Could Maine pay outstanding MaineCare hospital settlements with proceeds from a General Fund bond issue?
Subject
Whether the State of Maine could constitutionally use General Fund bond proceeds to pay outstanding MaineCare settlements owed to hospitals, given Article V, Part 3, Section 5 of the Maine Constitution.
Currency note
This opinion was issued in 2009. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Plain-English summary
In 2009, Maine owed hospitals a substantial backlog of MaineCare reimbursement settlements. Senate Minority Leader Kevin Raye asked AG Janet Mills whether the Legislature could authorize a General Fund bond issue to pay them off. The AG concluded that a court would likely hold the bond approach unconstitutional.
The Maine Constitution, Article V, Part 3, Section 5, says: "The Legislature shall enact general law prohibiting the use of proceeds from the sale of bonds to fund current expenditures." The provision was added in 1976 to support Maine's bond rating by ensuring the State would not borrow to cover ongoing operating costs. Although the constitutional language calls for an implementing statute, no such general law was ever enacted. The AG concluded that Section 5 nevertheless operates as a direct limit on the Legislature: under Allen v. Quinn, 459 A.2d 1098 (Me. 1983), constitutional provisions are read liberally to carry out their broad purpose.
The next question was whether MaineCare hospital settlements are "current expenditures." The AG answered yes. Hospital settlements pay providers for care delivered to MaineCare members, fiscal year by fiscal year. They match Black's Law Dictionary's definition of current expenses, "ordinary, regular, and continuing expenditures for the maintenance of property, the carrying on of an office, municipal government, etc." They are not "capital expenditures" in the sense of construction projects with long-term existence. Out-of-state cases like State v. Board of Education (N.J. 1902) and Meridien Life Drainage System v. Wiss (Ill. 1913) had treated current expenses as the equivalent of "running expenses," which the AG found persuasive.
The AG noted that Maine's actual practice since Section 5's adoption had been consistent: bond issues had been limited to capital and development projects, establishing a "custom" relevant to constitutional interpretation. A court interpreting Section 5 would likely give that custom weight.
Bottom line: a General Fund bond to pay hospital settlements would face a serious constitutional challenge and would likely be struck down. The opinion did not reach the secondary question of whether such bonds would also lose tax-exempt status.
Common questions
Q: What's the difference between a "current expenditure" and a "capital expenditure"?
The AG used Black's Law Dictionary definitions: current expenses are "ordinary, regular, and continuing" maintenance and operating costs. Capital expenditures are "made with expectation of existence for an indefinite period," like buildings, highways, or bridges, where the expenditure is "in the nature of an investment for the future." Hospital settlements pay for care that has already been delivered: they are the latter at no, the former.
Q: Why did the AG read Section 5 as self-executing despite the call for an implementing statute?
The drafters' floor statements (Senator Corson; later legislative-record entries) treated the bond-for-current-expenditures prohibition as a substantive rule, not just a directive to enact a statute. The Law Court in Allen v. Quinn directs liberal construction of constitutional provisions to give effect to their purpose. Reading Section 5 as inert until the Legislature implemented it would have left the rule meaningless for over thirty years.
Q: What about other practical problems with bonding for current expenses?
The AG noted, in a footnote-style aside, that bonds used for current expenses might also lose their federal tax-exempt status. That separate concern was not the basis for the conclusion but reinforced it.
Background and statutory framework
MaineCare is Maine's name for its Medicaid program. Federal law (42 U.S.C.S. § 1396a(a)(13)(A)) requires states to set out a methodology for hospital reimbursement in the State Plan. Maine's three-step process under 22 M.R.S.A. §§ 3172-3193 estimates a hospital's annual reimbursement, makes weekly interim payments, issues an Interim Settlement at fiscal year end, and a Final Settlement after the audited Medicare cost report. Both Interim and Final Settlements are recurring operating payments to a service provider.
