents to proficiency, if we are to thrive in today’s glob-ally competitive information economy. We need to tap thetalents of every student. We can only do that if we providealternatives that fit the learning styles of every student. In

a rural state like ours, this is no easy task. There are limitsto how many alternatives we can provide in much ofMaine, because of the way people are thinly spread insome areas, although the Internet offers wonderful oppor-tunities for distance learning, and many states are farahead of us in taking advantage of those opportunities.

As we create more alternatives, we need to knowwhich ones are working and which aren’t. Maine hasmade a good start on collecting and analyzing data thatpermits Mainers – policymakers, educators, parents andother interested parties – to track performance. But weneed a better system of identifying failing schools. Ourcurrent standardized tests only provide a snapshot ofhow each grade level is doing each year, compared to howthe grades above it did last year and the year before. Sincesome age groups are better students than others—par-ticularly in small schools—this data tells us nothingabout how students are progressing from year to year.

We should take a hard look at creating a testingapproach that tells us whether our students have done ayear’s learning in a year’s time. In Tennessee, for instance,principals get data showing the average gain of studentsin every teacher’s class, every year. Some teachers regu-larly help their students gain more than a year, some less.Principals use this information to meet with teachers,give them the training and coaching they need toimprove, and ultimately remove them if they prove inca-pable of helping students make adequate progress.

Tennessee’s data shows that in elementary school, if a stu-dent has a poor teacher for two years in a row, he or she rarelyrecovers. No state can afford to let its students fall behind andnever catch up. Yet in Maine, we do not even measure howmuch learning each teacher’s students have done each year.


■ 1. Move Maine toward the nationalaverage on student-teacher ratios.Ten years ago we had teacher/student ratios atthe national average. Even though we’ve dramat-ically lowered the numbers of teachers to stu-dents since then, our test scores are about whatthey were then.

Class sizes and student/teacher rations matter,especially if you’re talking about the differencebetween 15 students per teacher compared to 30students per teacher. But despite all the strongfeelings about student/teacher ratios there is verylittle compelling, independent evidence that itmakes much difference below a certain point,

especially after the first few grades.There isn’t any reason why Maine’s

student/teacher ratios should be among thecountry’s smallest. We can do the job withratios that move us closer to the national aver-age, and pay more attention to how those class-rooms work.

■ 2. Reduce administrative expenses with anew round of district administrative con-solidations, but this time put the savingsback into the classroom rather than thestate’s general fund.Maine still has far too many administrators and

Maine cannot afford to educate only 37 percent of its students

to proficiency, if we are to thrivein today’s globally competitive

information economy.

WHAT CAN BE DONE?



school districts for the number of students wehave. It is one of the reasons that we pay ourteachers far less than the national average. We needto keep working on the problem of too manyschool districts, and to put savings from adminis-trative consolidation into the classroom.

■ 3. Investigate the increase in non-teacher employment over the last decadeand move the teacher/non-teacher ratioto the national rural state average.For reasons that are difficult to understand,increased spending in public education in recentyears has produced a disproportionate increase innon-instructional payroll, in public education andhigher education. Maine needs to better under-stand where that money is going and why we needmore support staff than other states do.

■ 4. Evaluate teacher performance,rewarding good teachers by bringing theirpay to the national rural state average andremoving under-performing teachers.This has been an area of great debate for manyyears. Both sides of the debate make good points.But we can’t possibly improve schools in Maine –or government as a whole – without knowing whois doing good work and who isn’t, and withouthaving the ability to reward the best teachers andto remove the worst. The state needs to agree on away to measure performance and on practical waysto constantly improve the system. Kids can’t afforda year or two working with a bad teacher, justbecause the politics of protecting every teacherfrom evaluation and consequences has won out.

■ 5. Create a statewide standard forspecial education programs that bringsMaine closer to a national average.This is another area where we’re way outside thenorm, with a growing percentage of Maine stu-dents being designated for special education. Thatcosts Maine too much and it is no service to someof those kids. There isn’t any reason why our per-

centage of special education students should behigher than other rural states or, for that matter,the national average.

■ 6. Transform Public Schools ThroughInnovation and Experimentation If public schools only work for 37 percent of ourstudents, we need to create new models that willhelp more students succeed. We can do sothrough several avenues:

● Maine should pass a charter school law thatencourages teachers, parents, communitymembers, community organizations, colleges,and even businesses to create new schools.Four-fifths of all states now have such laws, and1.5 million students attend more than 5,000charter schools in the United States. Most char-ter schools operate independently of anyschool district, with far fewer rules; they usetheir flexibility to create longer school days,more rigorous academic programs, workplaceinternships for all students, and many otherinnovations that heighten their effectiveness.

But along with the increased flexibilityshould come increased accountability: if theirstudents are not learning, their charters shouldnot be renewed. The most successful state pro-grams do this: they charter a school for fiveyears, and at the end of the period perform arigorous evaluation. If the students are notmaking adequate progress, they close theschool. Massachusetts offers an excellentmodel of charter accountability.

● Maine should create “second chance” schoolsfor students who have dropped out or at riskof doing so. Here Minnesota offers an excellentexample. It has a large sector of alternativeschools that cater to students who havedropped out, to students who have had chil-dren, to students who work full-time duringthe day, and so on. (In Minneapolis, one quar-ter of the system’s graduates came from these


schools in the 1990s.) Most of these schoolsare run by nonprofit organizations, on contractwith school districts. They are small, and theyhandcraft their efforts to meet the needs oftheir students.

To encourage the rapid formation of suchschools, Maine should empower and incen-tivize districts to act, but the state should actalso, contracting with nonprofit organizationsto run second chance schools wherever they areneeded.

● Maine should create its alternative schools in away that increases the pressure on existingschools to improve. The state should pass leg-islation that gives every parent the right tochoose their childrens’ public school andrequires all public funding for a student tomove with that student when he or she leavesa school district for another district, a charterschool, an alternative school, or a second-chance school.

When this is done in other states, the effectis clear. When the Pioneer Institute hired edu-cation experts to study Massachusetts’approach to school choice a decade ago, theyfound that when districts lost 3-5 percent oftheir money to competitors, their leaders usu-ally responded by figuring out why parentswere leaving and making reforms to alleviatethe problem. Other studies, done nationwide,have shown the same pattern. Not all superin-tendents and principals respond to competi-tion by innovating, but most do. And we des-perately need innovation in our public schoolsif we are going to make them effective for moreof our students.

● Maine should do more with distance learning.We should create a distance learning programavailable to all students at all schools in thestate. By chartering a distance learning schoolor by contracting with a distance learningorganization. For rural students in particular,

quality courses taken over the Internet can sig-nificantly expand their opportunities—andtherefore their engagement with education.

● Maine should create a “PostsecondaryOptions” program. Minnesota’s program,launched in 1986, allows juniors and seniors inhigh school to take college courses for bothhigh school and college credit. The programcosts nothing: public funds leave the highschool and follow the student to their chosencollege or university.

