Editor’s note: This is the first of a two-part series examining the state’s 8-year-old Pine Tree Development Zone program.

Some people call tax breaks for businesses “economic development.”

Others call them “corporate welfare.”

In Maine, one of the names they go by is Pine Tree Development Zones.

The premise of the program is that some businesses won’t create new jobs in Maine unless they get tax breaks.

The program has cost as much as $46 million in lost taxes since 2003, according to Maine Revenue Service estimates. That’s money other taxpayers had to make up to help the state balance its budget.

Proponents of the program say the cost is worth it because without the tax breaks, the businesses never would have created about 8,000 new jobs.

But a Maine Center for Public Interest Reporting investigation has discovered records that reveal the companies that get the tax breaks have never shown that they need them in order to create the jobs — even though the law says they should.

The fact that businesses are given a bye on providing evidence they need the tax breaks means there is no certainty that the new jobs can be credited to the multimillion-dollar program.

Economists and others interviewed by the center called the statement businesses give to show they need the tax break “a fig leaf,” a “farce” and “fictional.”

Former state economists refused to sign off on a section of Pine Tree Development Zone applications because businesses weren’t required to prove they needed the tax breaks.

And a committee of Maine economists determined that they could not accurately assess the effectiveness of the zones because there was no way to correlate the tax breaks to the new jobs.

The center’s findings are based on a review of thousands of pages of records, including every application to the program; two state-sponsored studies; the legislative history; and interviews with experts.

No evidence that zones work

The Pine Tree Development Zones were the brainchild of Gov. John Baldacci, who took over as the state’s chief executive in 2003, a time when the state was losing manufacturing jobs and faced a billion-dollar deficit.

Among his solutions — offered in his inaugural speech — were the Pine Tree Development Zones.

“In the coming week,” said the Democratic governor, “I will be putting forth a detailed economic strategy. It will include ‘Pine Tree’ opportunity zones to spur economic growth in areas of Maine that really need it.”

Since then, the program has become a key element in the state’s economic development strategy.

Baldacci was following the lead of other states competing with growth in the business-friendly Sun Belt.

Pennsylvania and Michigan, for example, had aggressive business incentive programs. They went by different marketing-savvy names, such as Renaissance Zones, and were known generically as enterprise zones. They were designed to attract private investment to distressed areas within a state or a large city. The idea was to lower a business’s expenses, such as taxes, if they created new jobs.

Under the Baldacci administration, more than 300 businesses have been certified for Pine Tree tax breaks since 2003. And although Republican Gov. Paul LePage has said nothing publicly about the program, his administration approved 37 businesses for the program since 2011, his first year in office.

Although nearly all of the academic studies of enterprise zones show there is little or no evidence they are effective, they have been popular with governors and legislators around the country.

In 2009, the Federal Reserve Bank of Boston convened a panel of experts to debate enterprise zones.

Peter Enrich, a professor at Northeastern University, concluded that the scholarship on business tax breaks should lead government to “just say no” to them. Taxpayers, he explained, have to pay for the breaks to businesses while there is no assurance there is a corresponding benefit.

Another panelist had Maine expertise: state Sen. Richard Woodbury, an independent from Yarmouth and a Harvard-trained economist.

As an economist, he said he questions tax break programs because they mean the tax rate has to be higher for everyone else. But as a politician, he said, “If somebody comes to you with an issue, you want to … deal with it.”

In the final analysis, said Woodbury, the political system may trump the arguments from economists.

In Maine’s case, Democrats and Republicans in the Legislature approved Baldacci’s Pine Tree Development Zones in 2003 and also approved expansions of the program in 2006, 2007 and 2009.

No proof required

The program works this way: Businesses apply to the state Department of Economic and Community Development and promise to create new jobs and make capital investments. In return, they get income and sales taxes breaks and lower electric rates for 10 years in most parts of the state.

Most of the breaks kick in after they have added a minimum of five new jobs. The more jobs they add, the larger the tax breaks.

Businesses must pass a key test to get into the program.

The law that created the Pine Tree zones states that a business can qualify for the program only if “it demonstrates” that without the tax breaks it could not expand or start a new business.

