Maine lawmakers had to make some difficult funding choices this legislative session, but on adjournment day, a majority voted to recapitalize a program that leverages state-backed tax credits to lure investment in economic development projects.
The New Markets Capital Investment Program touts several successes, but it's also faced scrutiny when businesses fail and taxpayers are on the hook.
The final vote to plow new funding into the tax credit program came amid a flurry of activity as lawmakers raced to send more than 100 appropriations bills to Gov. Janet Mills before adjournment.
Even with its nearly $100 million price tag over eight years, it might have slipped through without much notice had Sen. Mike Tipping, a Democrat from Orono, not spoken against it.
"This kind of deal is exactly what breeds cynicism and distrust in government," he said during a debate over the bill in the Maine Senate last week.
Tipping didn't just object to the bill's cost, which isn't covered in the current two-year budget because its drafters pushed it off until 2028. He argued that the 14-year-old program enriches out-of-state investors while saddling Maine taxpayers with too much risk and not enough safeguards.
"We shouldn't be rushed. We shouldn't be dangerous. We shouldn't put ourselves in a hole. And we shouldn't threaten the money and the interests of the people of Maine," Tipping said as he tried to send the bill back to the Taxation Committee for more work.
The program provides state tax credits to developments in low-income areas determined by the U.S. Census. The tracts can divide neighborhoods, even the same street. That's how the Press Hotel and the Baxter Academy for Technology and Science in downtown Portland qualified. Developers of both projects earned tax credits worth 39% of their original investment.
In April, Chris Roney, chief counsel for the Finance Authority of Maine known as FAME, explained to lawmakers on the Taxation Committee how those credits can be used to attract more investment.
"Alright, so you get an investment into the business. That generates the tax credits. The tax credits are then sold to an investor, generating additional funds," he said.
The credits are often sold to big, out-of-state investment firms and banks that pay a premium price.
That's partially how owners of Saddleback Mountain resort turned $1.7 million worth of credits into $42 million worth of investment to reopen and upgrade the ski area in 2020 after a five-year closure.
Although several states have similar programs, Maine made its tax credits even more enticing by making them refundable. No other state does so, although some provide larger percentages of tax credits based on a project's original investment.
While in-state investors use the credits to reduce their Maine income tax, firms outside of the state can get the credits' value in cash payouts straight from Maine's General Fund — in other words, taxpayers.
And that happens even if the project fails, as one did two years ago in Sen. Tipping's district.
"And again, we gave them the money, they shut down the mill, they fired everyone," he said.
He's referring to the paper mill in Old Town that shuttered in 2015 and reopened with great fanfare three years later. It was purchased by Nine Dragons Paper Holdings, a Chinese company owned by Zhang Yin, one of the richest people in China. Zhang reportedly promised to keep the mill running for 100 years. In 2023, it stopped after about five, citing high energy and pulp prices.
Its investors will still get paid for the tax credits.
"It's not a zero-sum game," said Roney of FAME, the agency that administers the program when asked by lawmakers about similarly stalled projects. "Just because they failed, doesn't mean there was no benefit."
Roney and other supporters told lawmakers that projects like the Old Town mill produced valuable economic activity while they were running — people were employed, the business spent money.
"We believe the data shows that this program has been a great value to the state, more than paid for itself," he said.
Roney cited a 2017 report by the legislature's watchdog agency that determined that Maine's new markets tax credits program produced a net revenue gain of nearly $16 million between 2013 and 2021.
It also recommended performance standards to safeguard taxpayer money.
The report was prompted in part by a Maine Sunday Telegram investigation into a deal meant to restart the Great Northern Paper in East Millinocket. In 2011, a New Hampshire private equity firm purchased the mill and touted $40 million in investment using the fledgling new markets tax credit program. The newspaper found investors, or their subsidiaries pocketed most of that money.
The mill shut down three years later and more than 200 workers lost their jobs. The investors received state payments credits totaling $16 million over seven years.
"The state-level tax credit was the decisive factor for our participation. And the results speak for themselves," Darian Harris with Advantage Capital Partners told lawmakers in April.
Advantage Capital Partners is a Louisiana investment firm that lobbied lawmakers to create the New Markets Capital Investment Program in 2011. This year it has paid a high-profile lobbying firm to convince lawmakers and the Mills administration to recapitalize it, according to Maine Ethics Commission records. The program is out of money.
Harris told lawmakers in April that his firm would not have invested $40 million in Maine without the tax credits.
That can be a persuasive argument to lawmakers like Senate President Mattie Daughtry, a Democrat from Brunswick, where the Swedish company Mölnlycke Health Care used the program at the former Navy air base and recently announced a $134 million expansion.
Daughtry was among the majority of lawmakers who voted for the recapitalization bill, but she said, "I'm personally going to be keeping an eye on this program to make sure it's delivering for Maine and especially Maine taxpayers."
And that's the key tension in the program: it lowers risks to attract investment that might otherwise not come, but at some peril to taxpayers.
Gov. Janet Mills will soon decide if it's worth it. She has until July 7 to sign the bill, or she can hold it until lawmakers return for a session of three days or longer.
