AUGUSTA — A bill that could close a loophole in a state tax credit program that will send millions of Maine taxpayer dollars to out-of-state investors has fallen victim to political wrangling at the State House.

The Republican-controlled Senate voted Tuesday morning to send the proposal to the Taxation Committee for further review. The move is at odds with the Democrat-controlled House, which on Monday advanced an amendment designed to prevent so-called “sham transactions” by halting the Maine New Markets Capital Investment program until it is vetted by the Legislature’s Government Oversight Committee.

The disagreement between the Senate and House means that bill is dead and the loophole, the use of one-day loans within a program that offers tax credits to investors in businesses in low-income communities, will remain. A 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 financing device was used in the 2012 deal designed to revitalize the Great Northern Paper mill in East Millinocket. That project, touted as a $40 million investment through the tax credit program, failed, resulting in the mill’s closure, the loss of more than 200 jobs and the bankruptcy of Great Northern Paper, which was owned by the private equity firm Cate Street Capital of Portsmouth, New Hampshire.

The newspaper investigation also found that the $40 million investment was an illusion that will cost Maine taxpayers over $16 million by the time that the state’s commitment ends in 2019.

While lawmakers in both parties have said that they want to reform the program, the issue has been politicized.

On Tuesday, Democrats held a news conference at the State House to urge Republicans to support their amendment to the bill, L.D. 297, that will give the state the authority to recoup taxpayer dollars in deals deemed “sham transactions,” an IRS term for tax schemes designed to avoid tax liability.

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Sen. John Patrick, D-Rumford, described the current program as benefiting “Wall Street con men” at the expense of Maine taxpayers.

“What happened with Cate Street is a sham transaction and the taxpayers of Maine have been on the hook for this,” Patrick said. “It’s wrong that we are allowing out of state financiers to abuse one-day loans and make phony investments. Something needs to be done and this bill seeks to do something with common sense.”

Sen. Andre Cushing, R-Hampden, disputed Democrats’ characterization of the Republican vote to send the bill to Taxation Committee. He said the vote to do so came after discussions with Sen. Nate Libby, D-Lewiston, the bill’s original sponsor.

“It’s a little disingenuous to say Republicans are against (reforming the program),” Cushing said. “Now we’re at a point where we’re having press conferences talking about policy on the last day of the session. You can read into that what you want to, but the fact that organized labor and a variety of people pushing the agenda on this doesn’t say to me that this is about pushing good policy or what’s good for the state of Maine.”

Libby said during a recent floor debate that the proposal had been utilized by “various interests” 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.” Libby has supported sending the bill to the Taxation Committee, where it could be reviewed when the Legislature reconvenes next year.

Sen. Amy Volk, R-Scarborough, told the Press Herald on Friday that 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. Volk is a the co-chairwoman of the Labor, Commerce, Research and Economic Development Committee.

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The committee voted along party lines to advance two amendments. The Democratic-sponsored amendment is the proposal supported by the House. The Republican amendment also closes the one-day loan loophole while it expands the tax credits made available in the program.

The Republican amendment has not received a vote by either the House or Senate. Cushing was asked Tuesday why Republicans didn’t attempt to advance their amendment, which would have addressed the loophole. He said that other provisions of the bill would not likely clear the Democratic-controlled House.

“The reality is, this is policy,” he said. “If we’re going to take policy seriously here, we should do that in (the Taxation Committee). The fact that they don’t want to do that, but stand on the steps of the State House and have a press conference and blame the Senate Republicans, is really unfortunate.”

Inaction by the Legislature means the four-year-old program will remain unchanged. Roughly $20 million in tax credit allocations remain in the program. However, Libby said the board of the Finance Authority of Maine, which administers the program, has the final say on whether to approve or deny projects that seek the tax credits. He was hopeful that FAME would reject any application for a project that includes a one-day loan.

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. Investors have claimed roughly $76 million of those credits to date, according to FAME.

Libby’s original bill would have expanded the program by doubling the amount of available tax credits 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.


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