The Maine Constitution's Article V, Part 3, Section 5, was added in 1976 in response to bond-rating concerns. It contains two operative parts: (1) a prohibition on bonding for current expenditures, and (2) a first-priority appropriation requirement for principal and interest payments on existing bonds. The opinion addressed only part (1).
Citations
- Me. Const. art. V, pt. 3, § 5 (bonding regulations)
- 22 M.R.S.A. §§ 3172-3193 (MaineCare reimbursement)
- 42 U.S.C.S. § 1396a(a)(13)(A) (Medicaid State Plan reimbursement methodology)
- Allen v. Quinn, 459 A.2d 1098 (Me. 1983) (constitutional provisions liberally construed)
- Opinion of the Justices, 146 Me. 316 (1951)
Source
- Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
- Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/2009/ag_20090423.pdf
Original opinion text
Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.
MAINE STATE LEGISLATURE
The following document is provided by the
LAW AND LEGISLATIVE DIGITAL LIBRARY
at the Maine State Law and Legislative Reference Library
http://legislature.maine.gov/lawlib
Reproduced from scanned originals with text recognition applied
(searchable text may contain some errors and/or omissions)
2009-03
REGIONAL OFFICES:
84 HARLOW ST., 2ND FLOOR
BANGOR, MA!NE,04401
TEL: (207) 941-3070
FAX: (207) 941-3075
]ANETT. MILLS
ATTORNEY GENERAL 44 OAK STREET, 4TH FLOOR
PORTLAND, MAINE,04101-3014
TEL: (207) 822-0260
FAX: (207) 822-0259
TDD: (877) 428-8800
STATE OF MAINE
TEL (207) 626-8800 OFFICE OF THE ATTORNEY GENERAL 14 ACCESS HIGHWAY. STE. l
CARIBOU, MAINE,04736
TTY: i -888-577 -6690 6 STATE Hou SE STATION TEL: (207) 496-3792
AUGUSTA, MAINE 04333-0006 FAX: (207) 496-3291
April 23, 2009
The Honorable Kevin L. Raye
Senate Minority Leader
3 State House Station
Augusta, ME 04333-0003
Dear Senator Raye:
You have asked whether a General Fund bond issue tq_provide funds to pay outstanding
MaineCare settlements owed to hospitals would be constitutional. Your question specifically
refers to article V, part 3, § 5 of the Maine Constitution ("Section 5"), which provides (in
pertinent part) that "the Legislature shall enact general law prohibiting the use of proceeds from
the sale of bonds to fund current expenditures ... "
For the reasons that follow, we believe that MaineCare hospital settlements are current
expenditures and that Section 5 prohibits the use of bond proceeds to make those payments.
Facts
We begin by setting out our understanding of the hospital settlements that are the focus of
your inquiry. The Department of Human Services ("DHHS"), through the joint federal-state
Medicaid program known as "MaineCare," pays hospitals and other providers for medical
services to individuals of limited income. 22 M.R.S.A. §§ 10, 12, 3173 (2007}. If a State elects
to participate, as Maine has, it must adopt a Medicaid State Plan and comply with certain
requirements and restrictions imposed by federal Medicaid statutes and regulations, 42 U.S.C.S.
§§ 1396, 1396a, 1396k (2007). The State Plan must include a method for reimbursing health care
providers for the medical services they provide to MaineCare members. 42 U.S.C.S.
§ 1396a(a)(13)(A). Each State establishes a methodology for Medicaid hospital reimbursement,
which is set forth in its State Plan. 42 U.S.C.S. § 1396(a)(13)(A).
Pursuant to 22 M.R.S. §§ 3172-3193 (2007), Maine adopted a State Plan that establishes
a three-step process for reimbursing hospitals. First, prior to a particular fiscal year, DHHS
estimates the total amount of Medicaid reimbursement a hospital will be owed for the fiscal year
and makes weekly interim payments over the course of the year. Second, at the close of the
hospital's fiscal year, DHHS issues an Interim Settlement based on cost data in the hospital's as-
filed (but un-audited) Medicare cost report. Third, DHHS issues a MaineCare Final Settlement
after it receives both the Notice of Program Reimbursement and the audited Medicare cost report
from Medicare.
