The Maine Legislature is unlikely to close a loophole this session in a state tax credit program that an investigation by the Portland Press Herald/Maine Sunday Telegram revealed will send millions of Maine taxpayer dollars to out-of-state investors.

The Republican-controlled Senate voted Friday afternoon on a bill that would close the loophole in the Maine New Markets Capital Investment program, which offers tax credits to investors in businesses in low-income communities. The bill would also require the tax credit program to be thoroughly vetted before any more taxpayer money is committed to it. Rather than endorsing or opposing the bill, the Senate voted to send it to the Legislature’s Taxation Committee, where it will likely remain when the Legislature adjourns on Tuesday.

The decision to send it to committee was the result of a lack of compromise among lawmakers, according to Sen. Nate Libby, a Democrat from Lewiston and original sponsor of the bill, L.D. 297.

On the Senate floor Friday afternoon, Libby said his bill had become too politicized and that “various interests” had appropriated it as a tool “to rail against alleged scam artists, to vent their frustration against the 1 percent and corporate welfare fraud, and to use the issue as an opportunity to gain political advantage over members of the other political party.”

“After many discussions with members of both houses and various outside interests, I see little interest in reaching a reasonable compromise or in passing good policy,” Libby said. “I don’t want to see L.D. 297 used any further for demagoguery or partisan advantage.”

Sending the bill to the Taxation Committee, where it can be taken up when the next legislative session begins in January, is “the best course of action,” he said, adding that the Government Oversight Committee has agreed to conduct a thorough review of the New Markets program over the summer.

“To me, (sending the bill to the Taxation Committee) was preferable to having the bill die without any action to reform (the New Markets program) having been taken,” Libby said after the Legislature adjourned for the day.

ONE-DAY LOANS TARGETED

Central to the reform of the program and the bill was the elimination of the use of one-day loans in the structure of the investment deals. The Portland Press Herald/Maine Sunday Telegram investigation revealed that, in several instances, one-day loans were used to inflate the overall value of a deal in order to trigger more tax credits for the investors.

The legislative postponement means that the 4-year-old program will remain unchanged. There remains roughly $20 million in tax credit allocations in the program. However, Libby said the board of the Finance Authority of Maine, which administers the program, still has the final say on whether to approve or deny projects that seek the tax credits.

“I want the loophole eliminated as soon as possible, but in my estimation, none of the three versions of the bill were in a position to be enacted, which is incredibly disappointing and unfortunate,” Libby said. “Given the attention around NMTC, and universal agreement that the loophole must be closed, the FAME board would be wise to reject any application for a project that includes a one-day loan for the remainder of credits available.”

The Legislature created the Maine New Markets Capital Investment program in 2011. It offers investors a 39 percent tax credit on qualified investments in low-income community businesses.

The program was created with $97.5 million in tax credits available. As of now, investors have claimed roughly $76 million of those credits, according to FAME.

Libby’s original bill would have expanded the program by doubling the amount of available tax credits, from $97.5 million to $195 million. The Legislature’s labor and economic development committee had unanimously approved the bill. Following the newspaper’s investigation, which revealed how sophisticated financiers had abused the program, the committee revisited the bill.

That’s when the disagreements began. Democrats on the committee, led by Rep. Erin Herbig, a Democrat from Belfast, voted to amend the bill by closing the one-day-loan loophole and refusing to allocate more tax credits to the program before it received a thorough vetting.

Meanwhile, Republicans on the committee, led by Sen. Amy Volk, a Republican from Scarborough, wanted to close the one-day-loan loophole and add more tax credits to the program, but at a slower pace than Libby’s original bill had outlined. The committee voted on May 28 along party lines, 7-6, with the Democrats prevailing. As a result, two reports – a majority and minority – emerged from the committee.

SOME LAUDABLE INVESTMENTS

Despite the abuses of the program, especially the use of one-day loans as part of a $40 million investment in the Great Northern Paper mill in East Millinocket, Libby said the program has also provided investments in worthy projects, such as the new tissue mill in Washington County and a medical bandage manufacturer in Brunswick.

Volk, who co-chairs the labor and economic development committee, approved of sending the bill to the Taxation Committee. While she supports expansion of the program once the one-day-loan loophole is closed, she said liberal activist groups had politicized the bill, and that a mailer paid for by the Maine People’s Alliance had circulated in her district, attacking her for supporting tax breaks for out-of-state financiers.

“The New Market tax credit program has had very real, tangible benefits for Mainers,” Volk said in a statement. “While I agree that we need more safeguards, such as eliminating the one-day loans, it is unfortunate that this program has become a political tool when it could continue to be used as an excellent economic development tool.”

The Democratic-controlled House will have to agree with the Senate in a subsequent vote before the bill can be sent to the Taxation Committee. If the House instead approves the amendment ratified by Democrats on the labor and economic development committee, the bill will likely die at adjournment.

Herbig, Volk’s co-chair on the labor and economic development committee, remained committed to trying to fix the New Markets program.

“Lawmakers have a responsibility to prevent these sham transactions, and do it quickly,” she said.

“We will be taking up the bill in the House and we expect to vote on it next week.”

The Legislature’s current session is scheduled to officially end on Tuesday.

Staff Writer Steve Mistler contributed to this report.