This innovation quickly became wildlypopular with students: those who were boredwith high school; those who needed moredemanding courses; those who were worriedthey wouldn’t be able to afford college; andthose who just didn’t fit in high school. Sometook only a few college courses, while othersattended college full-time.

The state auditor’s office found that by1994-1995, participation was up to 6 percentof Minnesota juniors and seniors (12.5 percentin the Twin Cities). Not all were high perform-ers in high school—60 percent were B, C, andD students. At the University of Minnesota, 50percent were from the inner city. Most tooktheir college courses very seriously; on average,they had a higher grade point average than col-lege freshmen at all postsecondary institutionsexcept technical colleges. Some 73 percent stu-dents said they were “very satisfied” with theirexperience, and 95 percent of parents said theywould “probably” or “definitely” encouragetheir children to participate again.

Even more impressive was the effect thecompetition for students and dollars had onthe high schools. By 1996 almost two thirds ofsecondary schools provided at least one coursefor college credit, and 38 percent of highschools provided courses under contract withcolleges. Overall, the percentage of Minnesotajuniors and seniors who took an advancedplacement exam had tripled.


● Maine should consider creating a “RecoverySchool District,” to take over schools wherestudents repeatedly fail to meet state standards.

Louisiana’s Recovery School District maybe the most important innovation in Americaneducation today.

Merely invoking the phrase “most impor-tant” is bold among the policy wonks and pro-fessionals who spend their lives in the thick ofthis kind of stuff, but what the RSD is doing isenormous and effective. It creates a mechanismto shut down failing schools and reopen themunder new management – often charter schoolmanagement – with new educational models.If the new management fails, it too is shutdown and replaced with management that hasa proven record elsewhere. The idea is to turnunderperforming schools into successful ones.

In 2003, Louisiana voters, fed up withunderperforming schools, passed a constitu-tional amendment authorizing a new RecoverySchool District to take over schools that weredeemed “academically unacceptable” for atleast four consecutive years. After HurricaneKatrina wiped out much of New Orleans, thenew district began creating charter schools –public schools that operate without many ofthe regulations that apply to traditional publicschools, but do have “charters” that establishtheir missions, programs, goals, studentsserved, methods of assessment and ways tomeasure success – in The Big Easy.

It also has taken over failing schools inother parts of the state - either contracting witha successful charter school operator to takeover the school or hiring an experienced turn-around specialist as principal.

RSD schools all develop “School RecoveryPlans,” that outline how they expect to turnaround the underperforming schools and whythe changes will improve the way students per-form. Today 70 RSD schools are open in NewOrleans. Of them, 33 are traditional public

schools and 37 are public charter schools. TheRSD also has two charter schools in CaddoParish, 11 charter schools in East Baton RougeParish and one charter school in Pointe CoupeParish. Another 33 schools eligible for place-ment in the district are operating under Mem-orandums of Understanding with the stateDepartment of Education. If those 33 do notimprove, they will be placed under the RSD.

The RSD is showing results: Test scoreshave improved in every grade and every subjectin the two years that scores are available. RSDstudents have achieved double-digit gains inhalf the grades and subjects and growth thatoutpaced overall growth in 25 of 30 categoriesin Louisiana’s assessment programs.


MAINE’S HIGHER EDUCATION system istoo fragmented, it doesn’t function in acoordinated way and it’s extremely ineffi-

cient. The best evidence of its inability to adapt to achanging world is the funding formula that allocatesfunds to the seven colleges of the University System.The formula is virtually the same as it was 40 years ago,despite massive changes in the economy, enrollments,programs and demographics.

Perhaps nowhere else in Maine government can yousee the effects of 19th century needs, technology andstructures driving government inefficiency than in highereducation.

The state has a total of 17 campuses (seven UMS col-leges with 10 campuses and seven colleges of the Com-

Few public investments are morecritical to a strong economy and

rising incomes than highereducation. Yet we spends 18% less

than the national average and 37%less than other rural states on higher

education, as a percentage of ourincomes. And it is poorly spent.

HIGHEREducation

in MaineFragmented,

Uncoordinated andInefficient

munity College system, plus 17 satellites) of thosecampuses, broken into two autonomous networks.The overall public higher education system in Maineincludes three components: The state university sys-tem, the community college system and Maine Mar-itime Academy. The three are separated more by his-tory and organizational culture than logic. TheUniversity of Maine ‘system’, despite its name, isessentially a confederation of seven highly independ-ent colleges, with ten campuses, which seem to worktogether mostly to ensure that no particular collegeis allowed to grow at the expense of others.

MAINES COMMITMENT TO HIGHER EDUCATIONThe surest way to see what a state’s priorities are is tolook at the way it spends money. By that method, it’sclear that Mainers care about K-12 public educationbut, oddly, not so much about higher education. Andhigher education should be one of the state’s strategicassets, to support new business growth, improve theskills and knowledge of people in Maine and attractnew businesses.

Maine's spending per full time equivalent studentis 14 percent lower than the national average and 12percent lower than the average of other rural states.After taking into account interstate differences in percapita income and the number of potential college

Percent of general fund

Percent of Maine General Fund Appropriated for the University System

15%

20%

15.2%

9.0%

5.8%

1968 1989 2009

10%

5%

0%


students, Maine ranked 44th among states in state sup-port for higher education over the period 1980-2005,29% below the national average.

A SYSTEM IN NAME ONLYThe University System The university system includes seven universities on 10campuses, with an additional nine outreach centers.Maine’s largest university is its flagship, the University ofMaine in Orono. The state’s second-largest university isthe University of Southern Maine, which has campusesin Gorham, Portland and Lewiston/Auburn. Maine’s solelaw school, the University of Maine School of Law, is inPortland and is administered by USM. Maine’s third-largest state university, the University of Maine Augusta,has two campuses – one in Augusta and one in Bangor.

The chief executive officer of the university system iscalled the chancellor. He answers to a 16-member Boardof Trustees. The state commissioner of education is anex-officio member of the board. The other 15 areappointed by the governor to 5-year terms.

The trustees have authority for the university system.They appoint the chancellor and each university presi-dent, approve the establishment and elimination of aca-demic programs, confer tenure on faculty members, settuition rates and operating budgets and perform otherfunctions. The Legislature directs money from the stateGeneral Fund to the trustees, who decide where thatmoney will go.

Since the establishment of the state university systemin 1968, trustees have used the same funding formula todistribute money to individual campuses. They have gen-erally allocated about 50 percent of their total funds tothe University of Maine in Orono, around 23 percent to

the University of Southern Maine and the remainder tosomething called “systemwide services” and to the fiveother state universities: The University of Maine Augusta,University of Maine Farmington, University of MaineFort Kent, University of Maine Machias and Universityof Maine Presque Isle.


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The Community College SystemThe community college system includes seven 2-yearschools and eight outreach centers. A president serves asthe chief executive and answers to a 15-member Boardof Trustees, which consists of 13 appointed members,plus the state commissioners of education and labor.

