AUGUSTA — The state’s government watchdog agency says the New Markets tax credits program has created or retained hundreds of permanent jobs in Maine, but lacks standards to gauge its cost effectiveness.
The Maine New Markets Capital Investment program – in which investors receive hefty tax credits on investments payable over seven years – had funneled $194.2 million into 10 economic development projects as of 2016. In turn, the state has offered $75.8 million in tax credits to those investors, according to the report from the Office of Program Evaluation and Government Accountability.
OPEGA credited the program with creating or retaining 764 permanent jobs that still existed as of 2016, as well as 781 temporary jobs and another 1,034 indirect jobs throughout the supply chain. But while businesses spent $3.39 for every $1 of tax credit, that ratio shrank to $1.19 for every $1 in tax credit when looking at money that was spent within Maine because the program doesn’t require investors to keep the money in-state, OPEGA’s report said.
“Overall OPEGA observes that, although Maine’s NMTC Program has increased investments in Maine businesses and generated other positive outcomes, it may not be accomplishing those ends cost-effectively,” says the report presented to the Legislature’s Government Oversight Committee on Friday. “There are no legislative or agency expectations set for cost-effectiveness of the program, so we are unable to assess the extent to which results on the cost-effectiveness measures meet expectations.”
The New Markets program is not alone in that respect. Multiple reports over the past decade have raised alarms about a lack of accountability, transparency and effectiveness measures for the hundreds of millions of dollars in tax breaks and tax incentives the state has doled out in every two-year budget, often in the name of economic development.
The New Markets program was the focus of a 2015 Press Herald investigation that revealed potential abuses, especially in the conveyance of a $40 million investment to Cate Street Capital to support the revitalization of the former Great Northern Paper mill in East Millinocket. Fourteen months after the tax credits were approved, none of the upgrades intended to modernize the mill were made and it closed, displacing hundreds of workers. Yet Maine taxpayers were on the hook for $16 million in tax credit payments.
The Maine New Markets program was created in 2011 to encourage investment in low-income communities. But unlike in the federal program on which it was modeled, the Maine tax credits are refundable, meaning the investors can redeem them for cash if they have no Maine income tax liability. Maine also allowed the use of so-called “one-day loans” in which the investment funds were either used to pay off debt or were returned to the lenders in the same day, as happened with the Great Northern case.
Concerns over the East Millinocket case detailed in the Press Herald investigation prompted the Legislature’s Government Oversight Committee to ask OPEGA to bump up the timing of a planned review of the New Markets program. While legislative efforts to close the “one-day loan” failed, the Finance Authority of Maine, which administers the program, and the federal government have sought to close that potential loophole.
The OPEGA team analyzed the Great Northern Paper case as well as nine others around the state. Those cases ranged from a $667,000 investment (and $260,000 tax credit) at Quoddy Shoes in Lewiston that retained 32 jobs to a $41 million investment (and $16 million tax credit) that supported 378 jobs at St. Croix Tissue in Baileyville.
Overall, the program was deemed to have generated $21.67 in “gross state product” for every $1 in tax credit. OPEGA also determined that in numerous cases, the investment “would not have occurred without the Maine NMTC program, or another program, that offered tax credits in return for investment.”
But the 764 permanent jobs translates into a one-time investment of $99,179 per job. And OPEGA pointed out that state statute does not ensure that locally distressed communities in which the businesses are located will benefit from the program.
“Clearly, there is some benefit just from having a viable business operating within a community, and several businesses also described specific community projects (community development entities) required them to undertake as part of the Maine NMTC investment,” OPEGA wrote. “Beyond this, however, the degree to which the investment impacts the economically distressed community is dependent on how the invested funds are used.”
Sen. Shenna Bellows, D-Manchester, did not see the OPEGA report as a resounding endorsement of the tax credit program.
“The real problem is we are on the hook for $75.8 million that is going to three companies from out of state,” Bellows said.
Bellows said she would do away with the program as it hasn’t proven to be effective. When she dug deeper into the data in the report, Bellows said she discovered there were multiple times the one-day loan maneuver deployed by Cate Street in East Millinocket was used by other investors, including some that eliminated jobs in the process.
She added the companies that deployed the one-day loans were taking money from investment firms or banks.
“So we were basically paying them to loan money to Maine-based businesses, of which four didn’t even create new jobs, one was sold and one is no longer in business,” Bellows said.
But Sen. Tom Saviello, R-Wilton, said the OPEGA report told him the program is working.
“There’s some fine-tuning that needs to be done to it, but I think it’s a success,” Saviello said, adding the program was “a tool that got somebody to invest here.”
Saviello said the tax credits were one of only two programs, the other being the state’s Pine Tree Zones, which allow certain businesses that create jobs to avoid most state taxes. He also would like to see all tax credit programs for business being managed by a single state office, such as the Maine Department of Economic and Community Development.
As for OPEGA’s figure of $99,179 per job, Saviello said that sounds like a big number, but it’s a one-time cost.
“Now let’s multiply that times the jobs that are still here, times 20 years, times whatever they are being paid,” Saviello said. “That’s a lot of money. I’d make that investment every day.”
OPEGA Director Beth Ashcroft said many of these projects were also considered “high-risk” and would not likely have received investment other than through the New Markets program.
Kevin Miller can be contacted at 791-6312 or at: