April 22, 2018
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Maine business tax break program has failed. Lawmakers need better ideas to create jobs.

George Danby | BDN
George Danby | BDN
By Sarah Austin, Special to the BDN

Pine Tree Development Zones, one of Maine’s many tax breaks for corporations, is set to expire at the end of 2018, and lawmakers are starting to discuss whether to extend it.

They should let it expire.

The Pine Tree Development Zones program was created in 2003 to encourage job creation in economically distressed areas using a slate of tax breaks and lower utility rates. Over time, the program expanded to cover the entire state. But, like other tax breaks that deliver windfalls to corporations, it’s failed to deliver any meaningful benefit to Maine families or Maine’s economy.

Mainers want thriving communities, which require great schools, solid infrastructure such as roads and bridges, and public goods such as parks that make our towns and cities livable and attractive to young families. We all chip in for these investments, which encourage home-grown entrepreneurship and job creation. That’s what taxes are for.

But loopholes in Maine’s tax code take away resources that would be better invested in these foundations for future prosperity. The Pine Tree Development Zones program is one such loophole.

More often than not, tax breaks targeted at employers to locate or expand in a specific place are bad investments. Economists have concluded that nine out of 10 positions created or a business’ location decision would have happened even without a tax break. That’s because considerations such as workforce suitability, property values, and demand for products and services all weigh more heavily on a business than the relatively small cost of state and local taxes.

Besides, most businesses in Maine are also slated to get federal tax giveaways in 2018 because of the tax breaks for corporations and pass-through entities that President Donald Trump signed into law last month. While businesses get tax breaks, the funding and service cuts that will follow from this tax plan as Congress sorts out a budget are sure to impact federal funds invested in Maine families and the economy. That means Mainers will have to do more to make up for the loss of federal investment in our communities and economy.

Fortunately, Maine has a review for tax expenditure programs such as Pine Tree Development Zones that helps determine if our shared resources are being well spent. Often, the Legislature establishes expiration dates for these programs so that lawmakers can make an informed decision about whether money spent on tax breaks for corporations — or anyone else — benefits the public.

The most recent review by the Legislature’s Office of Program Evaluation and Government Accountability — state government’s nonpartisan watchdog organization — found that Pine Tree Development Zones are not designed to achieve the program’s goal of creating quality jobs in economically distressed areas. OPEGA’s review found that the program provided tax benefits to companies for up to two years, even if they didn’t create a single job, and that successful companies in prosperous regions of the state can extract more benefit than companies in more distressed communities.

The Legislature has also conducted independent studies to estimate the program’s economic impact on the state’s economy. The two most recent reviews of this program, conducted in 2014 and 2016 by an independent consultant firm, Investment Consulting Associates, assessed the program’s return on investment. Based on the consensus that nine out of 10 of these projects would have gone forward without the program, the data show that Mainers get a negative return on their investment in Pine Tree Development Zones.

The truth is that tax giveaways to businesses just don’t do much to spur genuine job creation and development. Maine lawmakers will face great pressure from special interests this session to extend this failed program. They’ll call the program an economic development tool, but we must recognize it for what it is: a tax loophole that allows corporations to escape paying their fair share for the things that can truly contribute to shared prosperity.

For those interested in creating opportunities for families, strengthening rural Maine communities and improving Maine’s infrastructure, Pine Tree Development Zones should become a thing of the past.

Sarah Austin is a policy analyst at the Maine Center for Economic Policy, a nonpartisan policy research organization dedicated to economic justice and shared prosperity.

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