Tuition at all of Maine’s community colleges is $84per credit hour. A two-year associate degree averages$3,300 per year in tuition and fees.

The basic mission of the Maine Community CollegeSystem is to provide associate degree, diploma and cer-tificate programs ‘to create an educated, skilled andadaptable labor force which is responsive to the changingneeds of the economy of the State and to promote local,regional and statewide economic development.’

Maine Maritime AcademyMaine Maritime Academy, in Castine, is a state-run col-lege of engineering, business, science and transportation,

which is independent of any other system. The Presidentanswers to a 16-member Board of Trustees, all of whomare appointed by the governor to 5-year terms.

The school fiscal year 2010 budget includes, amongother revenues, $8,467,000 in state appropriations,$11,910,000 in tuition from undergraduates and$257,000 in tuition from graduate students. Tuition forin state students for the 2010-2011 academic year is$8,280 per year. Through the New England Regional Stu-dent program, residents of other New England states thatdo not offer similar academic programs, plus residentsof Quebec, the Maritime provinces and Puerto Rico, pay$12,420. Other out-of-state students pay $17,000. About860 students are enrolled at the school.

Maine spends more of its highereducation dollars than 48 other

states on non-instructionalareas. For every $1 of

instructional payroll in Maine,$1.75 goes to non-instructionalpayroll. Nationally, the figure is$1 to $1.15. In rural states, the

figure is $1 to $1.04.

THE COST OF NON-INSTRUCTIONALSPENDINGMaine spends more of its higher education dollars than48 other states on non-instructional areas. For every $1of instructional payroll in Maine, $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 atthe national average, we would have saved $13 millionin 2007.

Maine also does not appear to do well in using itspublic support for higher education to produce collegegraduates and research. In college degrees from publicinstitutions relative to state support, Maine ranked 49th--27% below the national average--over the period 1980-2005. In terms of both research grants and doctoratesawarded, Maine ranks near the bottom as well.

Consequently, Maine’s potential college students andtheir families face relatively expensive college educations.Over the period between 1994 and 2001, average in-statetuition and fees at Maine’s public colleges was 50% high-er than the national average and the 4th highest in thecountry, but without the corresponding quality. Obvi-ously not all college educations are equal, and some fam-ilies are willing to pay for expensive college educations.But economic decisions are about value and quality rel-ative to price, and high costs are a bigger obstacle to post-secondary education in Maine than in the rest of thecounty.

Despite having a high school graduation rate wellabove the national average, Maine has a below averagerate of college participation (53.9% in Maine versus58.4% nationally).


Higher education is one of the areas where Maineneeds to increase its commitment, to at least thenational average and preferably beyond. But, as isthe case with K-12 spending, Maine people aren’tlikely to support increasing investments in highereducation until the system is dramaticallyreformed, reorganized and streamlined.

■ Maintain separate University of Maineand Community College Systems While a compelling argument can be made that theUniversity System and the Community Collegesshould be merged into one system, they haveunique and distinct purposes and cultures thatwarrant independence. That doesn’t mean, how-ever, that they should operate in isolation fromeach other. Although some progress has been madein collaboration between the two systems, theyshould be operating in a fully coordinated way,under a single oversight Board.

■ Eliminate the current 40-year-old fundingformula that freezes campuses in

yesterday’s economy and needs, in favorof a system that rewards excellence andresults.We need to rethink the way public dollars go to spe-cific campuses, under a rigid, outdated andunchanging formula. Today’s formula needs to bereplaced with a far more flexible approach that rec-ognizes changing demands in the marketplace, stu-dent needs and desires and campuses that excel. Therigidity of the existing formula has more to do withthe politics of protecting institutions than it doesenhancing the education of Maine college students.

■ Establish a true University of MaineSystem rather than a network of largelyautonomous campuses.The current University ‘system’ is hardly a systemat all. It is a collection of largely autonomous cam-puses with far too little overall coordination andcollaboration. The frozen funding formula is agood illustration of how individual campuses haveworked primarily to sustain the status quo, over allelse. There needs to be an overarching management

H I G H E R E D U C A T I O N I N M A I N E

WHAT CAN BE DONE?

of the university, which is able to reshape the sys-tem, as needed, to meet the demands of a chang-ing world.

■ Provide future funding directly tostudents and let them and themarketplace – rather than politics -decide which campuses are bestserving their needs.As the state is able to increase its commitmentto higher education, new and additional fund-ing should be provided in the form of vouchers

to students, rather than additions to the currentfunding formula. Funding students directly,and allowing them to use that funding at thecampus of their choice, will reward the bestadministrators and professors and course offer-ings. This is essentially the way that privateschools operate, in competition with eachother. We should find a way to let the market-place decide which campus are best meeting theneeds of students, which should grow andwhich should not.


OURS IS HARDLY the first time that Main-ers have confronted confounding chal-lenges. The state has survived many peri-

ods of immense economic and technologicalchange that have generated enormous hardships,opened new opportunities and rippled throughgovernment.

Imagine the effects of industrialization, electri-fication, mechanization, refrigeration and new the-ories of management on Maine, over the last hun-dred years. Or the mobility of jobs and capital thatarose as computers, satellite communications andglobal competition expanded, during our lifetimes.All have been accompanied by stress and difficulty,but also stirred creativity and leadership and point-ed to new opportunities.

Here are just a few examples. There was a time

when Maine was one of the great shipbuildingcapitals of the world, an industry that supportedthousands of people felling and moving trees,shaping ships and boats and moving goods toevery corner of the world. But with the appear-ance of steel and steam, that industry was unableto quickly adapt and began a long decline. Thou-sands of people also once worked in the woodsand on farms with horses and hand axes, orfished in coastal schooners with nets and lines. Itwas a world that they could barely imagine wouldever change. Yet most were gradually replaced bymore efficient machines and technology, aprocess that continues even today.

There was once, in Maine and across thecountry, a vast set of businesses providing lightingto homes and schools and workplaces, suppliedby whaling ships and candle makers. Their worldfaded away with electrification and light bulbs.Mainers were among the nation’s top providersof ice, sending shiploads to southern regions andthe Caribbean, engaging hundreds of ships andtheir crews, ice cutting teams, farmers with theirhorse-driven transport teams and chandlersalong the Kennebec and other rivers. All werewiped out in less than a decade by the inventionof refrigeration.

In our own time, over the last few generations,tens of thousands of Mainers who worked to keepthe mills going and supply them with raw mate-rials, services and technical skill have lost theirjobs and their companies to new technology andthe flight of manufacturing, first southward andthen oversees.

All these changes have been painful, confusingand even frightening to the people who livedthrough them. Many happened swiftly and with-out warning. All changed the course of Maine’sfuture.

Today we confront a new set of challenges: intechnology, in transportation, and in the global-izing economy. As with any change, whether inthe natural world or in human society, those whoadapt will survive and flourish. Those who waitfor the past to return, will fail.


Before we expend too much energylamenting our difficulties, we should

imagine the challenges earlierMainers confronted, and perhaps

take some encouragement from their example.

How YouCan HelpShape theFUTURE

HERE IS HOW YOU CAN HELP

There are many steps that Maine must take to cre-ate a more sustainable government and a newprosperity. As this report has discussed, we haveproblems large and small. None of them will beeasily fixed and no actions will be universallyembraced. But each problem can be solved ifMainers have a full and open discussion of whatmust be done - and then come together behinddetermined action and effective leadership.

Be Part of the ConversationIn Maine, big changes only happen after we’ve allthought about and talked it to death and thenfinally, reluctantly, decided. Reinventing govern-ment isn’t a choice: it’s happening already, in slowmotion, across countless budget meetings anddebates, in towns from Frenchville to Kittery. In tenyears, we will have a government that looks muchdifferent than it does today.

Don’t Just Support Reinventing Someone Else’s GovernmentVirtually everyone in Maine is in favor of a smalleror smarter government, as long as it doesn’t in anyway affect them. We can’t do it that way. We can’tjust change someone else’s government or stream-line someone else’s cherished program. We’re allgoing to need to adapt to the new realities of lessmoney and more to do.

Don’t Settle for Talk – Insist on ActionWe need a full and robust discussion about how tomove forward as a state, but discussion can’t go onforever and become an excuse for inaction. Theworld is not going to wait to take jobs from us, andthe ticking time bombs outlined earlier in thisreport will get worse every day that we don’t defusethem.

Challenge Candidates and LeadersWhen candidates ask for your support, pressthem on what they intend to do in response to theticking time bombs, the outdated structures andsystems of government, and the need to build amore sustainable prosperity. High level platitudesare not going to serve you or Maine. Put their feetto the fire.

Support Tough Decisions The changes outlined here won’t happen unlessyou and many others push, across party and geo-graphic lines, for a new approach to governmentin Maine. And even with that, they won’t happenovernight. It won’t be easy. We can’t have it all. Noteveryone will see a “win/win,” at least initially. Butthe tide can rise and all the boats with it, if we setourselves to do the work that must be done.


S T A Y C O N N E C T E D

Box 231, South Freeport, Maine 04078(207) 865-9511 | www.envisionmaine.org

Stick with it. Keep pushing. A brighter day is coming!

FURTHER DETAILS ON THE STATE AND LOCAL SPENDING

Comparison Rural StatesAn important problem in evaluating levels ofcosts is finding appropriate benchmarks. Forinstance, one could compare current levels topast levels. Or one could compare Maine’s lev-els to the national averages. A norm for com-parison is needed, but rarely is there an unam-biguously ideal norm. Past levels are clearlyproblematic norms because economic condi-tions are always changing. Levels in otherstates are better norms, but there are clearproblems with this as well. For example, otherstates obviously might not have ideal levels anymore than Maine does (although the differ-ences from the ideal levels may average outacross states).

Nonetheless, benchmarks must be chosenin order to evaluate levels of cost. The primarybenchmarks emphasized in this report arenational averages. This has the advantage ofbeing a simple and obvious benchmark. Butstates clearly differ in many important dimen-sions.

Location and geography are obvious waysthat Maine differs from most of the rest of thenation. Thus, it is practically standard practiceto compare Maine to the New England average.the New England averages are not emphasizedin this study because it is essentially a compar-ison to Massachusetts and Connecticut because70% of New England’s population lives inthese two states (45% of New Englanders livein Massachusetts alone). Moreover, these statesbear little resemblance to Maine in terms ofpopulation density and income. In the 2000Census, 25% of Maine’s population lived inurban areas, compared to 87% in Massachu-setts and Connecticut together. Per capitaincome in Massachusetts and Connecticut was47% higher than in Maine in 2006-07.

A potentially important dimension whereMaine differs considerably from the rest of the


Appendix A

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nation is in the degree of urbanization. Moreover, this dimension couldbe particularly important for the issue of possible unnecessary fragmen-tation and duplication in the provision of government services. Ruralareas are likely to have more difficulty in capturing economies of scale.Indeed, the blame for Maine’s perceived high costs of local governmentis sometimes placed on this factor.

Maine is much less urban than most states. As noted above andshown in Table 1, less than 25% of Maine’s population lives in areasclassified as urban. In the rest of the country more than 68% of thepopulation lives in urban areas. Thus, in addition to the comparisonto the national averages, this study compares Maine to states that arethe most similar in their urban/rural compositions. To be specific,Maine is compared to the five most rural states (other than Maine):Mississippi, Montana, South Dakota, Vermont, and Wyoming. Therural-state averages reported in the tables are the average values forthese five states.2

Table 1 shows population density as well. In this measure, Maine isthe most similar to Oregon and Colorado. Total state population is alsoincluded in Table 1. The rural comparison states are generally similar toMaine in this respect. Montana, South Dakota, Vermont, and Wyominghave smaller populations than Maine; while Mississippi is larger.

Per capita income is also shown in Table 1. Maine’s income percapita in 2006-07 was 10.9% below the national average. Three of thefive rural comparison states are roughly similar to Maine in per capitaincome, while Mississippi is considerably lower and Wyoming is muchhigher. Thus, average per capita income among the five rural com-parison states is 4.3% above Maine’s.

TABLE 1

Clearly there is plenty of room to legitimately argueover the choice of comparison states. Per capita incomecould be particularly important, thus perhaps Mississippishould not be in the comparison group. Or populationdensity might matter more than urban percentage, hencethe low-density Western states perhaps should be exclud-ed from the comparison group. The problem is thatthere is no simple way to devise a true comparison group.States differ in practically an infinite number of poten-tially important dimensions.

Rather than use some combination of ad hoc rules,this study uses just one simple objective dividing linebetween the comparison states and non-comparisonstates: the five states (other than Maine) with the lowesturban percentages. The comparison group that it createsis obviously debatable. But a more complicated criterion(say, states ranked between 30th and 35th in per capitaincome) or group of criteria will not solve this problem.

Measures and ComparisonsUnderstanding relative levels of state and local govern-ment services and costs is made more difficult by themultitude of legitimate ways of presenting the results.There is no single measure that is unambiguously thebest way to examine the data. For example, some studiesexamine state and local governments combined, whileother studies only examine local governments. Somearticles emphasize government spending per capita, whileothers emphasize government spending per dollar ofstate income. Some publications emphasize governmentemployment, and others emphasize government expen-diture. Moreover, reasonable arguments can usually bemade for using each of these measures.

To the extent possible, this study uses a consistentframework to examine each category of state and localgovernment employment and spending. A consistentanalytical framework is applied to each government serv-ice category for three important reasons. First, a consis-tent methodology is easier to understand and follow thana changing one. Second, a consistent framework facilitatescomparison across categories. Third, by eliminating thechoice of measure to emphasize, the potential for subjec-tivity is reduced. Thus, the choice of measures is guidedprimarily by the ability to apply them consistently acrossstates and across categories of government services.

