The LePage administration has proposed funneling $7 million to the Maine Military Authority in Aroostook County to cover huge losses incurred when the state-owned business underbid on a contract.

Late last year, Gov. Paul LePage halted work at the Maine Military Authority on a $19 million contract to refurbish 32 aging transit buses for the Massachusetts Bay Transportation Authority in Boston. The work to restore the two-section, articulated buses proved to be much more complicated – and costly – than anticipated, resulting in millions of dollars in losses and eventually layoffs as Maine Military Authority stopped accepting delivery of additional buses.

While officials from Maine Military Authority and state government are trying to renegotiate the contract, they are also seeking a $7 million bailout to rehire workers, complete the work and better position the business in the future. The LePage administration has proposed earmarking $7 million from the state’s year-end surplus to a special Maine Military Authority Reserve Fund.

“The bottom line is our bid was way too low and it created a huge challenge for us,” Hugh Corbett, the authority’s executive director, told members of the Legislature’s Veterans and Legal Affairs Committee on Wednesday. “We do need some help to complete this project.”

Located on the former Loring Air Force Base in Limestone, the Maine Military Authority was created by the Legislature in 2000 as a quasi-governmental business to restore military vehicles such as Humvees. Over the years, Maine Military Authority refurbished more than 16,000 vehicles, generated $600 million in revenue and, at its peak, employed roughly 550 workers.

But as the U.S. drew down its large-scale combat presence in Iraq and Afghanistan, orders from the military to refurbish vehicles fell dramatically. So Maine Military Authority leaders have been exploring municipal and commercial contracts as a way to sustain employment and keep the lights on at the large facility.

The contract to refurbish the MBTA buses represented Maine Military Authority’s first major commercial venture. But the authority severely underbid the contract.

Brig Gen. Douglas Farnham, head of the Maine National Guard and commissioner of the Maine Department of Defense, Veterans and Emergency Management, attributed the losses to a combination of factors. The buses were more complex to refurbish and were in worse condition than expected. Parts proved costly to obtain, there were delays starting the work because of bureaucracy and then there was a “misunderstanding on the scope of the work,” said Farnham.

“We were in a situation where we had to halt (work) because we were losing money like crazy but, at the same time, we signed a contract so we had to find a way forward,” Farnham told members of the Legislature’s Appropriations and Financial Affairs Committee. “So the primary focus is to finish the contract. The secondary piece of that is to try to establish some structure that buys us a little bit of time to figure out what the right way forward is.”

Maine Military Authority owes an estimated $2.2 million to vendors and has a “cash deficit” of $3.4 million, according to figures provided Wednesday to the Appropriations Committee, which is reviewing the governor’s budget requests.

Farnham said taxpayers have never been asked to subsidize the Maine Military Authority before in its nearly 20-year history. In fact, the authority funneled money back into the state’s General Fund for several years.

But after the loss of the military contracts, employment levels at Maine Military Authority had dropped to just 65 workers prior to the recent layoffs. There are currently 28 employees, although the $7 million will allow the authority to rehire most of the workers who had been employed on the MBTA project, Farnham said.

Some lawmakers expressed concerns about the long-term future of the Military Authority and the state’s involvement in the business.

“I am concerned that the government is in a private-sector business,” said Rep. Jeffrey Timberlake, R-Turner, one of the Appropriations Committee’s more conservative members. “I understand why we did it to help Loring and to help Aroostook, and I believe in all of those things. … But my experience in dealing with it, for the 25 years of my life that I have been bidding with the government, is this is a path that will continue.”

The LePage administration had originally wanted $10 million in surplus funds for the Maine Military Authority but reduced that request to $7 million on Wednesday.

Back in September when he ordered work to halt on the MBTA buses, LePage expressed “major concerns” about the underbid contract and the costs to taxpayers. At the time, Farnham said they planned to attempt to renegotiate the contract with MBTA, adding that the state “cannot in good faith create a financial burden to taxpayers and we will work to protect these good jobs for Mainers.”

Neither Corbett nor Farnham discussed details of the contract renegotiations but a hand-out to lawmakers said the new contract will lead to increased labor hours, a larger budget for parts and lead to a program that “will be revenue neutral going forward.”

Farnham and Corbett said they expect details of the renegotiated contract to be announced soon.

“We will not go into further debt to complete this project,” Corbett said.

LePage spokesman Peter Steele, meanwhile, said the additional money “is designed to position MMA to complete MBTA work, continue other work in the pipeline and position MMA for the future.”

Kevin Miller can be contacted at 791-6312 or at:

kmiller@mainetoday.com

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