May 15, 2013

Criticisms of tax breaks growing in Maine Legislature

By John Christie and Naomi Schalit Maine Center for Public Interest Reporting

(Continued from page 1)

At an April 29 tax committee hearing, members heard testimony about a state-by-state report by the nonpartisan Pew Charitable Trusts.

Jeff Chapman, manager of the study,  “Evidence Counts: Evaluation of state tax incentives for jobs and growth,” said, “After interviewing hundreds of policymakers, agency officials, and experts and reading over 600 documents, the overall picture is that lawmakers frequently rely on incomplete, conflicting, or anecdotal information when they make decisions about tax incentives.”

Pew rated the states on how well they are measuring business attraction tax expenditure programs. Thirteen states rated “leading the way”; 12 got “mixed results;” and 26 were “trailing behind,” among them Maine.

In 2009, the Federal Reserve Bank of Boston convened a panel of experts to debate state business incentives.
Peter Enrich of Northeastern University concluded that the scholarship on the issue should lead government to “Just say no” because there is no assurance the programs create jobs.

To date, the most thorough study of Maine’s programs was the 2006  audit by the state Office of Program Evaluation and Government Accountability (OPEGA). It  studied a total of 46 business incentives designed to promote job growth and designated a dozen as “high risk.” Among the problems found were inadequate performance measures, costly duplications and the lack of independent reviews that could cause “mismanagement and fraud to go undetected.”

Those dozen programs alone cost the state $100 million annually.

And an analysis of the Pine Tree Zones by the Maine Center for Public Interest Reporting last year discovered records that reveal the companies that get the tax breaks have never shown that they need them in order to create the jobs – even though the law says they should.

The most high profile attempt to reduce the state’s spending on tax expenditures is embedded in the  " “Act to modernize and simplify the tax code,” the tax reform bill that provoked a day’s worth of testimony at last Friday’s tax committee hearing.

Among the bill’s many parts are provisions to eliminate a range of tax breaks, including getting rid of nearly every sales tax exemption and some highly-favored business incentives such as the Pine Tree Zones and the New Markets tax credit, which costs the state $5 million.

The bill is still at the concept stage and does not have a full fiscal analysis, but the business programs it would phase out have already been documented to cost many millions.

Sen. Richard Woodbury, the independent from Cumberland and an economist, is among the 11 legislators who write the bill. The others are five from each party.

“We are trying to eliminate as many expenditures as can be sensibly done,” he said last Friday, after testifying to the tax committee.

Dana Connors, president of the Maine State Chamber of Commerce, said he likes the comprehensive and bipartisan aspects of the bills, but opposed the bill for its lack of specifics and the short time to deal with it – there is just a month left to the legislative session. He also said he had  “concerns” about the loss of the business tax incentives.

“Our programs in Maine are modest when it comes to attracting economic development and business” when compared to other states, he said.  “I’m concerned if all of that was removed from our books. That would create a problem for us.”

As of Tuesday, none of the bills had been voted on by the full legislature. The tax committee on Monday voted against all the bills but Rotundo’s “best practices” bill,  LD 1463, which has bipartisan co-sponsors.

Goode, the committee’s House chair, said the committee felt Rotundo’s bill came closest to requiring both a detailed analysis and legislative review.

He said a bill is needed that will change the way he fears decisions about tax policies are made now – “either by what makes someone feel good or who has the most people at the public hearing.”

The Maine Center for Public Interest Reporting is a nonprofit, non-partisan news service based in Hallowell. Web: pinetreewatchdog.org. Email: mainecenter@gmail.com.

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