For various reasons, though, it is inappropriate toonly apply a uniform framework to every governmentservice category. Services usually differ in importantdimensions. Thus, some extensions to the basic frame-work are necessary to best illuminate how the service isbeing provided. For example, the availability of dataallows examination of subcategories of services in someinstances, but not in others. Some services are providedexclusively by local governments or state government,while others services are provided at both levels.

Also, for some services, but not all, there are obviousways to improve the measures of services and costs.Indeed, an ideal measure would be the cost per unit ofoutput. Moreover, an ideal measure such as this wouldalso account for differences in service quality and differ-ences in prices across states. Such data do not exist,which is part of the reason why there are various (imper-fect) measures of government costs. In some instances,though, data are available to construct rough measuresof cost per unit of output. In education, for instance,there are data available to examine cost per student. Incorrections one can examine cost per inmate. In high-ways one can examine cost per mile of roads.

Except for the handful of cases where there are obvi-ous better measures such as those above, this studyemphasizes three measures of state- and local-govern-ment costs: payroll as a percentage of state personalincome, full-time equivalent (FTE) employment percapita, and net expenditure3 as a percentage of state per-sonal income. Fortunately, these measures usually yielda fairly consistent picture. There are some importantexceptions, however.

There is clear reason to emphasize expenditure.Expenditure is the bottom-line contribution to the taxburden. There are a few potential problems with justlooking at expenditure, though. Cost can vary for rea-sons other than inefficiency. First, interstate differencesin the cost of living can clearly create differences in serv-ice cost. Labor and land are clearly more expensive inConnecticut than in New Mexico. Similarly, one wouldthink that Maine winters create higher costs of maintain-ing highways than winters in Florida. Second, someexpenditure categories include transfer payments, suchas welfare programs and college scholarships. Althoughtransfer payments obviously contribute to the tax bur-


den, they do not indicate possible inefficiency in provid-ing government services. Third, some expenditure cate-gories include federal programs administered throughstates, such as Medicaid. Federal programs administeredthrough states do not indicate possible inefficiency inproviding state and local services.

This study, however, attempts to remove the influenceof federal programs by reporting expenditure net ofintergovernmental transfers from the federal govern-ment. Attempt is also made to remove some of the influ-ence of cost-of-living differences by reporting net expen-diture as a percentage of state personal income.4 All elsethe same, income is higher in higher-cost regions. A sec-ond reason for emphasizing expenditure as a percentageof income, as opposed to per capita, is that economicchoices depend on income. To stress only net expendi-ture per capita is like assuming every family has the samequality of housing regardless of income.

FTE employment, however, is reported per capitarather than per dollar of state income because wage ratesdiffer considerably across states.5 FTE employment hasboth important advantages and disadvantages. It has theadvantage of being the closest thing to a physical measureof inputs into the production of government services.Thus, relative FTE employment provides a somewhatdirect indication of possible redundancy and excess costsin service provision. It also avoids the problem of transferpayments that are included in expenditures. FTE employ-ment has potential problems, though. Real wages differacross states, thus it may be rational, not inefficient, forlow-wage states to employ relatively more workers in stateand local government (similarly, in some instances suchas fire protection in rural areas, some employment isessentially volunteer labor). On the other hand, though,not all workers are equally productive. A FTE employeewith an advanced degree is not the same as one without(this appears to be particularly important for teachers).

For these reasons, payroll6 as a percentage of statepersonal income receives the most emphasis in this study,particularly in regard to measuring possible unnecessaryredundancy. This measure at least partly accounts forstate differences in the cost of living, real wages, andworker qualifications. It also does not include transferpayments, and does not include federal intergovernmen-tal transfers for the most part.

This study also puts the most emphasis on combinedstate and local government payroll, employment, and netexpenditure. State and local government costs are alsoexamined separately, but are not generally emphasized.The reason is that there are some important instances ofvariation in the jurisdiction of services. For example, ele-mentary and secondary education is typically providedat the local level. In Hawaii, however, it is provided at thestate level. Thus, if one only looks at local governmentexpenditure, then Hawaii appears to have by far the lean-est public education system in the country. But thiswould clearly be a silly conclusion. Although, this is anextreme example, there are numerous instances of thesetypes of jurisdictional differences.

State and Local Government Service CategoriesThe categories and subcategories of state and local gov-ernment services are dictated by the availability of com-parable cross-state data. The U.S. Census Bureau, Gov-ernments Division provides employment and payrolldata for 41 categories and subcategories of services (31categories and 10 subcategories). They provide directexpenditure data for 38 categories and subcategories (26categories and 12 subcategories). Altogether, there aredata for 49 categories and subcategories (31 categoriesand 18 subcategories).7 The latest year of complete datais FY2007.

Many of these 49 separate categories and subcate-gories are likely to indicate misleading pictures of relativestate and local government costs. For example, one ofthe larger categories is Hospitals, but states differ widelyin their public/private mix of hospital services. More-over, well over half of the costs of public hospitals arecovered by direct charges. Well over half the costs of pub-lic utilities (water, sewerage, electricity, gas) and trans-portation are financed through user charges as well.Moreover, there are also significant differences in theirpublic/private mix across states. Thus, the following cat-egories are not examined in this report: Hospitals; Airand Water Transportation; Water, Electricity, and GasUtilities; Transit; and State Liquor Stores.

To confine the scope of this analysis to a manageabledimension, several additional categories and subcategoriesare not examined. The purpose of this report is to scruti-


A P P E N D I X A

nize Maine’s provision of public services.Thus, social insurance benefits and subcate-gories of Public Welfare expenditures are notexamined. Public employee pensions are notexamined either, because they are notassigned to specific public services. Intereston debt is not studied. Nor does this reportexamine current operations versus capitaloutlays subcategories of expenditures.

Just about all other state and local gov-ernment costs are studied in this report.The 21 categories of state and local govern-ment services examined in this report arelisted in Table 2. These account for 96.4%of total state and local government employ-ment in Maine, and 89.8% of total stateand local government employment nation-wide. The primary category excluded inTable 2 is Hospitals. Public hospital payrollis 6.2% of total state and local governmentpayroll nationally, and 2.1% in Maine. Theother significant exclusions are Public Util-ities (1.8% of the national total and 0.9%of the Maine total) and Transit (1.7% orthe national total and 0.1% of the Mainetotal).

The 21 categories of services are dividedinto three types of service functions: thosethat are provided primarily by local govern-ments, those that are provided primarily bystate government, and those provided byboth levels of government.

There are eight “local functions” in thisreport. For these categories at least three-fourths of combined state and local govern-ment payroll is local both nationally and inMaine. These eight functions in decreasingorder of importance (in Maine) are Ele-mentary and Secondary Education, PoliceProtection, Fire Protection, Parks andRecreation, Sewerage, Solid Waste Manage-ment, Housing and Community Develop-ment, and Libraries. Altogether, these localfunctions account for 55.8% of total stateand local government payroll in Maine,


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TABLE 2

and 51.7% across the country.Four of the service categories are classified as “state functions”.

