Federal auditors have accused Maine of diverting $2.6 million in federal grants meant to fund popular fishing, hunting, and wildlife protection programs into its underfunded pension and retiree health care system instead.

The investigative arm of the U.S. Department of the Interior has issued several recent audits, the latest released July 28, questioning the practice of using new grants to pay down old pension liabilities within Maine’s Department of Marine Resources and Department of Inland Fisheries and Wildlife between 2017 and 2019.

The recent audits of DMR and DIF&W grant use also found another $750,000 in alleged financial irregularities, including alleged misuse of hunting and fishing license revenue, sloppy recordkeeping, and exaggerating the value of volunteer time used to qualify for matching federal grant funds.

“The efficiency and effectiveness of federal grants are potentially reduced,” the auditors wrote in a July 26 report on DMR grant use. “If states use a greater proportion of grant funding to pay down unfunded liabilities, less funding is available to accomplish the grant’s agreed-upon objectives.”

The U.S. Fish and Wildlife Service must submit a corrective action report on how it plans to address the auditors’ DMR findings by Aug. 15 and DIF&W findings by Oct. 27. Those reports must include deadlines for implementation and the amount of any grant funds it might ask Maine to repay.

It’s not clear whether the state faces future penalties, but state officials have disputed many of the Office of Inspector General’s findings, including the use of grant funds to pay down its pension and retiree healthcare debts, which officials described as a common payroll practice at state agencies both in Maine and across the country.

State Controller Douglas Cotnoir told auditors in February that the practice was allowable and reasonable.

“In Maine’s case, these fringe benefits are granted under established written policies,” Cotnoir wrote in response to the inspector general’s draft findings. “Funded within the fiscal year charged, computed via an acceptable actuarial cost method, with the unfunded liability component amortized over a period of years.”

State Auditor Matthew Dunlap, who as a lawmaker chaired the legislative committee overseeing Inland Fisheries & Wildlife, said state agencies have been using this payroll practice for years. Dunlap wasn’t directly involved in these audits but provided the inspector general’s office data that was used in them.

“Nobody is stealing crumbs of bread from the mouths of orphans to throw a garden party,” Dunlap said. “This is a difference of opinion, a difference in interpretation. If they want to change how it’s done, that’s a huge shift in national policy that affects every federal grant to every state agency in almost every state.”

The auditors also say DIF&W diverted $548,000 in state hunting and fishing license revenue to build the Summerhaven Shooting Range in Augusta. That facility is used by the Maine Warden Service to train, but it is also used by outside law enforcement agencies, which is a violation of grant rules.

In another example, Maine claimed the value of volunteers working on a grant-funded project at $30.73 an hour instead of the grant-approved $19.54 an hour. Auditors say this resulted in a $13,786 overage in the calculation of in-kind contributions, resulting in $41,358 in improper matching federal funds.

But auditors spent most of their time focused on Maine’s use of federal grants to pay off its pension debt.

The wildlife and sport fishing restoration program grants were meant to be used for wildlife assessment and management, fisheries operational planning, land acquisition and habitat management, restoration of diadromous fish, hunter education programs, and saltwater recreational fishing.

Auditors claim Maine used 30% of the grant’s payroll expenditures – the total amount of salaries and wages, including regular hours as well as sick time, vacation time, and holiday hours – to pay off pension and retiree health care obligations incurred in previous years that Maine can’t pay on its own.

These unfunded liabilities occurred because the state underfunded the plan and had a lower-than-expected rate of return, auditors say. Maine is not alone in doing this – many states have built up huge unfunded pension debts over the years as they put off fully funding state employee pension plans.

Maine, like most states, has a pension system for retired public employees that it sometimes struggles to adequately fund. During former Gov. Paul LePage’s tenure, the state shored up its pension debt in part by raising the retirement age.

During the years covered by these grants – 2017 through 2019 – Maine had the capital, projected income, and investment returns to fund between 82% and 84% of its pension obligations. That’s up from 72.6% just 10 years earlier, and in 2019, Maine’s was the highest-funded plan in New England.

Auditors acknowledge that states can use federal grant money to make “reasonable” contributions to a grant-funded employee’s retirement, but they said Maine’s 30% was unreasonable and far more than the 8.4% of payroll expenditures it puts toward a state worker’s “normal” retirement costs.

In June, the same federal auditors called out Ohio for using $1.4 million of federal fishing, hunting, and wildlife grant funds to pay down its unfunded state pension debt. Ohio was diverting a smaller share of its overall fish and wildlife funds – 9.7% of payroll expenditures – than Maine’s 30%.

In an independent review of 10 other states, U.S. Department of the Interior auditors found four states had higher pension and other post-employment benefit contribution rates than Maine’s 30%. They didn’t audit those states’ grants but concluded that those likely contained high unfunded pension debts.

One unidentified state may have used as much as 84% per payroll dollar on unfunded liabilities, leaving just 16% of payroll dollars available for its intended use, auditors found. Another state may have used 9% per payroll dollar, freeing up much more grant money for its intended use.

Maine officials questioned why this was being raised in an audit, an arena usually reserved for accounting issues.

“The issue should be discussed at the national level as a policy issue and then if necessary, a decision made at that level on an appropriate course of action,” said James Connolly, the head of DIF&W’s Bureau of Resource Management, in a letter to auditors.

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