Maine lawmakers extend disputed tax break

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Maine lawmakers have enacted a bill to extend the life of a controversial economic development program that has created hundreds of tax havens for businesses in Maine. 

The Pine Tree Development Zones program was set to expire at the end of this year, but its expiration date has been extended by three years to Dec. 31, 2021, and additional reporting requirements have been added for the estimated 200 businesses that benefit from the program statewide. Under a sunset provision written into the law that created the program, all benefits would have ended in 2028, but that date has been extended to 2031.

The bill was enacted Wednesday without the signature of Republican Gov. Paul LePage, who had sought a longer, five-year extension of the program.

The underlying law, first put in place under Democratic Gov. John Baldacci, provides qualifying businesses with tax benefits, including income tax credits and sales tax exemptions on the purchase of business equipment, in exchange for the promise of new jobs. 

Critics of the program have said it amounts to corporate welfare, but supporters have said it helps Maine compete for businesses that might otherwise be inclined to relocate to states with more business-friendly environments.

Companies that have used the Pine Tree zones program say it has created tangible benefits to Maine’s economy.

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“One of our goals in building our company has always been to provide high-quality jobs here in Maine,” said Don Oakes, CEO of Portland-based tote bags and accessories maker Sea Bags. “Manufacturing here and sourcing materials locally have always been cornerstones of our company. The Pine Tree Development Zones program has supported our growth and helped make it possible for us to continue to add jobs as we grow our business, and we’re happy (to) say we are now over 100 employees strong.”

In November, Bath Iron Works Vice President and General Counsel Jon Fitzgerald told lawmakers in a letter that his company uses the program to keep its overall costs down, which helps BIW compete with other U.S. shipyards. The company declined to elaborate further on Fitzgerald’s comments Friday.

“BIW is a participant in the Pine Tree Zone program and believes it has been an important incentive for businesses to locate in Maine or stay here while continuing to invest in operations that provide jobs and economic activity,” Fitzgerald wrote.

However, a $45 million shipbuilder tax credit for BIW approved by the Legislature this spring prohibits the company from taking further advantage of other tax incentive programs such as the Pine Tree zones program.

The amount that any individual company benefits from the Pine Tree zones program usually is not disclosed under state laws that protect the confidentiality of tax returns and shield proprietary information from competitors.

SUSTAINED SCRUTINY

The program was the subject of a 2017 report by the Office of Program Evaluation and Government Accountability, or OPEGA, the Legislature’s watchdog agency. OPEGA was directed to conduct the review by the Government Oversight Committee. Last August, OPEGA told the committee that it could not determine exactly how many jobs, if any, the 15-year-old tax break program had created.

“We can tell you, unequivocally, that the design does not guarantee that a vast number of jobs will be created,” Jennifer Henderson, a senior analyst with OPEGA, told lawmakers at the time.

The OPEGA report found that some companies have gained tax benefits under the Pine Tree zones program without creating any new jobs. The report also found that legislative changes to the program over the years have made it available well beyond the high-unemployment areas it was originally meant to serve. The report recommended that additional accountability measures be implemented.

The bill enacted Wednesday requires more reporting by businesses, as well as the release of more comprehensive data so the state can better assess what jobs were created as a result of the program.

The OPEGA report followed another independent review of the program conducted in 2014 by Massachusetts-based Investment Consulting Associates, or ICA, which found that the program’s costs exceeded its benefits. Specifically, the ICA report said the program delivered total direct benefits to the state of $358 million in 2012, in terms of people employed and salaries and total sales in the state. The program, however, had $457 million in total direct costs related to lost taxes, administration, overhead and other expenses.

“While the Pine Tree Development Zone (PTDZ) program received significant praise from public and private sector interviews, preliminary cost-benefit analysis shows the program is very costly to the state of Maine,” the 2014 report said.

Still, LePage and several Republican and Democratic lawmakers in both the House and Senate have championed the program, calling it a vital tool for job creation in rural Maine. They have said Pine Tree zones are among the few incentives the state can offer businesses to draw them to Maine or keep them here.

Senate Minority Leader Troy Jackson, D-Allagash, said he sponsored the extension bill because he has seen the Pine Tree zones program make a positive difference in his district. He credited the program for saving the Twin Rivers paper mill in Madawaska from closure a decade ago, when it was owned by Fraser Paper Co.

“That program helped keep the mill going,” he said. “It certainly was part of making sure that mill didn’t shut down.”

Jackson said the additional reporting requirements added in the new bill go a long way toward addressing the concerns about accountability and transparency raised in the OPEGA report, but he said there is still room for further improvement.

“I think it definitely moves the ball forward in that regard,” he said. “I definitely think there’s more work that can be done.”

The state has approved more than 200 Pine Tree zones, which are frequently coupled with other tax-relief programs for businesses. They include one that refunds up to 80 percent of the state’s payroll tax on new employees, provided those businesses are located in the zones.

The payroll tax refund costs the state about $6.2 million a year, and Pine Tree zones cost the state about $11.4 million. But supporters say the state would be worse off if those employers left Maine altogether.

Established by the Legislature in 2003, the Pine Tree zones program allows eligible businesses the chance to significantly reduce or eliminate state taxes for up to 10 years while creating quality jobs in certain professions, or by moving existing jobs in qualifying industries to Maine. Under the law, quality jobs are defined as those that meet certain income thresholds and offer health care coverage and access to retirement plans, among other provisions.

Industries eligible to participate in the program include biotechnology, aquaculture and marine technology, composite materials technology, environmental technology, advanced technologies for forestry and agriculture, manufacturing and precision manufacturing, information technology and financial services.

Maine lawmakers have enacted a bill to extend Pine Tree Development Zones, the controversial economic development program that has created hundreds of tax havens for businesses in Maine. The bill was enacted without the signature of Republican Gov. Paul LePage, above, who had sought a longer, five-year extension of the program.

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