Maine legislators scrutinizing tax break program used by over 200 businesses

By Scott Thistle, Portland Press Herald | Dec 01, 2017

Maine lawmakers are considering whether to extend or do away with a $12 million tax-break program for Maine businesses that was meant to create new jobs but lacks accountability.

The Legislature’s Taxation Committee Nov. 27 reviewed a report by the Office of Program Evaluation and Government Accountability that found some companies have gained tax benefits under the Pine Tree Development Zone program without creating any new jobs. The August report by the Legislature’s watchdog agency also found that legislative changes to the program over the years have made it available well beyond the high-unemployment areas it was meant to serve.

When the full Legislature returns for its second session in January, lawmakers could modify or extend the program — or allow the law passed in 2003 to expire under a provision written into it.

Enacted under former Democratic Gov. John Baldacci, the program has been defended by Republican Gov. Paul LePage. The director of the Department of Economic and Community Development, George Gervais, has said the program is one of the few tools the state has to keep and attract businesses.

Rep. Steve Stanley, D-Medway, a Taxation Committee member, said that when the program was first enacted it was meant to help hard-luck towns like Millinocket and East Millinocket, which saw an exodus of people after the closure of paper mills. “A man shouldn’t have to drive four or five hours to see his grandchildren because there are no jobs,” Stanley said.

But according to the OPEGA report, businesses across Maine, including in counties where the unemployment rate is lower than the state average, have been able to reap tax benefits from the program even when they don’t create any new jobs.

The state has approved more than 200 Pine Tree Development Zones, which are frequently coupled with other tax-relief programs for businesses. These include one that refunds up to 80 percent of the state’s payroll tax on new employees, provided those businesses are located in the zones.

The payroll tax refund costs the state about $6.2 million a year, and Pine Tree zones cost the state about $11.4 million. But supporters like Gervais say the state would be worse off if those employers left Maine altogether.

“The PTDZ program is considered Maine’s major business attraction tool,” Gervais wrote in a letter to the Legislature’s Government Oversight Committee, which directs OPEGA.

Taxation Committee members seemed open to revisiting the underlying laws that created the corporate benefit programs, with an eye toward refocusing them on the truly economically distressed parts of Maine.

Sen. Dana Dow, R-Waldoboro, the Senate chairman of the panel, said the LePage administration or lawmakers may submit legislation seeking broader tax reforms, which could affect what happens to the Pine Tree Development Zone program.

Dow is interested in legislation “that would benefit the entire business community of the whole state as opposed to a program like Pine Tree, which is kind of like shooting a bullet at certain areas to compensate for the big program, which isn’t working.”

The deadline for a business to apply for Pine Tree Zone designation is Dec. 31, 2018, under a sunset provision written into the law that created the program, and all benefits would end in 2028. But lawmakers are already considering bills to extend the sunset date. Benefits are available for 10 years, except in York and Cumberland counties, where the limit is five years.

A list of the companies that benefit from the Pine Tree Zone program was provided to the Government Oversight Committee in September by Gervais, the economic development commissioner. The list ranges from companies as large as Bath Iron Works and TD Bank, to much smaller entities, such as Wicked Joe Coffee in Topsham and Sea Bags, a Portland-based maker of tote bags.

Jon Fitzgerald, BIW’s vice president and general counsel, wrote to lawmakers that his company uses the program to keep its overall costs down, which helps BIW compete with other U.S. shipyards.

“BIW is a participant in the Pine Tree Zone program and believes it has been an important incentive for businesses to locate in Maine or stay here while continuing to invest in operations that provide jobs and economic activity,” Fitzgerald wrote.

The amount that any individual company benefits from the program is usually not disclosed under state laws that protect the confidentiality of tax returns and shield proprietary information from competitors.

The Taxation Committee is expected to issue recommendations on the future of Pine Tree Zones, but it’s unclear how the program will fare under LePage and a Legislature divided nearly evenly between Republicans and Democrats.

Rep. Ryan Tipping, D-Orono, House chairman of the Taxation Committee, said there seemed to be some consensus around the notion that Pine Tree Zones should be limited to the most economically needy parts of the state.

He also supported a recommendation from OPEGA that if the program is extended, the state should be required to obtain more data from participating businesses so it can evaluate the program’s effectiveness.

“We have to keep our eye on the bigger picture here,” Tipping said. “Every dollar we forgo here is a dollar we collect in taxes someplace else or a dollar we pass on to property taxpayers.”

The Legislature is likely to revisit the issue when it reconvenes in January.

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