December 15, 2017
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Study: Maine business tax break program leaves distressed communities behind

By Darren Fishell, BDN Staff
Leanne Robicheau | BDN | BDN
Leanne Robicheau | BDN | BDN
Former Gov. John Baldacci toured Lyman-Morse Boat Building Co. in Thomaston after presenting a $290,000 matching Community Development Block grant and Pine Tree Zone certification to the business to help it expand operations and add 30 new jobs.

Maine’s government watchdog office said the state’s 15-year-old Pine Tree Development Zone program is poorly designed to benefit the distressed communities lawmakers intended it to help.

The criticism from the Office of Program Evaluation and Government Accountability comes as the Pine Tree Zone program nears its end for most of the state. And the review leaves many open questions about the program’s value statewide.

The agency estimated the state loses out on about $12 million in tax revenue each year through the program’s business tax benefits, but they were unable to estimate what the state gets in return, based on data it said were “readily available” about the program.

The program provides incentives to businesses in certain industries that state the program’s incentives are the reason they’re able to add at least one employee in the 13 to 24 months after they apply.

The report found that about 202 businesses were certified for the program in 2015, with about 146 of those getting one of the 10 different types of benefits allowed to businesses in the program.

But there’s little else the group concluded about the economic benefits of the program launched in 2003 to help create jobs and economic opportunities in distressed areas of the state.

That includes fundamental questions about the program’s effectiveness, such as whether investments other than those offered by the program would have happened without the incentives or whether the benefits are reaching the intended recipients.

For instance, the program verifies investments would not have occurred “but for” the program incentives by asking the business owners to sign a letter stating as much.

“OPEGA has confirmed with stakeholders that much of the business community also sees the ‘but for’ requirement, and the letter DECD uses as a way to implement this requirement, as having little practical meaning,” the report states.

The majority of the benefits are through a program that returns to employers a portion of the payroll taxes on new hires that meet certain income and employment benefit requirements. It also includes certain sales tax exemptions and reimbursements.

The report profiles how those benefit programs work, but it leaves further evaluation to lawmakers, suggesting they order a more complete review of the program’s economic benefits before extending it beyond Dec. 31, 2018, when it’s due to expire.

Lacking information detailed enough to weigh the costs and benefits, the group analyzed how the program functions and whether that aligns with the stated goals when it was created. That included helping distressed communities.

The group found that while the program does provide lower incentives for parts of Cumberland and York counties, that change started only in 2010 and followed years when the definition of qualifying communities was continually expanded.

Currently, businesses in any part of the state can qualify for some level of benefits.

“This broadening of eligible locations may reflect an underlying belief that nearly the whole state is economically distressed and there are no criteria set in statute for what constitutes ‘economically distressed,'” the report states. “Although it may be reasonable to promote economic growth throughout the State, doing so means no longer targeting the most significantly distressed communities.”

The report suggested numerous ways to improve or change the program design, which it said lawmakers should only undertake in the event that lawmakers extend the program past the end of 2018.

The program closed to new applicants in parts of Cumberland and York counties at the end of 2013 and will close to all others on Dec. 31, 2018. Recipients can qualify for incentives for up to 10 years, meaning its costs — and untold benefits — will be reflected on Maine’s books until the end of 2028.

Read the full report below.

 


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