These four functions in decreasing order of importance (in Maine)are Higher Education, Natural Resources, Employment SecurityAdministration, and Other Education. At least three-fourths of com-bined state and local government payroll is state for these service cat-egories. Together these state functions account for 13.6% of the totalgovernment payroll in Maine, and 15.0% nationally.

The remaining nine service categories are “mixed functions”. Ineither Maine or across the nation, at least one-third and no more thantwo-thirds of the combined state and local government payroll is local.These functions in decreasing order of importance (in Maine) areHighways, Public Welfare, Financial Administration, Other Govern-ment Administration, Corrections, Health, Judicial and Legal, GeneralPublic Buildings, and the catch-all category Other and Unallocable.Most of these categories are predominately state functions in Maine.Nationally, however, most of these categories are local or mixed func-tions.

Overall, Maine provides these public services more at the state levelthan the rest of the nation. 65.5% of the combined payroll in these 21service categories is at the local level in Maine, compared to the nation-

al average of 72.3%.Table 3 reports data from fiscal year

2006-07. This is the latest census year forthe local-government data. Informationfrom all local governments is collectedonly every five years, and data for inter-vening years are based on samples of localgovernments. As a result, in someinstances there is considerable year-to-year variation in the numbers, and clearlymuch of this variation does not measurereal changes.


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A P P E N D I X A

TABLE 3

2 Hence, the rural-state average is an unweighted av-erage and excludes Maine, while the United States andNew England averages are weighted averages (i.e.,larger states such as California and Massachusetts af-fect the averages more than small states) and includeMaine.

3 To be specific, net direct expenditure is examined inthe case of state governments. That is, state grants tolocal governments are not included.

4 State personal income data are from the U.S. Bureauof Economic Analysis. Income from third quarter2006 through second quarter 2007 are matched to theFY2007 data. This study follows the Census Bureau’sapproach of using state personal income to normalizestate spending levels. Arguments could be made forusing other measures of income such as gross stateproduct. To confine the analysis to a reasonabledimension, only the most standard approach isfollowed.

5 Population data are from the U.S. Census Bureau,Population Division. Population estimates for July 1,2006 and July 1, 2007 are averaged and matched tothe FY2007 data.

6 Payroll data are collected in March only. To conformto income data the payroll data are converted intoannual amounts.

4 State personal income data are from the U.S. Bureauof Economic Analysis. Income from third quarter2006 through second quarter 2007 are matched to theFY2007 data. This study follows the Census Bureau’sapproach of using state personal income to normalizestate spending levels. Arguments could be made forusing other measures of income such as gross stateproduct. To confine the analysis to a reasonabledimension, only the most standard approach isfollowed.

5 Population data are from the U.S. Census Bureau, Population Division. Populationestimates for July 1, 2006 and July 1, 2007 are averaged and matched to the FY2007 data.

6 Payroll data are collected in March only. To conform to income data the payroll dataare converted into annual amounts.

LOWERING HEALTH CARE COSTSTHROUGH INNOVATION AND PREVENTION

How would reforming the payment system work in Maine?Public employees make up 8.7 percent of our population,and another one percent already participate in DirigoHealth’s exchange. Eleven percent more do not havehealth insurance but have to buy it under the new federallaw. Assuming most will purchase through the newexchange, these groups would add up to 20 percent of thepopulation—which translates to a third of the non-Med-icaid, non-Medicare market. Since more participantswould increase the system’s power to control costs, thestate might offer private employers guaranteed prices forseveral years, to induce them to join.

Another 25 percent of Mainers are covered by Medi-caid, though not all should be included in a purchasingexchange right away, because some are in nursing homesand some have complex physical and/or mental prob-lems. But if half of Medicaid recipients were includedafter a few years, the entire pool would represent a thirdof all Mainers—plus employees of any businesses or non-profits that joined.

Eventually, Maine should shift its Medicaid nursinghome population to managed care for fixed prices pur-chased through the exchange. This would provide incen-tives for health plans to find the most cost-effective set-ting for each person, whether in their residence, a nursinghome, a rehabilitation hospital, a chronic long-term carehospital, or a day program. Oregon, Arizona, Florida,Texas, and Wisconsin have already proven that such pro-grams improve quality and cost-effectiveness.

This approach would no doubt face political resist-ance from public employee groups that feared theirhealth benefits would not be as generous under astatewide system. But their benefits could be preservedin a statewide exchange, by supplementing the standardinsurance package. By banding together with other publicemployees and the other exchanges, they would giveMaine real power to bend the cost curve—helping themas well, in the long run. For every citizen’s sake, Maineneeds that power.

Health savings accounts (HSAs) could also be useful

elements of the benefit package. By creating a $1200annual deductible and offering an $800 annual healthsavings account, for example, the state could give resi-dents an incentive to shop carefully for health services,as well as expanded choices, since they could use the HSAto buy services not covered by the benefits package. Tomake this more effective, Maine would need to help con-sumers understand the price of different medical services,perhaps by requiring that providers post their prices ona state sponsored web site.

The clearest danger of this approach is that healthplans and providers could make money by simply with-holding care from members, such as by refusing certainprocedures or making it difficult to schedule appoint-ments. Plans that did this would quickly lose most oftheir subscribers, of course. (Typically, exchanges such asthis allow purchasers to switch plans once a year.) To pre-vent such behavior in the first place, Maine could includepoints for quality in the formula used to rank healthplans (as the state employee plan already does). It couldalso generate quality and customer-service rankings ofthe health plans sold through the exchange each year andmake them available to the public. This would create apowerful market incentive for plans to deliver sound cus-tomer service.

To protect against “adverse selection,” in whichunlucky health plans attract older or sicker people whodrive up their costs, each individual covered by the stateexchanges would be “risk-adjusted”—meaning that theprice the state paid to health plans would reflect the indi-vidual’s degree of risk upon entry. (For the exchangerequired by the federal bill, this is mandated; Maineshould do it for each exchange.) In addition, the federalbill provides reinsurance for health insurance plansthrough 2016, to cover the cost of catastrophic cases.Maine would be wise to continue funding this. Withoutrisk adjustment and reinsurance, health plans would sub-mit higher bids, to limit their risks.

With at least a third of all Mainers purchasing healthinsurance through the exchanges, the tiering strategyemployed by Wisconsin would put enormous pressureon health plans to keep costs down and quality up, whilepreserving choices for exchange participants.


Appendix B

How would promoting coordinated careorganizations work in Maine?Purchasing through exchanges, based on fixed monthlyprices for all care, would drive hospitals and doctors inthe direction of creating accountable care organizations.As a second step, the exchanges could solicit bids directlyfrom these emerging ACOs—bypassing the insurancecompanies entirely. Because most physicians in Maineare now employed by hospitals, it’s most likely that hos-pitals would create ACOs. But to keep market share,some enterprising health insurance companies might doso as well, in alliance with particular hospitals. Theexchanges could speed this process by giving ACOs bonuspoints in the ranking system. As they gained marketshare, the state could also shift more of the Medicaidpopulation—which is primarily cared for under fee-for-service reimbursement—to ACOs.

