AUGUSTA, Maine — As the days go by, a program that helps Maine’s early stage companies attract seed capital faces an uncertain future. The bill that would keep it alive is languishing in the Legislature.
The fact that the bill has been sitting on the special appropriations table since June 11 is not a good sign, according to Tim Agnew, principal at Masthead Venture Partners in Portland.
“Most bills die there,” he said Thursday. “I think people should be concerned.”
The bill, LD 743, would extend the Maine Seed Capital Tax Credit program, which allows people who invest no more than $500,000 in a Maine business with less than $3 million in gross sales to receive tax credits equal to 60 percent of the investment. It also provides tax credits to venture capital firms.
The credits, spread over four years, help defray the risk of such investments, enticing individuals to invest in local companies rather than conglomerates such as Google Inc., Agnew said.
The program is estimated to have created more than 1,800 jobs in Maine since 2003 and helped retain another 5,000, according to Agnew and testimony from Elizabeth L. Bordowitz, chief executive officer of the Finance Authority of Maine. Since the program began in 1989, it is estimated to have attracted $70 million in investment.
The tax credits, however, no longer are available to investors. The program reached in its statutory limit of $30 million in January.
The bill’s sponsor, Sen. Linda Valentino, a Democrat from Saco, said securing funding for the bill was still one of her highest priorities and that efforts were underway to save the program.
“We really need legislative action to put more money into the program,” she said. “It’s been hugely successful and we feel this is an immediate stimulus to the Maine economy.”
Her bill would remove the lifetime cap, replacing it with an annual cap of $5 million in tax credits.
Agnew estimates that if the program isn’t restarted, investments in Maine’s early stage companies could fall between 50 percent and 75 percent.
Jim Knight, CEO of PelletCo in Orono, experienced that reality firsthand. In January, a Maine investor agreed to invest $150,000 in PelletCo. The paperwork was being driven to the FAME office on the day the organization announced the program’s lifetime cap had been met. Upon hearing the tax credit no longer was available, the investor pulled his $150,000 investment, Knight said.
That immediately slowed the company’s growth and prevented it from hiring more employees, Knight said.
“The consequence for us is it slows our growth,” he said, which means fewer jobs and less tax revenue for the state.
If the program expires, it will cost at least 20 jobs in Maine this year between PelletCo and its vendors, Knight estimated. He also estimates it will cost the state between $4 million and $6 million in economic activity.
“That to me is the silly part of all this,” Knight said. “I know [the program] more than pays for itself. It’s a great deal for Maine. It’s unfortunate there’s this narrow-minded approach that will hurt everybody concerned.”
The bill is stuck on the appropriations table because it has a “fiscal note,” meaning it will cost the state money. But Knight said the bill has been shown to be a revenue generator for the state and should be a no-brainer.
“The problem is they’re not adding up the numbers correctly because if all you say is this has a cost to it, that totally misses three-quarters of the story,” he said.
Valentino, the bill’s sponsor, said Thursday there is still support for the bill in the Legislature and the fiscal reality of the state’s budget process is the only thing standing in the way of getting the program restarted.
Each bill with a fiscal note is sent to appropriations.
Sen. Anne Haskell, a Democrat from Portland and chairman of the Joint Standing Committee on Taxation, said there was hope that LD 743 had a high enough profile to make it into the budget but it didn’t make the cut when the budget closed on Friday.
So now LD 743 sits on the appropriations table with a current fiscal note of $1.8 million, meaning that’s what Maine Revenue Services estimates the bill will cost the state in its two-year budget.
Efforts already were made to reduce that note, including reducing the percentage of an investment that can be claimed as a credit from 60 percent to 50 percent and ramping up the annual cap to $5 million.
But the fiscal note likely will have to be even further reduced to improve its chances of being funded, Valentino said. It’s estimated that only slightly more than $1 million will be available to fund the roughly 85 bills on the table, according to Ericka Dodge, communications director for the Senate Democrat’s office.
One possible way is to shift the burden of the tax credits to the latter part of the four years so that “it softens the blow in the earlier part of the budget, but still maintains the value of the credit,” said Haskell.
Valentino said the program can be saved even if it’s funded below the requested level. In that case, it can be strengthened if more money becomes available through future supplemental budgets, she said.
“The most important thing right now is to make sure that the bill gets past and survives the appropriations table, no matter what amount of money is appropriated for it,” Valentino said.