Taxpayer support for business creation costs too much

Ever since Edmund Muskie in the 1950s, Maine governors and legislators have been all too eager to use taxpayer funds to create incentives for new businesses in Maine.

It’s a widespread idea, with virtually every state showering millions of dollars of business incentives to attract new jobs. But the evidence is mounting that the vast majority of all new job creation comes from existing businesses, with less than 7 percent of new jobs coming from companies that transplant from one state to another.

As recently as 2014, Maine had over 60 incentive programs for business and job creation. The largest of these programs is the Pine Tree Development Zone program. Conceived by former Gov. John Baldacci in 2004, Pine Tree Development Zones were intended to spur job creation in Maine’s poorer communities and regions. With significantly reduced, sometimes eliminated, tax burdens for up to 10 years, plus lower-cost electric rates than competing businesses, Pine Tree Zone applicants needed to create only one new job whose wage exceeded that county’s prevailing average wage. Because of the “success” of Pine Tree Zones, the Maine Department of Economic Development recommended that virtually the entire state should become a Pine Tree Development Zone.

An audit report commissioned by the Legislature in 2013 found that the cost of the average new job from Pine Tree Zone incentives was $159,000. We can’t make this stuff up.

Proponents cite the hundreds of millions of dollars of economic gains accomplished by Pine Tree Zones, but the reality is becoming clear that there are few actual measurements of compliance. With no yardstick, no mechanisms for how taxpayer money is being used, economists and critics cite the hundreds of millions of dollars that the program has cost Maine.

Over 400 businesses have received Pine Tree benefits since 2004. How many of those businesses actually relocated to Maine? Would any of the new jobs have been created without the incentives? Have businesses that didn’t receive incentives been harmed by the unlevel playing field provided by taxpayer incentives to their competitors?

Maine’s legislative watchdog group, the Office of Program Evaluation and Government Accountability, (OPEGA), has been asking these questions. Its 18 months of research have led to a negative finding in regards to Pine Tree Development Zones. The bipartisan committee stated recently, “We found that the current design does not adequately support achievement of any of the program’s desired outcomes.” OPEGA went on to claim that the state of Maine will lose $12 million in tax revenue this year from Pine Tree Zones.

The legislative committee went on to state that determining whether the program is cost-effective is impossible due to nuances in how some benefits are calculated and the lack of data regarding actual application of benefits.

Economists constantly debate the value of business incentives and the whole practice of government picking winners and losers in the economic sector by doling out taxpayer money through these incentive programs. The intentions may be pure, but all too often, we see that the results for the majority of businesses or taxpayers is far less than the desired result.

OPEGA is correct: the Pine Tree Development Program’s funding should cease. And more business incentive programs should be under their scrutiny. Rep. Anne-Marie Mastraccio (D-Sanford), chairwoman of the House Oversight Committee, said it best, “We need a long-range strategy for economic development.”

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