AUGUSTA (AP) – Despite a budget shortfall approaching $1 billion, Maine’s $250 million annual spending on tax incentives and other economic development programs is a worthwhile investment, according to a report by independent consultants.

The study also found, however, that companies receiving state assistance are not immune to the current economic turmoil.

The report, which evaluated 22 state programs, is being presented Thursday to state lawmakers; Gov. John Baldacci was being briefed on it Wednesday afternoon. It concludes that the programs are accomplishing their objectives of stimulating business growth, and creating and retaining jobs.

The programs created 3,602 jobs and retained another 13,090 during the past year. With spinoff businesses and jobs, the total impact was 39,245 jobs created and increased statewide economic activity of more than $1.1 billion, according to EntreWorks Consulting of Arlington, Va., lead firm of the four conducting the study.

The consultants also surveyed 1,500 companies and 33 municipalities that benefited from the economic development programs. Tax breaks amounted to most of the state’s total aid, 80 percent in 2007.

In February 2008, three legislative committees that oversee the programs asked for a review to find out if they were delivering their intended results, saying the job was too big for in-house analysts.

EntreWorks and the other consultants were paid a total of $150,000.

The consultants also compared Maine’s performance with that of seven states with similar economic profiles – Idaho, Nebraska, New Mexico, New Hampshire, Rhode Island, South Dakota and West Virginia – and the Canadian provinces of New Brunswick and Nova Scotia. The study found personal incomes in Maine to be right about in the middle.

The 1,500 companies participating in the survey lost 1.7 percent of their jobs during the past year, but that was still less than the statewide employment decline 1.9 percent during the same period.

The companies also told the consultants they would have lost even more without public aid. Additionally they reported a 7.5 percent increase in revenues during the past year, and average wages of $43,279, higher than the 2007 state average of $33,722.

The economic development review found areas for improvement in some programs, such as Pine Tree Zones, which directs assistance to targeted industries or areas of the state, and a program that reimburses companies for taxes paid on equipment purchases. It also called for better outreach and marketing by the Department of Economic and Community Development.

The Maine Center for Economic Policy, a nonpartisan group that advocates for policies affecting low- and moderate-income Mainers in the State House, acknowledges that economic development programs can bring benefits but says policies on how the money is distributed – especially in tax breaks – need to be re-examined.

Executive Director Christopher St. John sees a need to tighten the criteria for which communities should give tax increment financing, which lets municipalities redirect some or all of the new property taxes from an investment project to the same project’s financing.

He thinks TIFs are often used when the company already plans to relocate in Maine, sometimes setting up one business in competition with one or more others.

“Too often, there’s spending in ways that’s not necessary,” said St. John.

The conservative Maine Heritage Policy Center shared some of St. John’s views.

While saying Maine needs more businesses to locate and expand in the state, the Heritage group said traditional economic development efforts have escalated into a process where states, counties and municipalities get into “bidding wars” offering tax benefits, rebates, subsidies, land deals and other ways to make their locations more attractive.

Interstate contests to lure businesses can put a major financial burden on states, and existing businesses end up shouldering part of the cost, the group said.

“Maine’s best path to business development is to create a better business climate for all companies,” the Heritage Policy Center said.

Copy the Story Link