Chances are, few Mainers had ever heard of a one-day loan before a superbly-developed two-part investigative series by reporter Whit Richardson in the Maine Sunday Telegram blew the whistle on what can only be regarded as a $38.5 million scam on Maine taxpayers. Those one-day loans played a major part in something called the New Markets program, a complex subsidized tax-credit scheme approved by a poorly informed Maine Legislature in 2011. Millions of dollars flowed not to some of the 10 projects done to date but into the pockets of willing investors and their clever enablers.
Chief among the projects was a $40 million deal that, in theory, would have revived East Millinocket’s Great Northern Paper mill, then owned by Cate Street Capital of New Hampshire. “Of that $40 million,” writes Richardson, “more than $32 million was in the form of one-day loans, $7 million paid off existing high-interest debt and $1 million went to brokers’ fees. None was used to upgrade or modernize the mill as intended in the company’s application to the New Markets program. The mill went bankrupt, and more than 200 people lost their jobs, but Maine taxpayers will be paying investors $16 million through 2019.”
Present and former Maine legislators and numerous legal scholars have acknowledged that the legislation – most especially the one-day loan scheme used to leverage the highest possible tax credits – was ill-advised. Sen. Roger Katz, an Augusta Republican who chairs the Government Oversight Committee, told Richardson he regretted voting for the bill. “Collectively, all the various parties involved in this ought to get an F for what happened, and that certainly includes the Legislature.”
Similar New Markets programs have been approved in other states, in some cases with similar results. And according to Richardson, the federal program that provided the template for state plans is now under scrutiny from the U.S. Government Accountability Office. Meanwhile, members of the Louisiana-based investment firms – Stonehenge, Enhanced and Advantage – are laughing all the way to the bank.
We will not even attempt to explain the complexities of the New Markets program in these columns. Those interested in a detailed explanation would do well to read Richardson’s series of articles, which appeared in the April 19 and 26 issues of the Telegram.
Not all of the New Markets developments have involved the sleazy one-day loans that played such a major part in the Great Northern debacle. Some of the investments here in Maine reportedly have resulted in business expansion that seems to show some economic benefit. But the Maine Legislature should be very wary as it considers legislation (LD 297) to double the money available under the program – from $95.5 million to $195 million. That is a bad idea. In any event, the Legislature should approve an amendment offered by the Finance Authority of Maine, which administers the program, to eliminate the use of one-day loans.
State government has long been involved in attempting to pick winners and losers in providing subsidies and tax benefits for business development. Year after year, thousands of long-established small Maine businesses, struggle to survive and hopefully expand without government help. At the same time, they watch as their governors and legislators dole out taxpayer money to big investors whose lobbyists promise hundreds of jobs and millions in new tax revenues, provided the state gives them a handout. State government should focus on operating efficiently and leanly reducing the tax burden on all Maine residents and businesses. That’s the most reliable and fairest path to economic development.