One of the political hot-button issues emerging in the Legislature’s off-season is what to do with the state’s Pine Tree Development Zone program, which will fizzle out of existence in 2018 unless it is renewed in Maine law.
A recent report by the Office of Program Evaluation and Government Accountability has fueled calls for the program to prove it’s creating jobs or for it to be shelved altogether — though Gov. Paul LePage’s administration argues that curtailing it would be devastating for Maine’s economic development efforts.
Meanwhile, the Legislature’s Taxation Committee is scheduled to address the politically charged topic during three meetings planned between now and January, when the full Legislature returns for an expected four-month session.
Meanwhile, Economic Development Commissioner George Gervais said the LePage administration might present its own plan.
The stakes are high, both politically and for Maine’s economy, but what’s the debate about? Here’s a rundown.
What are Pine Tree Development Zones?
They’re places where businesses that create new jobs enjoy tax breaks and other financial incentives such as lower energy and insurance costs. When the program was implemented in 2003 under Democratic Gov. John Baldacci, it was meant to give an advantage to rural areas competing against more populous regions to attract business expansion. Over the years it has been amended and expanded, including a stretch when the entire state qualified for the benefits. The benefits last 10 years, after which the financial incentives end.
The most valuable benefit in the program is the Employment Tax Increment Financing program. That program reimburses companies for employment taxes. Companies that are also in the Pine Tree program receive the highest reimbursement available, at 80 percent. In fiscal year 2017, 131 businesses in Pine Tree Zones received approximately $6.2 million.
In exchange, businesses have to create at least one job with benefits and a healthy salary. Tracking whether that happens and where is elusive. Neither OPEGA nor the Department of Economic and Community Development can say how many new jobs the program has created, which is a problem for some lawmakers trying to determine whether the program’s benefits are worth the more than $11 million a year Maine is spending on it.
“We don’t know if the intensity of the benefits is still being focused on areas of high need,” said Sen. Bill Diamond, D-Windham, who is a member of the Legislature’s Government Oversight Committee and a critic of the program’s lack of transparency. “One of the findings of the OPEGA report shows us is if this program is to continue, there need to be some fixes.”
One fix Diamond supports is closing a two-year window between when businesses begin receiving financial benefits and when they are required to create the new job.
“I would hope we don’t let the program go away; we just don’t have a handle on what is going on in there,” Diamond said.
The clock is ticking
There are a number of developments upcoming. The Government Oversight Committee could make some recommendations following a Sept. 25 public hearing about the recent OPEGA report. Among those recommendations could be directing the Taxation Committee to develop a plan for consideration by the Legislature next year — though the committee’s co-chairman said that’s already on the agenda.
House Chairman Ryan Tipping, D-Orono, said discussions about Pine Tree Zones are part of a larger examination of the value of providing tax breaks in Maine for a spectrum of reasons.
“Most of the members of the tax committee want to make sure taxpayer dollars are being spent correctly,” he said. “We’ve had a pretty laser focus that any new tax expenditures have clawbacks and accountability measures.”
Translation: He’s saying lawmakers want to be able to determine the effectiveness of programs so the state can recoup benefits paid to entities that don’t meet standards — and kick them out of the programs if necessary.
Gervais said the LePage administration also is planning to weigh in, possibly with a whole new concept. Gervais said that may or may not include past LePage proposals that have failed, but he couldn’t provide details because he said those internal discussions are just beginning.
“We’ll explore that ourselves, as an administration,” Gervais said.
This could be a hot-button issue in next year’s legislative elections. Expect to hear about Pine Tree Development Zones in 2018 campaigns. Virtually every politician running for office in Maine promises to work toward job creation, a concept that involves a spectrum of issues ranging from the educational system’s ability to maintain a skilled workforce to the state’s tax code.
LePage has a mixed record on job creation in Maine with a number of paper mills closing on his watch, but as of late has touted loudly the fact that Maine’s unemployment rate of below 4 percent is at a historic low. He has complained about the Legislature thwarting his business-friendly proposals, ranging from eliminating the income tax to trying to erode the presence of labor unions, and blamed Democrats for creating a policy infrastructure that discourages businesses from locating or expanding in Maine.
Republican candidates to succeed him in 2018, as well as legislative candidates, will follow LePage’s lead.
Democrats, who have advocated for employee-based improvements such as raising Maine’s minimum wage, which was implemented at the ballot box in 2016, will have to strike a delicate balance in their campaigns. They will have to balance their progressive base’s traditional opposition to “corporate welfare” measures, such as tax cuts for businesses, with support for job growth in rural areas where they have lost ground with Maine’s blue-collar voters since 2010.
That kind of rhetoric will be amplified into campaign trail ammunition if one party or another blocks the continuance of Pine Tree Development Zones. As it stands now, all they’ll have to do to intensify it is nothing at all.