It’s known around the State House as simply “the Red Book.”

At 212 pages long, the latest Red Book details the billions of dollars in tax revenues that Maine state government either pays out or doesn’t collect in connection with the dozens of credits, exemptions or reimbursements written into the state tax code.

For example, there are:

 $7.7 million in tax credits to rehabilitate historic properties.

$228,000 in “tax benefits” to entice movie and film crews to Maine.

$503 million in tax exemptions for spending on doctors, dental visits and nursing homes.

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Some of those tax breaks – like those for doctor visits and groceries – are for “necessities of life.” But over the past decade, report after report has raised alarms about whether the hundreds of millions of dollars listed in the Red Book as business and economic development “tax incentives” are a good investment for Maine taxpayers.

Now, lawmakers will have another opportunity to strengthen oversight of nearly 50 tax incentive programs worth at least $300 million last fiscal year. On Wednesday, a legislative committee will hold a workshop on a bill, L.D. 941, that would establish a rolling schedule whereby the state’s watchdog agency – the Office of Program Evaluation and Government Accountability, or OPEGA – would systematically evaluate those programs and nearly 150 other tax breaks over the next six years.

Also, members of the Legislature’s Government Oversight Committee are expected to ask Commissioner George Gervais of the Maine Department of Economic and Community Development critical questions Friday about progress – or lack thereof – since a 2006 OPEGA report found inadequate accountability. Gervais declined to comment for this story ahead of his committee appearance.

The stack of past reports gathering dust on shelves in Augusta speaks to the challenge ahead, however.

“This is what the Legislature always does: We make these reports, create these study groups and then we never follow through at the end of the day,” said Rep. Bob Duchesne, D-Hudson, a veteran lawmaker who serves on the Government Oversight Committee.

OPEGA’s detailed, oftentimes critical 2006 report is a case in point.

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“Current reporting on economic development programs is inadequate for providing transparency and accountability; for comparing the performance and costs of individual programs; and for understanding the state’s portfolio of (programs) as a whole,” reads the report.

Revisiting that finding last month – nearly 8½ years later – the agency said that while recent evaluations sought to fill those gaps, they are “still not providing the performance information on individual programs that will allow legislators to understand and make decisions on specific programs.”

Furthermore, the department “has not initiated any efforts … toward achieving standardized reporting to provide transparency and accountability,” OPEGA director Beth Ashcroft wrote in late April.

MOTIVATED BY RECENT NEWS

Maine has been slow to the evaluation game; more than half of the states now have some form of system to gauge the effectiveness of economic development programs. But the rolling system proposed by OPEGA would be among the more robust nationally.

“If Maine were to adopt this, the state would be a national leader in tax incentive evaluation,” said Josh Goodman, a senior researcher specializing in economic development initiatives with the Pew Charitable Trusts in Washington, D.C.

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OPEGA has been working on the evaluation scheme since late 2013. That’s when a task force gave up trying to trim $40 million from tax programs because members determined there wasn’t enough information available to make educated recommendations.

Recent events could motivate lawmakers to get something done this year.

A five-month investigation by the Maine Sunday Telegram revealed that Maine taxpayers are on the hook for $16 million in tax refunds for out-of-state investors in the now-closed Great Northern Paper mill in East Millinocket. None of the money was used to modernize the mill, as described in the initial application, and the mill’s closure and subsequent bankruptcy left more than 200 unemployed.

In the wake of the investigation, lawmakers have delayed action on a bill, L.D. 297, that sought to double the cap of the Maine New Markets Capital Investment program from $250 million to $500 million. Lawmakers are now considering other changes to the program to eliminate the type of “one-day loan” used to inflate the investment in the Great Northern mill owned by private equity firm Cate Street Capital.

Lewiston Rep. Peggy Rotundo, a longtime advocate for increased oversight of economic development programs, described “years of frustration on not seeing these programs evaluated.”

As the House chairwoman of the committee responsible for crafting the state budget, Rotundo acknowledged that the programs rarely receive scrutiny because evaluations take time and money to complete. And then there is the political reality: Those who benefit financially from the programs don’t want them repealed.

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“I have been concerned that there are tax expenditures on the books that are no longer serving the purpose for which they were created,” said Rotundo, the top Democrat on the Appropriations and Financial Affairs Committee. “We have an enormous amount of money tied up in programs that are not accountable, and we have no idea whether they are working.”

SUCCESS STORIES

No one disputes that economic development incentive programs can be beneficial to Maine and are increasingly viewed as critical tools to attracting and retaining businesses. And some programs have well-established track records of success.