We take your use of the term "hospital settlements" to encompass both the Interim and
Final Settlements issued by DHHS pursuant to this procedure, as there does not appear to be any
legally significant distinction between the two for purposes of your question.
Legislative History of Section 5
Section 5 was added to the Maine Constitution effective November 16, 1976 and has
remained unchanged since that time. It provides, in its entirety:
Section 5. Bonding regulations; prohibiting use of
proceeds from sale of bonds to fund current expenditures. The
Legislature shall enact general law prohibiting the use of proceeds
from the sale of bonds to fund current expenditures and shall
provide by appropriation for the payment of interest upon and
installments of principal of all bonded debt created on behalf of the
State as the same shall become due and payable. If at any time the
Legislature shall fail to make any such appropriation, the Treasurer
of State shall set apart from the first General Fund revenues
thereafter received a sum sufficient to pay such interest or
installments of principal and shall so apply the moneys thus set
apart. The Treasurer of State may be required to set apart and
apply such revenues at the suit of any holder of such bonds. The
prohibition on use of proceeds from the sale of bonds to fund
current expenditures shall only apply to those bonds authorized on
or after July 1, 1977.
The sponsor of the bill proposing the addition of this language to Maine's Constitution
described its purpose to his colleagues in the Senate as follows:
Mr. CORSON: Mr. President, this constitutional amendment is
designed to add greater insurance to bonds issued by the State of
Maine. It is done with one primary purpose, and that is to aid in
increasing our bond credit rating from this "AA" to "AAA" by
putting it into the constitution that the repayment of bond interest
and principal has a first lien, so to speak, on tax income, and by
insuring that the government of Maine will not be tempted to
utilize bond proceeds to fund current expenditures.
Legis. Rec. 403 (1976).
The final sentence did not appear in Section 5 as initially proposed by L.D. 2206 (lOih
Legis. 1976). That sentence, providing that these new constraints would be applicable only to
bonds authorized after July 1, 1977, was added by amendment, Sen. Amend. B to L.D. 2206
2
(1 Oih Legis. 1976), in order to avoid an adverse impact on bond issues that were already
scheduled at that time. See Legis. Rec. 528, 1001, and 1002 (197 6).
Discussion
Section 5 contemplates that the Legislature would enact general law prohibiting the use
of proceeds from the sale of bonds to fund cunent expenditures. It does not appear that any such
general law was enacted after this amendment to the Constitution was approved by the voters;
certainly we are not aware of any cunent statute of this kind. Thus, as a threshold issue we
consider whether that part of Section 5 prohibiting the bonding of current expenditures is
effective in the absence of an implementing statute. 1
When Section 5 was submitted to the voters, the Intent and Content prepared by the
Attorney General for publication in the Secretary of State's guide for voters described the cunent
expenditure limitation in this way:
It is intended to ... prevent the use of proceeds of the sale of bonds
authorized by the Legislature on or after July 1, 1977, to pay
current expenditures which goal it accomplishes by requiring the
Legislature to pass legislation to that effect ...
Intent and Content, Proposed Constitutional Amendment No. 4 (1976), at 6.
This language is ambiguous, though it can be read to suggest that the implementing
legislation is necessary to give effect to the prohibition. However, the legislative history
suggests an alternate reading: that the general law to be enacted by the Legislature is intended to
provide further detail about its application.
The constitutional amendment requires by its terms a general law
which would have to be enacted by a later legislature to define
some of the terms in the constitutional amendment.
Legis. Rec. 404 (lOih Legis. 1976).
[W]hat this amendment would do is state that we will not be
bonding for current expenditures. In other words, we will not
bonow money over a long term to meet current obligations.
Legis. Rec. 1001 (lOih Legis. 1976).
We are stating unequivocally that the State of Maine will not use
bonding procedures to fund cunent expenditures, that whatever is
1
This opinion does not address that part of Section 5 giving bond interest and principal payments first priority
against general revenues i,n the State's Treasury. We note that the language requiring enactment of implementing
statutes appears to apply only to the current expenditure provision.
