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# **Annex A: Overview of the Maine and New Hampshire Municipal Bond Banks**

## **The Maine Municipal Bond Bank**

Maine is the second most rural state in the United States, and many of its smaller municipalities struggled to independently access capital markets. The state has 850 local governments serving a population of 1.3 million that deliver essential services that require capital investment, including road construction, waste disposal, water utilities, police, fire protection and public education. The Maine Municipal Bond Bank was established in 1972 by the Maine State Legislature as an independent agency to provide access to capital markets and to lower the cost of borrowing for these small local governments. The Maine Municipal Bond Bank issues loans to cities, towns, school systems, water and sewer districts, and other governmental entities through the sale of its tax-exempt bonds. The Maine Municipal Bond Bank has been highly successful; as of 2017 issuing a total of $4.9 billion in bonds and never having a default in its 44-year operating history (Census 2007; Census 2012; Maine Municipal Bond Bank 2017).

The Maine Municipal Bond Bank is an efficient organization running eight different programs with only 11 full-time equivalent staff, while being financially self-supporting. At its founding, the Maine Municipal Bond Bank was issued a $50,000 “start-up” loan from the state legislature, that it repaid in three years. Since then, the Bank entirely funds operations and bond issue costs from interest rate surcharges to borrowers and investment earnings. The first loan program operated by the Maine Municipal Bond Bank was the General Bond Resolution Program, which was established in 1973 for general purpose loans and has since issued 1,815 loans to 517 government units, covering more than half of Maine’s local governments. The Maine Municipal Bond Bank later added seven additional programs, including a state revolving loan fund for drinking water and waste treatment backed by federal grants, transportation, and technology purchases (Maine Municipal Bond Bank 2017).

Maine Municipal Bond Bank bonds maintain high credit ratings through a combination of active administration, pool diversification, and credit enhancements, which lower the cost of borrowing. The Maine Municipal Bond Bank’s General Resolution Program has received ratings of AA+ from S&P Global and Aa2 from Moody’s, which are higher than smaller municipalities could receive independently. The Maine Municipal Bond Bank manages this credit rating through credit analysis, monitoring and loan administration. Borrowing municipalities submit a credit application, modeled on the rating agencies’ worksheets, which is reviewed by the Maine Municipal Bond Bank team and approved by the Maine Municipal Bond Bank’s board. The Maine Municipal Bond Bank also requires annual audited financial statements from borrowers, and actively monitor loan payments, which are due 30 days before bond payments. Pooled bonds are also secured by a diversified portfolio, comprised of 87% general obligation bonds and 13% revenue bonds. The largest borrower in the pool represents only 6% of the total pool and the top ten borrowers account for 32% of the total pool. Finally, the General Resolution program is set up with credit enhancement features, including a debt reserve fund equal to the maximum annual debt service, a supplemental reserve fund currently at $13.3 million, a state aid intercept mechanism, and a moral obligation pledge from the state (Maine Municipal Bond Bank 2015; Maine Municipal Bond Bank 2017).

The success of the Maine Municipal Bond Bank can be attributed both to the strong regulations and management of the institution, but also to the overall conservative fiscal management in Maine’s municipalities. Maine does not have a state debt limit for local government, however bond issues are subject to public approval through a council vote or referendum. In cases of financial mismanagement of crisis, the state is authorized to intervene and suspend a town council. Furthermore, general obligation bonds, which are backed by the full faith and taxing power of the government entity, also include the ability to seize private property of residents in case of default. Revenue authorities also have the power to cut off service to non-paying customers, also ensuring a stable revenue base. These regulatory frameworks have