The biggest barrier to success with this strategy maybe the fact that many hospital systems in Maine have theequivalent of geographic monopolies. Health insurancecompanies already complain that hospitals can virtuallyset their own prices, because there are no competing hos-pitals in many geographic regions that patients could useinstead. Hence hospital-based ACOs may have so muchbargaining power and so little competition that theexchanges can’t force them to get more cost-effective.

To deal with this problem in 2003, the Baldacciadministration and the legislature considered severaloptions, including “global budgets” for hospitals thatwould cap their annual revenues. They chose to use vol-untary “self-regulation” by hospitals instead: the hospi-tals agreed to cap their cost increases at 3.5 percent peryear. This has worked fairly well, helping to slow healthcare inflation in Maine.

When the exchanges face this issue, Maine will havethree basic choices. First, it could repeal the antitrustexemption given the hospitals in 2003, break up the hos-pital conglomerates and force competition in eachregion. Second, it could continue with voluntary self-reg-ulation. Or third, it could accept the reality of hospitalmonopolies and treat them like utility monopolies: createa regulatory body to control their prices, either by requir-ing approval of rate increase or by establishing globalbudgets. Given that we are talking about a marketplacethat will only emerge over the next 5-10 years, it is hard

to say today which of these strategies will prove the wisestcourse.

Another key step toward integration and coordina-tion is the ability to use electronic health records (EHRs)to access any patient’s medical record, at any hospital ormedical office in the state. According to a 2004 report bythe President’s Information Technology Advisory Com-mittee, one out of five lab tests in the U.S. must be repeat-ed because previous records are not available, and one ofseven hospital admissions occurs for the same reason.The price tag for all of this needless repetition is enor-mous: redundant hospital admissions alone cost $30 bil-lion a year. A statewide EHR system would prevent suchwaste.

Most integrated providers now have EHR systems, butsome physicians and hospitals still do not use them, andmost systems can’t interact with one another. If a patientfrom Portland shows up in the emergency room atFranklin Memorial Hospital in Farmington, his or hermedical record is not available. Fortunately, Maine isalready attacking this problem: roughly half its peopleand hospital admissions and a third of its physicians arepart of a new HealthInfoNet system, which connects 15hospitals and 2000 health care providers. The ObamaAdministration has awarded a stimulus fund grant of$4.77 million to Maine, most of which will help expandthe system. By 2015, HealthInfoNet’s leaders hope toinclude all the state’s hospitals and 80 percent of its med-ical practices.

Unfortunately, there is no long-term plan to pay forthis expansion. If Maine wants to realize the efficienciesoffered by a statewide EHR system, it must create a securefunding stream for HealthInfoNet. Another obstacle isfunding for small medical practices that cannot afford topurchase the technology needed to participate. To helpthem, the state should share their costs. And to create apowerful incentive, it should announce that beginningin 2015, providers not on HealthInfoNet will no longerbe reimbursed by state programs such as MaineCare andstate employee and retiree health insurance.


A P P E N D I X B

One of the goals of this report was to strike a balancebetween data citations and readability, and to translateinformation for people who might not normally haveaccess to it. Toward that end, we decided early on not topepper the document with numbers and letters pointingto particular citations.

The bulk of the data in this report is from the U.S.Census, from the report by Philip Trostel, outlined in the‘Maine Spends’ section, and from sources noted withcharts and graphs.

Some additional sources occur primarily in theUnfunded Liabilities, Health Care, Counties and HigherEducation sections. Details on those sources, and thepage were data appears, are below.

UNFUNDED LIABILITIES: ADDITIONALINFORMATION

■ Employees are vested in the retirement plan afterfive years of service.

■ For retirement purposes, the state averages anemployee’s top three years of salary and deliversbenefits based upon that sum. If, for example,someone works for 30 years, and his or her topthree years of pay are $50,000, $55,000 and$60,000, that person’s pension will be based on theaverage of those three numbers, or $55,000. Thatretiree will receive 60 percent of $55,000, per year,which works out to $33,000 per year.

■ Maine is one of 14 states that do not cover teachersand/or state employees for Social Security benefits.State retirees’ benefits are in place of Social Securi-ty benefits.

COUNTIES: ADDITIONAL INFORMATIONON THE CHART SHOWING THE BUDGETSAND SIZE OF COUNTIESThis data was developed by Joshua Weinstein, throughdiscussions with county officials. The number of employ-ees is approximate, and includes full-time and part-timepeople. The Kennebec County budget numbers are fromthe 2009 budget, since the county is shifting from a cal-endar year to a fiscal year.

HIGHER EDUCATIONPAGE 67, ‘Maine ranked 44th among states in state sup-port for higher education over the period 1980-2005, 29%below the national average’ According to data in P. Trosteland J. Ronca, “A Simple Unifying Measure of State Sup-port for Postsecondary Education” Research in HigherEducation, 50 (3), 215-247, 2009.

PAGE 69, ‘Maine also does not appear to do well in usingits public support for higher education to produce collegegraduates and research. In college degrees from public in-stitutions relative to state support, Maine ranked 49th—27% below the national average—over the period1980-2005.’ See P. Trostel and J. Ronca, “A Simple Unifying Measure of State Support for PostsecondaryEducation” Wisconsin Center for the Advancement ofPostsecondary Education Working Paper WP007, 2007.

PAGE 69, ‘Maine’s potential college students and theirfamilies face relatively expensive college educations (overthe period 1994-2001 average in-state tuition and fees atMaine’s public colleges was 50% higher than the nationalaverage and the 4th highest in the country)’. P. Trostel andC. Reilly, “Background Report on College Affordabilityin Maine” Maine Margaret Chase Smith Policy Center(prepared for Maine Compact for Higher Education),2003.

PAGE 70, ‘Students from Maine entering college as a per-centage of the state’s high school graduating class in theprevious year over the period 1994-98 was 53.9%, com-pared to 58.4% nationally. P. Trostel, “Economic Prosper-ity in Maine: Held Back by the Lack of HigherEducation” Maine Policy Review, Winter 2002.

HEALTH CAREPAGE 29 , ‘We spend 24 percent more per person on healthcare than the U.S. average; of the New England states, onlyMassachusetts spends more.’ Governor’s Office of HealthPolicy and Finance with the Advisory Council on HealthSystems Development, Maine’s 2008-2009 State HealthPlan (Augusta: Governor’s Office, April 2008), p. 20.


NOTES

, ‘Since 1960, total U.S. health care spending hasaccelerated 10 percent a year—doubling every 7.5years’. “Table 1: National Health Expenditures Aggregateand per Capita Amounts, Percent Distribution, and Av-erage Annual Percent Growth, by Source of Funds: Se-lected Calendar Years 1980-2002,” U.S. Centers forMedicare & Medicaid Services (formerly the Health CareFinancing Administration), http://www.cms.hhs.gov/sta-tistics/nhe/historical/t1.asp, January 2004. The exact av-erage annual increase in total spending on health carefrom 1960-2002 was 10.19 percent.

