Questionable Incentives

Posted Sept. 09, 2009, at 6:13 p.m.

As lawmakers in Augusta look for ways to cut the state budget, they naturally are considering the more than $200 million in tax breaks and other incentives that Maine gives to businesses every year. A major problem is that the state doesn’t know whether this investment is paying off.

A report earlier this year, by out-of-state consultants, looked at 22 programs and found that they were creating and retaining jobs. The report, presented to lawmakers in March, was based on a survey of 1,500 companies and 33 municipalities. It did not assess the effectiveness of specific programs, but asked about economic development assistance in general, making its findings of limited help to state policymakers.

One observation, however, should get their attention: Maine’s current economic development programs operate in “silos” with little coordination. In other words, not only does the state not know whether many of its business development efforts are cost-effective, it doesn’t ensure they complement one another.

In 2006, the Office of Program Evaluation and Government Accountability reviewed 46 state economic development programs, ranging from tax exemptions on fuel and electricity used at manufacturing facilities to agricultural grants. OPEGA found that a quarter of the programs had no clearly stated public purpose, a quarter did not have specific objectives and a third did not regularly report their performance.

OPEGA also reported that any efforts to monitor or oversee these programs as an investment portfolio would be hampered by a lack of essential information because 94 percent of the programs do not collect or maintain sufficient data to allow analysis of overlap and gaps between programs. More than half the programs did not provide information on administrative costs. “Without such data, there may be missed opportunities to streamline programs and reduce administrative costs within and among programs,” OPEGA said. “It is also difficult to determine whether some businesses or business sectors are receiving more assistance than needed while others are not receiving enough.”

The OPEGA report did not conclude that Maine was spending its tax money badly, but that it didn’t have enough information to know or to determine whether shifting the money it did spend could produce a better result.

Dana Connors, president of the Maine State Chamber of Commerce, reiterated that the state must continue investments in programs that encourage business investment and retain and create jobs. Chris Hall, vice president of the Greater Portland Chamber of Commerce, suggested merging programs and eliminating those that aren’t effective.

Because of the lack of information — which he has tried to solve repeatedly with legislation — Sen. Richard Rosen, R-Bucksport, suggests that lowering the tax rate for all businesses (and individuals) is a better approach than targeted incentives that help only some businesses. The recently passed tax reform bill may do this, he said.

In these difficult budget times, lawmakers should want to know what state expenditures and tax breaks (which mean less state revenue) are effective. Those that aren’t should be axed and the resources shifted to those with documented benefits.

http://bangordailynews.com/2009/09/09/opinion/questionable-incentives/ printed on August 20, 2014