This means that “but for” the tax break, the business would not add new jobs and make investments in the state.

But never in the eight years of the program has a business been asked for or volunteered any written evidence it needed the tax breaks to start a business or expand, based on the center’s review of every application in the state’s files.

Instead, the Department of Economic and Community Development tells the businesses what to say in their application letter in order to meet the “but for” test. The department directs applicants to copy the following sentence from the sample letter it provides:

“Please be assured that the development project would not occur within the state but for the availability of the Pine Tree Development Zone benefits.”

By including that phrase in its application, the business is seen as meeting the “but for” requirement.

Nearly every letter of the hundreds reviewed by the center contained that exact wording, although sometimes the business would fill in its own name.

“The ‘but for’ letter is a fig leaf,” said Charles Colgan, a former state economist who teaches economic development at the Muskie School of Public Service at the University of Southern Maine.

He was also chairman of the state’s Consensus Economic Forecasting Commission between 2003 and 2010.

The Legislature in 2009 was so concerned about the costs of the Pine Tree zones that it passed a law requiring Colgan’s commission to calculate the tax revenue paid to the state from the new jobs versus the cost of the tax breaks. The idea was to find out if the program was worth the costs.

The commission — made up of economists and business leaders, all with advanced degrees — wrote on Nov. 1, 2010, to Baldacci and the Legislature that it was unable to answer the Legislature’s question:

“After considerable deliberations, the [commission] has concluded that we are unable to develop a credible separate forecast” because of the unverifiable assumptions built into the “but for” concept.

They asked that the law that required their analysis of the zones be repealed. To date, it has not.

Governor vs. experts

The discouraging report from the economics experts — two of the five members appointed by the Baldacci administration — did not deter the governor from claiming the program was working.

Less than two months after getting that letter from Colgan’s commission, Baldacci pronounced the program a success.

In December 2010, with only weeks left in his last term, Baldacci gave a farewell interview to the Maine Insights newsletter.

“As of September, 309 companies have located to Maine or expanded their businesses here because of PTZ incentives,” Baldacci said. “But if not for this program they wouldn’t be here.”

Not only did the state panel of economists have doubts that was the case, but so did the Baldacci administration’s official state economist.

Part of the approval process for being certified for a Pine Tree Development Zone was an “advisory opinion” from the state economist.

Michael LeVert held that job from 2007 to 2010.

He said he often declined to check the box on the advisory that stated, “To the best of my knowledge, the proposed business activity will not go through without program financing.”

In effect, this was another way of saying “but for.”

LeVert said that after leaving that box unchecked a number of times, he asked the Department of Economic and Community Development to eliminate that question, and it did.

“I didn’t feel comfortable making that assertion from the information I had. I left it blank most of the time,” he said.

LeVert said Catherine Reilly, who preceded him as state economist, also sometimes left the “but for” clause blank, a fact confirmed by the records and Reilly.

Mixed opinions of value

Baldacci is now director of military health reform in the Department of Defense in Washington. Through his former deputy chief of staff, he told the center the department prohibits him from speaking on “potentially political stories.”

Instead, the former aide, David Farmer, answered the center’s questions.

“Measuring the effectiveness of economic development programs is difficult, but it’s much easier to see what happens when a state, competing for new jobs, can’t offer an aggressive policy. The jobs go elsewhere,” Farmer wrote in an email response to the center’s questions.

“Pine Tree Zones have helped to create thousands of good-paying jobs with benefits and led to hundreds of millions of dollars worth of investment in our state. It’s better to invest resources to create good jobs, which Pine Tree Zones require, than it is to spend that money to address the consequences of more people being out of work.”

Baldacci’s confidence in the program is confirmed by some business owners, such as the vice president of Rumery’s Boatyard in Biddeford, a certified Pine Tree Development Zone business. Sean Tarpey told the Portland Press Herald in 2006 that the development zone’s benefits made it easier to “go out on a limb and hire people and pay a good wage and hope the business will expand the way we want.”

