It’s nice to know that there is still plenty of money in Maine these days to help people who have had a run of bad luck – as long as they are wealthy investment bankers.

If you are a laid-off mill worker, you get the tough love.

The latest chapter in the story of who is worthy of government help and who is not is playing out in the Katahdin region, where a failed attempt to rescue the Great Northern Paper mill turned into a financial windfall for some shadowy investors.

The investors who participated in the New Markets Tax Credit program to rescue the mill will get multimillion-dollar checks from Maine for the next seven years at tax time, totaling $16 million. But there are no jobs, no new machines and no transition to new industries for the people the program was supposed to help.

How does this happen? Press Herald business writer Whit Richardson explains it in an outstanding piece of reporting published in the April 19 Maine Sunday Telegram

In “Payday at the mill,” Richardson lays out how a group of financiers “helped” Maine create a tax credit program that they later took full advantage of. It allowed them to put together a deal that enabled investors to double their money at the taxpayers’ expense.

The story goes into meticulous detail about how Cate Street Capital, a private equity firm, worked with two venture capital companies from Louisiana to assemble a deal to buy and revive Great Northern Paper. They shuffled money between a dizzying array of new companies they had just created and made a rapid-fire series of complicated financial transactions – including a pair of one-day loans that made an $8 million investment look like $40 million, triggering a $16 million commitment from the state.

Needless to say, no mills were revived in the making of this deal.

This has all the hallmarks of a scandal, except for one thing: It appears to be completely legal. The program was designed to attract investment to parts of the state where it wouldn’t otherwise go.

If it had been successful, the financiers would have made a mountain of money. When the companies they created went bankrupt, the investors had to settle for a $16 million foothill instead.

The program worked. And that’s the problem.

This deal was a failure, but not a failure for everyone. Programs like this insulate investors from the consequences of risk, and there’s nothing to stop the investors from putting the millions they are getting from Maine into other risky endeavors backstopped by other public programs. That’s the kind of thing that crashed the economy in 2008 – and it could happen again if we let companies take a free shot at a bad investment, and promise them they have nothing to lose.

Would anybody have bought the Great Northern mills without the incentives? Probably not. Gov. LePage said at least the deal kept people employed for a year, cashing paychecks that they could spend at local businesses.

But what do they have now?

What if, instead of supporting a tax credit program, the state had spent $16 million in Millinocket and East Millinocket?

That could have been used to update infrastructure and help the towns transition to a post-paper mill economy. It could have helped the families of unemployed workers get through a tough time. It could have been used to help former papermakers relocate to places where they could find work.

That kind of investment is politically impossible, however, because it would make government “bigger.” Even if Maine spent less than the full $16 million to help the people of Millinocket, it would look like spending in the budget. But helping some investment bankers in New York doesn’t look like anything at all.

Instead of going through the appropriations process and being included in a balanced budget, these payments come right off the top, from tax collections.

And if anyone wants to argue that tax credits are not handouts because they just let people keep more of the money they earned, consider this. That $16 million is paid out to entities who never had to pay even one cent in Maine taxes on this deal.

We don’t even know who gets the money. Unlike budget expenditures, tax returns are confidential.

So for the illusion of a smaller government, we are paying out millions and a scheme to save Millinocket is sending the money somewhere else.

It’s pretty clear that lawmakers did not fully understand how this program might work when they approved it four years ago after little debate. Republican Senate President Kevin Raye sponsored the bill, joined by House Speaker Bob Nutting and House Democratic Leader Emily Cain. Which makes this a bipartisan screw-up.

It may be that a part-time citizen Legislature is too easily tricked by finance superstars, but maybe they will learn something from this experience.

Like, if you are going to spend money to help people, make sure you help the right ones.


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