3
going to be spent is going to be raised through present tax
resources.
Legis. Rec. 1002 (lOih Legis. 1976).
The Law Cami has held that constitutional provisions are accorded liberal interpretation
in order to carry out their broad purpose, because they are expected to last over time and are
cumbersome to amend. Allen v. Quinn, 459 A. 2d 1098 (Me. 1983). Applying this principle
here, we believe that Section 5 is best read as a direct limitation on the authority of the
Legislature to propose that bonds be used to cover current expenditures, with or without any
implementing legislation that might be enacted.
We have found no Maine case interpreting the phrase "current expenditure.'' The Justices
of the Supreme Judicial Court have stated that established principles of constitutional
construction require that the views of the framers be given great consideration, and that
"whenever a constitutional provision may be considered ambiguous its interpretation "must be
held to be settled by the contemporaneous construction, and the long course of practice in
accordance therewith ... 11 Opinion of the Justices, 146 Me. 316, 80 A.2d 866, 869 (1951 ),
quoting State v. Longley, 119 Me. 53 5, 540, 112 A. 260, 262 (1921 ).
We are aware that the Legislature, as well as the Treasurer and this Office, have observed
the prohibition on use of bond proceeds for current expenditures, establishing custom and
general usage that are relevant to the interpretation of Section 5. For this purpose, a distinction is
drawn between current and capital expenditures.
Black's Law Dictionary defines "cunent expenses" as "[o]rdinary, regular, and
continuing expenditures for the maintenance of property, the carrying on of an office, municipal
government, etc." Black's Law Dictionary 458 (4 th Ed. 1968). Several courts have concluded
that "current expenses" are the equivalent of "running expenses." See State v. Board of
Education, 68 N.J.L. 496, 53 A. 236 (N.J. 1902), and Meridien Life Drainage System v. Wiss,
258 Ill. 600, 101 N.E. 941 (1913).
In contrast, "capital expenditures" is defined as the "[cJost of construction made with
expectation of existence for an indefinite period ... expenditure in nature of an investment for the
future." Black's Law Dictionary 263 (fh Ed. 1968), citing, inter alia, E. W Edwards & Son v.
Clarke, 29 F.Supp. 671 (N.D.N.Y. 1939) (concluding that construction of a pedestrian tunnel
between department store buildings generated capital costs rather than ordinary expenses for
federal tax purposes).
Applying this distinction here, hospital settlements are payments made by DHHS for
regular, recurring qualified expenses incurred by hospitals in serving MaineCare recipients.
They are not capital expenditures because they are not paid for the purpose of constructing a
building, highway or bridge, for example. Settlement payments fit the concept of current
expenditures, or "running expenses," as they represent payment of costs for services as they
occur fiscal year by fiscal year.
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Conclusion
The Law Court has not yet interpreted Section 5, or provided any guidance concerning
the meaning of the term "current expenditures" in any context that we have been able to find.
While we have not done historical research on the project costs that have been funded by general
obligation bonds since Section 5 was approved by the voters, in recent periods the Legislature
has interpreted this restriction by limiting its bond proposals to capital and development projects,
establishing a custom that would be relevant to a court's consideration of this issue. Given the
nature of the hospital settlements, we think it likely that a court would conclude that they are in
the nature of current expenditures and thus cannot be paid with proceeds from general obligation
bonds.2
I hope this information is helpful.
Sincerely,
~-7~
NETT. MILLS
Attorney General
cc: The Honorable Elizabeth Mitchell, Senate President
The Honorable Hannah Pingree, Speaker of the House
Patrick Ende, Chief Legal Counsel to the Governor
2
In light of this conclusion, we do not reach your question concerning other possible constitutional issues.
However, we note that there are practical considerations outside the scope of this opinion that would attach to the
use of bond proceeds to fund current expenses, including the possibility that the resulting bonds would be taxable
rather than tax exempt outside the scope of this opinion.
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