One of the jewels in the Pine Tree program has been T-Mobile, which announced in 2004 it would open a call center with 700 jobs in Oakland. Baldacci has said the program was key to bringing T-Mobile to Oakland. However, at one of the official events surrounding the opening, Maine Public Broadcasting reported that when T-Mobile Vice President John Birrer was asked about the development zone benefits, he said, “We would have come here without the incentives.”

One of the few legislators to object to the the development zones from the beginning was Peter Mills, a Republican from Cornville who is now executive director of the Maine Turnpike Authority.

He said that one of the purposes of the “but for” requirement was to “empower the administration to claim that the ensuing jobs were actually created by a tax concession — as if to say that tax law manipulations alone could create such opportunities. That was largely fictional.”

But state Rep. Christopher Rector, R-Thomaston, believes the program has been successful, at least in his district.

“While the benefits can be substantial to the businesses, the benefits in employment in our region here in the midcoast have also been substantial. Both Boston Financial and Athena Health are examples of the recruitment power of the Pine Tree Zone benefits. They have said it would not have been the first location choice for their operations were those benefits not in place.”

The signed advisory opinion from the state economist in Boston Financials’ Pine Tree Development Zone file leaves blank the question of whether the businesses would have been opened without the tax breaks. The Athena file did not contain an advisory opinion.

Maine & Co. is a nonprofit group that helps recruit new businesses. Peter DelGreco, president and CEO, said Pine Tree Development Zones are an essential recruiting tool.

“I know firsthand that there are companies that would not be here but for the existence of those programs,” he said, although confidentiality rules prohibited him from naming the companies.

George Gervais has been commissioner of the Department of Economic and Community Development less than a year but has been in the department since 2008.

Whether the “but for” letters are window dressing “is a hard question to answer,” he said. When he came into the agency, Gervais said he was trained that a company met the “but for” test if its decision to locate in Maine versus another state was dependent on the tax breaks.

He said he could understand why the “but for” language is viewed with skepticism.

“There are companies who are very comfortable saying that, when it may not be true. How do you prove that?”

On the one hand, Gervais said, he recalled businesses that decided not to apply for the Pine Tree zones because they felt “they could move forward without the program.”

Former state Rep. Nancy Smith, D-Monmouth and former co-chairman of the Legislature’s economic development committee, supported the zones when she was in the House.

As for the “but for” requirement, Smith said, “Get rid of it. It’s a farce. It doesn’t pass the straight-face test. That’s not to say incentives for businesses don’t have value.”

Why are governments so enamored of tax incentive programs — Maine has a total of 46 — when there is so much skepticism from economists?

Colgan, the Muskie School economist who has been involved with Maine government for decades, has an explanation:

“Let’s just say that enterprise zones are some people’s ideas of what government ought to do,” he said. “Since it fits those ideas, then they think, it must be a good idea.”

The Maine Center for Public Interest Reporting is a nonprofit, nonpartisan news service based in Hallowell. Web: pinetreewatchdog.org. Email: mainecenter@gmail.com.

Staff member Morgan Filbert assisted with the research.

38 replies on “Is the Pine Tree zone tax break corporate welfare?”

  1. Funny that you never hear conservatives complain that we’re giving too much welfare to corporations, but they will spend an afternoon railing against someone receiving food stamps.

    1. That’s because the conservatives are all busy commenting on the Rosa Scarcelli article.  They hear about a ‘libera’l in trouble and they immediately whine how only ‘liberals’ ever get in trouble.  It’s seems they have a very selective memory.

      And remember: Always forgive your enemies; nothing annoys them more.   

    2.  The program started under Baldacci and is still continuing it has to stop! You need to get off your soap box if you don’t think there is fraud in the welfare system. If we take care of the fraud then the people who really need help can be left alone. Also you seem to know so much about politics why don’t you run for governor?

    3. Conservatives say economic development (a requirement for job growth)
      Liberals say corporate welfare ( a requirement for economic supression)
      Conservatives say fraud and abuse
      Liberals say no such thing

    4.  I am a conservative and have never agreed with the Pine Tree Zone tax credits.  It is an unfair credit (all credits are unfair) and it gives certain businesses a competitive edge for behaving in  a way that made John Baldacci happy.  Level the playing field, collect taxes from all business not just the favored few and let the strongest and best survive.