PAGE 29 , ‘Nationally, we now devote 16 percent of ourgross domestic product to health care, almost double theEuropean average World Health Statistics 2007’. (Geneva:World Health Organization, 2007), www.who.int/who-sis/whostat2007/en/index.html. In 2004, the last yearfor which the WHO has data, the U.S. spent 15.8 percentof GDP on health care and the European Region averagewas 8.6 percent.

PAGE 29, ‘the World Health Organization ranks the U.S.37th in the overall quality of its health-care system.‘ TheWorld Health Report 2000 – Health Systems: ImprovingPerformance (Geneva: World Health Organization,2000), Annex Table 1: “Health system attainment andperformance in all Member States, ranked by eight meas-ures, estimates for 1997,” 52, http://www.who.int/whr/2000/en/whr00_en.pdf.

PAGE 30, ‘Yet this higher spending does not yield betteroutcomes or more satisfied patients—it yields just the op-posite.’ ‘ Other studies show the same pattern with BlueCross Blue Shield insurance.’ Maggie Mahar, “The Stateof the Nation’s Health,” Dartmouth Medicine, Spring2007, 27-35, www.dartmed.dartmouth.edu/.

PAGE 30, ‘Complex administrative processes, such asbilling, consume 25-30 percent of all health-caredollars.’ See James G. Kahn, Richard Kronick, MaryKreger and David N. Gans, “The Cost of Health Insur-ance Administration in California: Estimates for Insur-ers, Physicians, and Hospitals,” Health Affairs 24, no. 6(Nov.-Dec. 2005): 1629-1639; and Steffie Woolhandler,Terry Campbell, and David U. Himmelstein, “Costs of

Health Care Administration in the United States andCanada,” New England Journal of Medicine 349, no. 8(Aug. 21, 2003): 768-775 (www.nejm.org).

PAGE 30, ‘As the Maine State Health Plan reports, differ-ent doctors and hospitals treat the same conditions in verydifferent ways, at very different prices.’ Maine’s 2008-2009State Health Plan, op. cit.

PAGE 30, ‘about 45 percent of noninstitutionalized Amer-icans have chronic illnesses, and they account for 75 percentof personal health care spending.’ Alain C. Enthoven andLaura A. Tollen, “Competition in Health Care: It TakesSystems to Pursue Quality And Efficiency,” Health Af-fairs, web exclusive, September 7, 2005, W5-427. Theycite C. Hoffman, D. Rice, and H.Y. Sung, “Persons withChronic Conditions: Their Prevalence and Costs, “ Jour-nal of the American Medical Association 276, no. 18(1996): 1473-1479. Enthoven is a professor at StanfordBusiness School who has long written about health carepolicy; Tollen is a senior policy consultant at Kaiser Per-manente’s Institute for Health Policy.

PAGE 30, ‘More than 40 percent of them have more thanone chronic conditio’. Institute of Medicine, Crossing theQuality Chasm: A New Health System for the 21st Cen-tury (Washington, D.C.: National Academy Press, 2000).

PAGE 30, ‘Nearly 37 percent or $1.2 billion of Maine’s in-crease in health spending from 1998 to 2005 is attributableto the leading chronic illnesses, which are often preventa-ble: cardiovascular disease, cancer, chronic lung diseaseand diabetes.’ Maine’s 2008-2009 State Health Plan, op.cit., p. 10.

PAGE 30, ‘Between 2003 and 2008, family premiums paidby Maine employers increased only 9 percent (compared to51 percent in the previous four years), with no increase inaverage deductibles, while employer premiums nationallyincreased 14 percent and deductibles grew by 31 percent.’1999, 2003 and 2008 Medical Expenditure Panel Survey(MEPS) - Insurance Component.

PAGE 31, ‘The environment and risk factors account forabout 20 percent each, health care for only 10 percent’, As


N O T E S

a nation, we spend almost 90 percent of our (public andprivate sector) health dollars on treatment. Institute forthe Future, Health and Health Care 2010: The Forecast,The Challenge, 2nd Edition (San Francisco: Jossey-Bass,2003).

PAGE 31, ‘According to the Centers for Disease Control, by2008 one in four Maine residents were obese and another36 percent were overweight.’ Data is from the Centers forDisease Control and Prevention’s Behavorial Risk FactorSurveillance System, available at http://apps.nccd.cdc.gov/brfss/display.asp?yr=2008&state=ME&qkey=4409&grp=0&SUBMIT3=Go

PAGE 32, ‘In a famous Rand Corporation study, groupmedical practices that charged a set, prepaid fee cost 25-30percent less than those operating on a fee-for-servicebasis.’ J.P. Newhouse and the Insurance ExperimentGroup, Free for All? Lessons from the RAND Health Insur-ance Experiment (Cambridge, Ma.: Harvard UniversityPress, 1994).

PAGE 32, ‘For example, a prepaid delivery system can eval-uate new technologies for their cost-effectiveness and im-pact on quality and can deploy them as needed’. ‘Enthovenand Tollen, “Competition in Health Care,” 421-2.

PAGE 32, ‘What is an “exchange?” Think of it as a websitewhere a pool of consumers can shop for the best deal onhealth insurance, in a market regulated by the state. InMaine, Dirigo Health already operates just such an ex-change, for about 12,000 residents.’ Dirigo HealthAgency, Annual Report 2008 (Augusta, Me.: DirigoHealth Agency, 2008), 31.

PAGE 33, ‘Between 2004 and 2009, these premiums grewby 35 percent for single people and 37 percent for familiesin Dane County; in Wisconsin’s 71 other counties, theygrew by 42 and 45 percent.’ ‘Oregon, Arizona, Florida,Texas, and Wisconsin have already proven that such pro-grams improve quality and cost-effectiveness.’ David R.Riemer, “Effective Health Insurance Exchanges: TheDane County, Wisconsin, Model,” prepared for the In-stitute of Medicine’s Roundtable on Evidence-BasedMedicine, July 31, 2009.

PAGE 34, ‘According to Wennberg and Fisher, who helpedmidwife the ACO concept, regions dominated by inte-grated, managed systems have costs up to one-third lowerthan other areas.’ Mahar, op. cit., 34.

PAGE 34, ‘. Maine has already launched a “Patient-Cen-tered Medical Home Pilot Project” with 26 primary carepractices.’ ““Maine Patient Centered Medical Home PilotLaunched - July 2009,” Quality Counts web site,http://www.mainequalitycounts.org/about-qc/maine-patient-centered-medical-home-pilot-launched.html.

PAGE 34, ‘ Nationwide, one percent of the population uses27 percent of all health-care dollars, and five percent con-sumes more than half of all medical expenditures.’ TheHealth Report to the American People (Bethesda, Md.: Cit-izens Health Care Working Group, March,2006), http://www.citizenshealthcare.gov/healthreport/healthreport.pdf).


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