For example, the Maine Manufacturing Extension Partnership – a program that helps small- to medium-sized manufacturers improve their technology – directly created 607 jobs and helped retain 1,894 between 2007 and 2012, according to a 2014 report. The program received $1.5 million in state and federal funds in 2012.

The Loring Development Fund created 1,082 jobs in 2012 at the former Loring Air Force Base in Aroostook County with a state appropriation of $200,000, according to the 2014 evaluation report conducted by an outside group for the department.

The New Markets tax incentive program is credited with helping to retain 450 jobs at the St. Croix Tissue plant in Baileyville. Department of Economic and Community Development officials have also defended that program’s short-term impact at the East Millinocket mill, pointing out that the facility likely would have closed at least a year earlier without the program.

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“These programs are vitally important,” said Peter DelGreco, president and CEO of Maine & Company, a Portland-based firm that works with businesses looking to relocate to or expand in the state.

“In the world of business attraction, companies – whether they are already based in Maine or outside of Maine – have choices about where they go,” DelGreco said. “And a company is going to look much more favorably on programs that help them grow, minimize risks and minimize costs. And there are programs across the country and around the globe that do that.”

DelGreco said the business recruitment field is so competitive that the head of one prominent, non-retail company in Maine recently told him that five states had approached him with business incentive packages to relocate. He has declined the offers.

Transparency and accountability are extremely important, DelGreco said, but “they have to be done correctly” in a way that balances transparency with the privacy of the business sector.

In 2013 and 2014, the independent contractor Investment Consulting Associates conducted a comprehensive evaluation of Maine’s economic development programs as part of a legislative requirement.

The resulting 300 pages of analysis make clear that many of the state’s economic development programs are creating jobs or helping businesses. But the consultants also found significant shortfalls in the areas of transparency – with many programs not conducting required annual reports, or making them difficult to obtain – as well as in centralized monitoring.

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The firm also struggled to obtain the information needed to properly evaluate programs after only 30 percent of businesses returned surveys. In many cases, the firm was unable to obtain company-specific information from either Maine Revenue Services or the Maine Department of Economic and Community Development because it was deemed confidential. And the limited data garnered from annual reports “makes this assessment impossible,” reads the report.

ECHOES OF PREVIOUS REPORTS

The report recommends that the state set “clawback provisions” that would allow it to recoup money given to businesses “that do not fulfill their obligations”; consider purging noncompliant programs annually; and improve collaboration between the department and its partners.

“While this report does suggest new action items, many items were also echoed in previous reports,” the firm’s analysis says. “In many case(s) the suggestions from the previous reports have not been addressed in the interim and are still outstanding.”

The department is required by the Legislature to complete such reports every two years. Department officials did not reply to a request for comment on the 2014 evaluations.

But in her recent report to the committee, OPEGA’s director said the department is “forgoing the planning” for the next evaluation due in 2016 because of lack of funding and “is not necessarily supportive of all of the consultant’s recommendations.”

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“Currently, there does not appear to be any effort underway in the Executive or the Legislative Branch to consider the recommendations of the most recent (Investment Consulting Associates) report and to take action as deemed appropriate,” Ashcroft wrote.

Maine isn’t the only state failing to keep tabs on whether taxpayers are getting their money’s worth from tax incentive programs.

A 2012 analysis by the Pew Center on the States listed Maine among the 25 states, plus the District of Columbia, that were “not meeting any of the criteria for scope or quality of evaluation” of tax incentive programs. Also, Maine was among 16 states that did not publish any documents evaluating the effectiveness of tax incentive programs between 2007 and 2011.

While some states carefully measure economic impacts, “others do not examine them at all.”

“As a result, when lawmakers consider whether to offer or continue such incentives, how much to spend, and who should get them, they often are relying on incomplete, conflicting, or unreliable information,” reads the report.

Since 2012, roughly a dozen states have adopted more regular and rigorous evaluations of tax incentive programs, with many now requiring evaluations every few years. Maine is potentially poised to do the same in a way that Goodman, the Pew researcher, said would put the state at the forefront.

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“There is a growing recognition that these are important (budget) choices and they need information to make sure the programs are working,” Goodman said.

Rotundo, the Lewiston Democrat, said she hopes lawmakers will take bolder steps this year.

“It is very important work and we owe it to the people of Maine to do it,” Rotundo said. “We have limited resources and we have to make sure those limited resources … are being spent wisely. I don’t think they are for many of the programs that are on the books.”

 


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