AUGUSTA, Maine — At least two lawmakers want to take a closer look this year at the billions of dollars in tax revenue Maine forgoes annually through a range of tax breaks and a slate of tax credits and incentives aimed at spurring economic development and job growth.
The two lawmakers, Sen. Emily Cain, D-Orono, and Rep. Peter Stuckey, D-Portland, are proposing measures that would make an examination of those credits, exemptions and incentives a regular part of the state budget process.
The reviews they’re proposing would touch on state programs that reimburse businesses for the property tax they pay on manufacturing equipment, allow parents tax credits to offset child care expenses, exempt construction services from the state sales tax, and provide dentists practicing in underserved areas with a partial income tax break.
In all, Maine has 252 such programs, known as “tax expenditures,” that offer tax exemptions, credits and reimbursements, according to Maine Revenue Services.
“What I really want to do is have people acknowledge we vote on a $6 billion biennial expense budget. This is of comparable size,” Stuckey said. “The general fund budget gets scrutinized carefully by lots of different people. This doesn’t.”
Maine Revenue Services prepares a report for lawmakers every two years that lists each tax expenditure program in state law, explains it, estimates how much tax revenue the state forgoes to fund it, and details how many taxpayers benefit from it.
In addition, the agency annually reports on six economic development tax incentive programs designed to spur job growth and business investment in the state. That report estimates how much tax revenue the state goes without to fund each incentive and, for the Business Equipment Tax Reimbursement program, lists the businesses that benefit.
Between July 1, 2011, and June 30, 2012, for example, the state spent about $52.7 million to reimburse 1,800 companies for property taxes they paid on manufacturing and other business equipment they bought after 1995. The largest recipient was Verso Paper, which claimed a $4.06 million reimbursement.
Bangor Publishing Co., owner of the Bangor Daily News, was reimbursed $15,427 in the fiscal year ending June 30, 2012, and Northeast Publishing Co., which is owned by Bangor Publishing, was reimbursed $9,830. The Sun Journal of Lewiston was reimbursed $67,962, according to Maine Revenue Service records.
Bangor Publishing Co. received an additional $14,402 in fiscal year 2013, according to the company’s accounting department. Statewide numbers for fiscal year 2013 are not yet available, as the reporting period has not yet ended.
In his biennial budget proposal, Gov. Paul LePage proposes eliminating the Business Equipment Tax Reimbursement program and enrolling the participating companies — except for retailers — in the Business Equipment Tax Exemption program, under which they would be exempt from paying property taxes on equipment in the first place and the state would reimburse municipalities for part of the lost tax revenue.
“Many of these programs,” Cain said, “particularly the ones focused on economic development and energy, for example, they get passed with the best intentions and very rarely do we go back and say, ‘Is it working? Did it do what it was supposed to do?’”
While the Maine Revenue Services reports required by law offer an estimate of the programs’ expense, they stop short of evaluating how effective the tax credits and incentives are at achieving their original goals — job growth, for example — and recommending whether the state should keep them in place.
“My bill does not propose to eliminate any of them,” Cain said. “I’m looking to bring more transparency and a deliberate review of those to the Legislature.”
Cain’s bill would require the financial impact of each tax expenditure be included in formal budget documents along with a justification for each program. That’s an effort, she said, to have lawmakers apply the same scrutiny to tax breaks as they do to spending on schools, roads, Medicaid and other areas.
Stuckey’s legislation would require the state to develop a method for regularly evaluating the effectiveness of tax expenditures and use that evaluation as part of the state budget process.
“We ought to be making sure that what we thought we were going to get for outcomes are what we’re getting,” Stuckey said. “Or if we’re not, what are the outcomes? Maybe they’re better. Maybe they’re worse.”
Cain’s and Stuckey’s bills — which have yet to be published and referred to legislative committees — come as the state Department of Economic and Community Development this winter takes the first steps toward implementing a regular evaluation of state economic development programs. Those programs include the Pine Tree Development Zone credit, which encourages businesses to set up in Maine by offering substantial tax breaks for 10 years, and the employment tax increment financing program, which refunds income taxes to companies that hire new employees.
“Certainly, there will be a benefit [to knowing] if programs we are investing in are not producing results,” Economic and Community Development Commissioner George Gervais said recently. “We want to stop that.”
The DECD evaluation comes in response to a law passed last year that provides the department funding — by holding back 0.8 percent of tax credit benefits from the companies receiving them — to assess economic development programs’ performance every two years. The first review is due Feb. 1, 2014.
“What we hope to see is just to look at all the programs that are receiving state funding that are labeled as economic development and make sure that there’s actually a good return on investment on those dollars,” Rep. Amy Volk, R-Scarborough, who sponsored last year’s bill, said recently. “If there isn’t a good return on investment from those dollars, then we need to look at either changing or eliminating them.”
Few states perform comprehensive evaluations of their tax incentive programs, said Jim Damicis, a senior vice president with Camoin Associates in Scarborough, whose firm plans to bid to complete the DECD evaluation. A 2010 report produced by the Department of Administrative and Financial Services found only four states comprehensively evaluate the effectiveness of their tax expenditure programs.
“They typically don’t have a mechanism for regular funding, and that’s key,” Damicis said. “Every budget year’s a tough year, so generally, it’d be one of the first things to get cut.”
But states don’t typically cut their tax incentive programs, said Charles Colgan, a public policy professor at the University of Southern Maine and a former state economist.
“We don’t stop doing things [in economic development]. We simply do additional things,” he said. “That’s a constant theme going back 60 years.”