The Maine agency in charge of government accountability issued a report Friday questioning whether two state programs that offer property tax breaks to businesses in exchange for purchasing equipment are serving their intended purpose.

The report from the Office of Program Evaluation and Government Accountability said Maine’s business equipment tax reimbursement and exemption programs don’t appear to be effective at getting businesses to increase their investment in new equipment, primarily because only a small percentage of businesses are receiving the lion’s share of the tax benefits.

It also found the tax breaks negatively affect municipalities, which are reimbursed by the state for only about 60 percent of the tax revenue they lose from the property tax breaks.

The review of the Business Equipment Tax Reimbursement (BETR) and Business Equipment Tax Exemption (BETE) programs was done as part of a regular review by OPEGA of programs in the state that provide tax incentives to businesses. The review assesses whether tax programs are meeting their intended goals and gauges their impacts on both the recipients of tax benefits and municipalities, OPEGA Director Danielle Fox said.

Fox said the evaluation of state tax benefit programs is a relatively recent initiative and is part of a national trend.

The findings were presented Friday morning to the Legislature’s Government Oversight Committee. A public comment session on the report is scheduled for Feb. 28.

The tax break programs are intended to reduce the cost of owning business property while encouraging the growth of capital investment by businesses in Maine. The BETR program allows businesses to receive reimbursements from the state for a percentage of taxes assessed and paid on eligible property. The BETE program exempts businesses from paying municipal personal property tax on eligible equipment and partially reimburses municipalities for the loss in tax revenue.

Rep. Anne-Marie Mastraccio, D-Sanford, co-chair of the Government Oversight Committee, said the OPEGA findings were eye-opening, especially as a former town councilor familiar with the programs’ impact on municipalities.

“It really clarified for me the tax shift from the state to municipalities,” she said.

OPEGA found that the programs accomplished their shared goal of reducing the cost of owning business property in Maine by essentially eliminating property tax on qualifying equipment. But the agency found it is less clear whether the programs are actually encouraging the intended growth in capital investment.

OPEGA found that the programs’ impact on capital investment is likely marginal, as evidenced by the fact that relatively few businesses receive financially significant benefits.

In the fiscal year ending June 30, 2018, Maine provided $29.1 million in BETR reimbursements to 1,396 businesses. Those reimbursements ranged from a few dollars to nearly $1.5 million and averaged $20,851, the report said.

Just 8 percent of BETR businesses received 75 percent of the total reimbursement, with an average benefit of $202,604. For the remaining 92 percent of businesses, the average benefit was $5,611, the report said. Fox said OPEGA doesn’t maintain a list of which businesses are on the list of roughly 112 that received the bulk of tax benefits.

In the same year, BETE businesses were exempt from paying $58.5 million in personal property taxes on equipment. OPEGA found the impact of BETE on municipalities is more significant than the other program because it removes their ability to collect potential tax revenue.

In fiscal year 2018, the state only reimbursed municipalities for 61 percent of property taxes that could not be collected as a result of BETE. That year, 6,315 businesses participated in the program, resulting in $58.5 million in property tax savings for businesses. The average property tax savings was $9,267 per business, the report said.

The OPEGA review also found that the municipal administration of BETE can be labor-intensive and time-consuming. The review found that the $2-per-application state reimbursement to cities and towns only covers about 10 percent of the municipalities’ costs to administrate activities related to the program.

Christopher Huff, Portland’s assessor, said the city has seen a 25 percent increase in the value of property exempted from taxation under BETE in the two years since the state broadened the types of business and equipment eligible for the tax break. Ten percent of Portland’s 4,000 personal property accounts file a BETE application, he said.

In the current fiscal year, the city’s total BETE-eligible assets are valued at $203.7 million. If that value were taxable, it would generate a little over $4.7 million in tax revenue for the city, Huff said.

Instead, the city is reimbursed $2.5 million by the state, or 53 percent of the lost revenue.

“We spend an awful amount of time trying to determine what’s eligible and what’s not eligible,” Huff said. “The end result is we’re going through this exercise to lose $2.2 million.”

Mastraccio, the state representative, anticipates that the Government Oversight Committee will have a lot to say about the program and its impact on municipalities after the Feb. 28 public comment session.

“I think we will have a robust discussion at the committee level when we review the report and where we go from here,” she said. “It’s always a good idea to evaluate the things we do with a lens of today, not just the lens of 10 or 15 years ago.”


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