What can Maine learn from Kestrel’s migration?

By Matt Wickenheiser, BDN Staff
Posted Jan. 20, 2012, at 3:56 p.m.

What once seemed like a sure thing for Maine slipped from the state’s grasp this week with the news that Kestrel Aircraft Corp. had decided to base most of its manufacturing in Superior, Wis., instead of here.

Maine had once envisioned someday up to 600 workers producing Kestrel’s aircraft at the former Brunswick Naval Air Station, now called Brunswick Landing. Instead, the state now hopes for up to 100 Kestrel jobs at Brunswick Landing, working on the final stages of finish manufacturing.

Maine officials scrambled for months to close the multimillion-dollar gap in financing the start-up needed to operate in the state, ultimately to no avail.

So in the wake of Kestrel’s migration back to its home state (company founder Alan Klapmeier is a native of Wisconsin and co-founded Cirrus Design there), are there lessons Maine can take away going forward?

“There are always lessons we can learn, both when we’re successful and when we’re not successful,” said Michael Aube, president of Eastern Maine Development Corp. in Bangor. He is a past commissioner of Maine’s Department of Economic and Community Development and former state director of Maine USDA Rural Development.

Aube didn’t work specifically on the Kestrel deal but said it was obvious that state officials made significant efforts to both attract and retain the company.

“First and foremost, the odds are better for us to build what we have, grow what we have, than try to attract what we don’t’ have,” said Aube, who writes a biweekly column for the Bangor Daily News. “Though we want to be open for business, finding those businesses that want to locate here can be very challenging; we have not had the resources to make those incentives available.”

Any business growth or attraction plan has to be based on the assets of a region, said Aube. And, he added, the state needs to develop networks and partnerships to collaborate among different levels of government, as well as with private groups, so that all resources can be brought to bear on an effort.

Peter DelGreco, president and CEO of Maine & Co., a private, nonprofit business attraction group, agreed. DelGreco didn’t work on the Kestrel deal, but noted that media reports related an alignment of financing and economic development efforts in Wisconsin among state, county and municipal officials.

That happens in other successful states, such as Texas, said DelGreco. Maine has strong local communities but county governments are not as strong, said DelGreco. He said he wasn’t aware of projects here in which state, county and local officials have been involved in providing financial incentives.

DelGreco saw a few takeaways from the Kestrel deal.

“I think we have to do a better job of targeting what makes sense for us,” said DelGreco. “I look at Kestrel and see a high-risk, very high-reward project.”

Companies can be broadly grouped in three areas, he said: incubation, growth and mature.

Companies in the three areas have different needs. Start-ups tend to require capital, for example, while growth companies are looking for infrastructure needs — such as buildings and a work force.

“This is something for the policymakers — would it make sense to have those resources focus on start-up companies, or companies that have a track record and are looking to expand?” said DelGreco. “There’s still risk there … Or do we focus only on mature, Fortune 100 companies?”

DelGreco said he looks at Maine’s past success stories in terms of business attraction and sees companies such as AthenaHealth, Carbonite and NotifyMD. Those companies were getting ready to grow and add headcount and did so in Maine, he said.

“They’ve reached milestones, and those milestones indicate a certain staying power, though they don’t guarantee anything,” said DelGreco.

DelGreco noted that Maine’s incentive programs are written in statute, which doesn’t leave a lot of discretion or flexibility in what can be offered to companies. Nationally, a number of states have developed more discretionary sources of incentives. Arizona has a public/private department that has access to a $25 million closing fund, controlled by the governor, that can be used to put together incentive deals for companies seeking to locate there. Ohio also has a group that has access to similar funds through taxes on alcohol. Texas has a $300 million fund.

There’s a debate nationally as to whether economic development should be done by the government, by private groups or by some combination. These are issues Maine can consider.

Another lesson from Kestrel, said DelGreco, is that it should be crystal clear that Maine’s companies are targets for other states. It is key for Maine officials to keep in communication with companies, to be aware of needs and problems, he said.

“Having a meaningful feedback loop is important — I believe all administrations try to figure out their best way to do that,” said DelGreco.

Commissioner George Gervais of the Department of Economic and Community Development could not be reached for comment. On Monday, he told the Bangor Daily News that he felt the state needed to have control over some entity that can allocate federal New Market Tax Credits. The credits, used as an incentive, now are allocated in Maine only by Coastal Enterprises Inc. CEI, a private, nonprofit group, had given Kestrel $20 million in New Market Tax Credits, though the aircraft company had hoped for about $80 million.

In Wisconsin, Gervais noted, a quasi-state agency whose head is directly appointed by the governor allocates those credits, so the financing work they do is more aligned with the state’s goals. In this case, Wisconsin Housing and Economic Development Authority will work with Kestrel to obtain a $30 million allocation of federal New Markets Tax Credits.

If an organization that Maine state government had more control over could allocate some of the New Market Tax Credits, it might be easier to put together details in areas that are critical, said Gervais. That’s something the administration is discussing, he said.

State Rep. Kerri Prescott, R-Topsham, agreed with that goal. Prescott is co-chairman of the Legislature’s Labor, Commerce, Research and Economic Development Committee.

Maine is competing with other states for jobs, she said, and the state needs some control over those allocations. Prescott said that overall, the state needs to continue to work on macro issues to make Maine more attractive to business.

“Maine obviously needs to get its taxes in line, and streamline regulations, overall, to make us more competitive,” said Prescott. “I think the new administration has made some progress there, but we’re not out of the woods.”

Another lesson from Kestrel, she said, is that officials may want to get the financial details of any company they’re working with upfront. A problem with Kestrel came up when the company would not provide those details when officials were trying to line up financing, Gervais has said.

Sen. Seth Goodall, D-Richmond, a member of the Maine Economic Growth Council, said now is a time for lawmakers to look at what could have been done better to secure those potential jobs.

“As policymakers we must make sure we analyze all our economic development programs as well as our partners in the community to make sure we have the tools available to take action immediately,” said Goodall, “but those tools must be in the best interest of the taxpayer.”

Maine is a relatively small state, so it doesn’t have all the resources available for incentives that other states may, he said. But because of that small size, lawmakers and community members can move together quickly to work and even implement legislation and policy changes needed to act on a potential business deal.

He also suggested that Maine has assets that Gov. Paul LePage needs to stress to help promote the state and attract businesses here. For example, said Goodall, a recent Ernst & Young study ranked Maine first in the nation in terms of levying the smallest tax burden on new investments. It’s that sort of news that should be touted, he suggested.

“Mainers are demanding we all work together to create jobs and strengthen our economy — that includes the governor being a salesperson-in-chief and promoting the strengths of Maine,” said Goodall.

http://bangordailynews.com/2012/01/20/business/what-can-maine-learn-from-kestrels-migration/ printed on December 25, 2014