November 16, 2018
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LePage kept Maine apace, but in an economic race to the bottom

Darren Fishell | BDN
Darren Fishell | BDN
Stored Solar’s West Enfield wood-to-energy plant, pictured here, and another in Jonesboro have been idle since the end of March.

Imagine how much easier Halloween would be with a map of houses giving out the good candy.

Potential investors now have that for large swaths of the country, including Maine, in the form of Opportunity Zones. The designations allow investors to get a break on capital gains taxes for investments they make in those areas.

Gov. Paul LePage’s designations stand to help along a number of pending projects that hold promise for parts of rural Maine that could be a bulwark against regional economic decline.

But because Maine’s 32 Opportunity Zones are competing with 8,730 others across the country, their designation only keeps those parts of the state at pace in a national race to the bottom, giving out indiscriminate benefits to the wealthy with no guaranteed return.

That part has little to do with LePage, whose selections followed a reasonable approach of targeting promising projects or downtown cores that could benefit from investment. The zones he chose had to either be low-income census tracts or neighboring tracts.

It’s not LePage’s fault if the experiment in tax policy goes sideways. And it very well could.

The fault would lie with Republicans in Congress, who included the Opportunity Zone provision in their massive tax cut package passed late last year.

There’s little reason to think that the tax breaks will encourage investment that would not have happened otherwise, primarily because investors need to hold their stakes in those distressed areas for at least five years before seeing benefits beyond a deferral of their capital gains tax obligations.

Researchers at Harvard are withholding judgment, but they aim to find an answer for just that question: does the program actually help lift selected zones out of poverty?

While they don’t have a specific answer, there are clues to the dangers. Existing studies show place-based business incentives run the risk of speeding up gentrification and merely driving out low-income populations rather than making their lives better.

In other words, the programs may have the effect of improving the place, but not necessarily the lives of the people who live there.

That’s related to the other risk researchers point out: that the program could encourage investments in businesses that do little to help low-income people.

A tech giant relocating to Maine might help improve the median pay of an area, but not for the people scraping by.

In the case of Opportunity Zones, Maine had little influence over the process, and not designating areas of the state makes no real political or economic sense, since everyone else is doing it.

But that’s just a sad fact. What’s sadder is that when Maine has a chance to give greater scrutiny to its own tax giveaways, it does very little.

Not only have many municipalities across the state failed to comply with new accounting rules requiring that they disclose how much they lose to tax abatements each year, but lawmakers also agreed to continue the dubious but bipartisan Pine Tree Development Zone tax giveaway.

If anything, Pine Tree Zones show where the Opportunity Zone race to the bottom is headed. What began as a program to target economic development in certain, depressed areas expanded to encompass the whole state.

And all that without truly proving the program’s worth to Maine’s economy, beyond people who benefit from the program saying that it’s helpful.

In fact, outgoing Department of Economic and Community Development Commissioner George Gervais criticized the Office of Program Evaluation and Government Accountability for not talking to businesses that benefit from the Pine Tree program in its critical review of the program.

That’s an interesting tack for the LePage administration. When it slashes social services for low-income Mainers in places these incentive programs aim to help, do administration officials reach out to people benefiting from those programs?

The administration seems content on multiple fronts to pursue a flimsily justified race to the bottom.

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