PORTLAND, Maine — The state financing agency managing a program intended to attract private investment passed an emergency rule Thursday that its CEO said would have prohibited the type of financing plan Cate Street Capital used in its effort to restart the East Millinocket paper mill.
The rule was approved Thursday as a legislative oversight committee separately outlined its plans for a briefing expected in November from the Finance Authority of Maine about the New Markets Tax Credit program.
A Maine Sunday Telegram investigation published in April shed light on how investors made “one-day loans” in five of 10 FAME-approved deals that qualified financiers for annual payments made from taxpayer dollars.
In the case of the Cate Street deal, investors put in $40 million that qualified, but none of that money ultimately was put into capital improvements at the mill. Instead, $31.8 million was returned to the mill the same day and $8.2 million was used to pay off old debts, the Maine Sunday Telegram found.
The mill’s parent company, GNP Maine Holdings, shuttered the mill and filed for bankruptcy last year as investors that provided the money for it to pay off old debts continue to get annual payments from the state.
The emergency rule approved Thursday would disqualify any investment from the New Markets Tax Credit program if more than 5 percent of that money would be used to refinance prior investments, make equity distributions, acquire an existing business or to pay transaction fees.
Bruce Wagner, FAME’s CEO, said in a telephone interview Thursday the new rule “would mean the Cate Street transaction could not occur.”
“It really restores the integrity of the [New Markets Tax Credit program], I think, from what was intended when the original law was passed,” Wagner said.
The Maine Sunday Telegram’s investigation found the investment firms involved in the Cate Street deal had lobbied Maine lawmakers in passing the state’s rules for the New Markets Tax Credit program, which returns to investors 39 percent of a qualifying investment over seven years in cash payments.
FAME decided to pass the emergency rule after a bill to expand the New Markets program and curtail the one-day loan practice died in the Senate, in a 19-15 vote. FAME proposed amending the bill to end the one-day loan practice.
“We were left to decide what, if anything, should we do and enacted this emergency rule to do away with [one-day loans],” Wagner said.
Wagner said FAME had placed a hold on new applications for the program after the Legislature adjourned so it could have a chance to enact the emergency rule Thursday before considering any more proposed deals under the previous rules. Wagner said FAME would lift that hold on applications with the emergency rules now in place.
To enact an emergency rule, the board had to find the action allowed it to avoid an immediate threat to the public health, safety or general welfare. The board also voted to begin a rulemaking process to solicit public comment and approve a rule that would permanently set limits on how much an investment can go to certain types of financial transactions.
The public hearing on the permanent rule is set to take place at the board’s Sept. 17, 2015, board meeting.
Wagner said the deals using one-day loans “certainly hurt the perception of the New Markets program, but I’d say in general it’s a very good program that should be defended and continued.”
The financing program has been used by other projects in the state, including St. Croix Tissue in Baileyville, the Portland Press Hotel, Portland-based veterinary pharmaceutical company Putney, Athens Energy’s biomass plant in Athens, Quoddy Shoe Manufacturing in Lewiston and Washington County and Molnlycke Manufacturing in Brunswick.
Those deals did not involve one-day loans, as did one for JSI Store Fixtures in Milo, Nova Seafood in Portland, a Topsham development firm Priority Group’s project to build a school for children with autism at Brunswick Landing and the Farnsworth Art Museum.
The New Markets program has the authority to issue another $20 million in tax credits under the new temporary rules, which translates to about another $50 million in qualifying investments.