Gov. Paul LePage’s administration is defending an economic development program launched by his predecessor, Democratic Gov. John Baldacci, after a nonpartisan study concluded that structural flaws make it impossible to gauge the program’s impact on Maine’s economy.
Pine Tree Development Zones, which offer a range of financial incentives to new or expanding businesses, were implemented in 2003 but will begin to phase out of existence next year unless the Legislature continues the program.
Amid new criticism that the program’s success cannot be measured, Maine Economic and Community Development Commissioner George Gervais called it a valuable tool for attracting businesses to Maine or encouraging the state’s employers to add jobs.
A report released last week by the Legislature’s Office of Program Evaluation and Government Accountability found that determining how many new jobs the program has created and at what cost to taxpayers is difficult or impossible because of restrictions on proprietary taxpayer data and the fact that the more than 200 current participants in the program would have to provide some of the information on a case-by-case basis.
The report also found that incentives given to businesses that create just a few new jobs could be out of scale compared with those given to businesses that create more jobs.
“The value of benefits a business can receive is not proportionate to the number of jobs they may create,” reads the report that was presented last week to the Legislature’s Government Oversight Committee, which oversees OPEGA. “A business could hire just one new employee, but undertake a significant new investment and still qualify for sales tax, income tax and utility benefits equal in value to those of a business that hired many new employees. Those design weaknesses are problematic for a jobs-focused program.”
Some lawmakers are saying the program should end or be significantly amended if it is to continue but Gervais said during a WVOM radio interview Tuesday that would be foolhardy unless Maine first cut taxes on businesses.
“In the absence of getting good, strong tax reform done because we have not had the cooperation of the Legislature, we need something to simulate that better, more competitive tax environment,” said Gervais. “This has been a Band-Aid for a good tax environment in the meantime. It has worked for that purpose.”
Pine Tree Development Zones were meant to give an advantage to rural and economically depressed areas of the state when it comes to encouraging businesses in certain industries to expand. The program provides financial incentives for up to 10 years — such as income, employment and sales tax breaks and lower insurance and utility costs — to companies that promise to create at least one new job with good benefits and a certain level of pay. They must prove the expansion wouldn’t be possible without Pine Tree Zone benefits.
Under current law, some of those benefits for companies in York and Cumberland counties will end next year and as of the end of 2018, no new businesses will be let into the 10-year program because it is scheduled to sunset in 2028.
Rep. Anne-Marie Mastraccio, D-Sanford, who co-chairs the Government Oversight Committee, is among those who see flaws in the program.
“I wouldn’t want anyone to think that I don’t think Pine Tree Zones are a valuable program, but you need to look at ‘Does it support the intended goals?’” said Mastraccio. “If it’s taxpayer dollars at stake, then the taxpayers and their representatives at least should be able to see the data being used so we can see that it’s really working.”
Gervais said the fact that tax and income data for private businesses are not readily available to the public is a good thing and that to eliminate Pine Tree Zones as a tool to attract businesses would be a mistake.
A biannual, statutorily required report for the Department of Economic and Community Development by Investment Consulting Associates agreed.
“The Pine Tree Development Zone program has been shown to effectively improve the competitive economic development environment for the state of Maine with a positive return on investment,” reads the report. “The costs involved in the PTDZ program are outweighed by the direct returns of the additional investment it has attracted.”
OPEGA’s report on the Pine Tree program is part of a broader, years-long examination by the Legislature of tax expenditures — which means tax breaks and credits that reduce the amount of revenue collected by the state. Those programs, such as the Business Equipment Tax Exemption, state-level Employment Tax Increment Financing and the Finance Authority of Maine’s New Markets Capital Investment Program shift hundreds of millions of dollars of public resources. Pine Tree Development Zones, which cost about $12 million in tax revenue in 2016, is a relatively small part of the state’s overall tax expenditure picture.
Sen. Roger Katz, R-Augusta, who co-chairs the committee with Mastracchio, said he did not take the OPEGA report as an “indictment” of the program but said it pointed out “weaknesses.”
“We spend hundreds of millions of dollars on tax breaks of one kind or another to encourage economic development and that’s a perfectly legitimate purpose of government spending,” said Katz. “We want to make darn sure we’re getting the bang for the buck.”
Mastraccio said Maine lacks a clear strategy for long-term economic development — such as what industries should be targeted in which areas and how. A bill that sought to do that through the Maine Economic Growth Council was approved by the Legislature this year but carried over until next year because of its two-year price tag of $390,000.
She said the state’s biggest challenge is the creation of a skilled workforce modern companies need.
“Companies only want to come to Maine if there are workers here to fill those jobs,” she said.
Gervais said in a letter last week to the Government Oversight Committee that the success of the program can best be described by its participants.
“That is the true measure of whether this program is successful,” he wrote. “I would encourage you to look past the process, and bureaucratic minutia, and ask these businesses how a more competitive tax structure has helped them invest and grow here in Maine.”
Neither Katz nor Mastraccio could predict whether the Legislature would extend or amend the Pine Tree Development Zone program when it reconvenes in January. The Government Oversight Committee is scheduled to hear comments on the report Sept. 25 in Augusta and will make recommendations to the full Legislature later this year.