When the company that owned the Great Northern Paper mill filed for bankruptcy last year, it was more than a story about the decline of a traditional industry and the loss of hundreds of jobs in East Millinocket.

Cate Street Capital, a New Hampshire-based private equity firm, had acquired the mill for one dollar in 2011 and had operated it by taking advantage of government programs designed to create and preserve jobs. Most notably, the mill qualified for fully refundable state tax credits that were used to leverage investment in the plant, but the improvements were never made. Financiers used the perfectly legal maneuver of taking a one-day loan that made it look as if they were investing $40 million. That put state taxpayers on the hook for $16 million in tax credits to be paid to the investors through 2019.

The Great Northern Paper mill in East Millinocket, which was shut down in 2014. Government efforts to help the mill’s owners modernize the plant through tax credits did not succeed in saving jobs or the mill for the long term, but it did send millions to out-of-state financiers. Press Herald File Photo

The mill was shuttered in 2014. The only thing that survives today is the public liability.

A MULTITUDE OF PROGRAMS

Reporter Whit Richardson spent five months putting the story together, and what he uncovered should change the way the state uses tax credits to promote economic development. But it would be a mistake to think the problems exist in only one program. At risk is not $16 million, but billions of dollars in tax incentive programs that do everything from build affordable housing to preserve open space.

Are they worth the money? Sometimes yes, and sometimes no.

Even the Maine New Markets Capital Investment Program that was used in the Great Northern case has been the vehicle to a number of successful deals that have saved jobs in economically challenged parts of the state. Some defend even the one-day loans, which can free up capital by paying off high-cost debt.

There is no way to give these programs a blanket thumbs up or thumbs down, but they all should receive a level of scrutiny that they are not getting now. Questions should be answered about whether the programs do what they are supposed to, and whether the benefits are going to the right people. A bill before the state Legislature, L.D. 941, would do just that.

WHO BENEFITS FROM BREAKS?

L.D. 941 would task the state Office of Program Evaluation and Government Accountability with doing a systematic review of about 200 tax-related expenditures that are not part of the regular budget process.

These programs are typically sold to lawmakers as a tax break for a development that would not otherwise exist. The logic goes that a small slice of something is better for the state than getting all of nothing.

But these programs can be very complex, and it’s not always clear whether the state is getting what it pays for. With the benefit of hindsight, the state would have been much better off investing $16 million directly in the Katahdin region instead of participating in a failed investment scheme to modernize the Great Northern mill.

In many cases, tax expenditures are used to get a private business to carry out a government function. But that kind of spending does not get the same amount of scrutiny as services delivered by state employees.

Lawmakers from both parties were asleep at the switch when the Great Northern tax incentives were approved. They ought not put themselves in that position again. L.D. 941 is a good place to start.

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