      I have no idea why you brought food stamps into the Pine Tree Zone discussion –

      1. Because they are both government handouts – the sort of thing that makes Republicans get nasty.  I’m just pointing out that there appears to be a double standard, if the issue really is about money and not about disliking poor people.

    5. I also am a fiscal conservative, and I believe people AND businesses should sink or float on their own merits.

  2. This program should be used to assist development in sections of Maine without an extensive infrastructure (e.g., Lubec).   Tax savings might sway a decision in favor of locating in a remote, economically depressed area of Maine instead of a more prosperous area.  Municipalities seem to have the capability to offer “tax breaks” so why create a program which will continue a program of disproportionate development.  As a side note, someone should determine the value of Charlie Colgan and analyze the accuracy of his economic predictions.

    1. NOTHING is going to bring Lubec back to being a working class town.  We need another Bar Harbor like we need another hole in our heads, BUT that is what Lubec is becoming. 

      What I want to know is this.  Say I own the only repair garage in Whiting.  Say my business is good.  Not good enough to take a vacation every year, but good enough to support my family, pay my taxes, and put something away for a time when I may no longer be able to work. 

      So this new guy comes to town.  He is also a mechanic…without any money.  He applies to Pine Tree for a grant (which comes out of my taxes) he buys a little piece of land down the street from me and builds a repair garage.  Some of the younger and new people in the town start going to his garage.  My older customers die off, or stop driving.  I’m real good so he is only able to attract 15% of the town’s business. This means a 15% cut to mine.  No more retirement my children don’t get shoes as often, and my business isn’t able to update equipment yearly as I was doing. 

      This would be upsetting if the guy used his own money to do this, but what happened is the State took money from MY business and gave it to this guy to set up a competitive enterprise…. How the HE[[ is that fair?

  3. Why hasn’t the Maine Heritage Policy Center weight in on this?  They’re ready to crucify everyone at Maine State Housing, maybe they’re just against helping people.  Helping corporations is AOKAY.

    Maybe MHPC is stilling spinning, I mean collecting the facts.

    1.  Apparently you didn’t yet see the $300,000 carbon credit scam that Dale was caught trying to pull off.  It’s so super secret that she can’t even tell us how it works.  When will you people quit covering for these thieving drones in government.  First Violette now this.

  4. “The Pine Tree Development Zones were the brainchild of Gov. John Baldacci” could have started and ended the article with that statement and everyone would have figured Maine got screwed.

  5. This program is one of the many SHAM programs foisted on the people of this state and nation under the premise that businesses will hire if they get tax breaks. How simple is this to understand: I have a business. If you give me a tax break, I won’t hire more employees…I’ll spend more time in Aruba and buy a Ferrari. I WILL hire people if my business picks up and I NEED MORE EMPLOYEES and for NO OTHER REASON!!!

    Want this to work? Take these breaks and spread them amongst “MIDDLE CLASS” Americans/Mainers. Give them a bit more and they will spend it on durable good purchases as opposed to lottery tickets, beer, and smokes…and THAT will cause me to hire more people…but I do so enjoy the Caribbean…. 

    1.  If you want to “spread it out” among deserving middle class then take the money that would have gone to pine tree zone tax breaks and reduce taxes.  That way those who would have paid the taxes get the break.  What could be fairer?

  6. “Less than two months after getting that letter from Colgan’s commission, Baldacci pronounced the program a success.”
     
    Just like he has insisted his Maine can be “the Saudi Arabia of wind power” version of crony capitalism to be a success.
     
    And now the former governor is riding a politically gratuitous appointment in DC padding his retirement kitty.  You scratch my back, and I’ll scratch yours.  Another Baldacci success, courtesy of the American taxpayer. 

    1. Actually what we could be is the Saudi Arabia of fresh water which will (in the coming years) be even more important (and expensive) than oil.

      1.  On a planet that is 71%covered by water you’re telling me that  water will be more expensive than oil.  Ya think?  We already have the technology to desalinate water.

  7. How does Maine compete with China?

    Apples answer to the sweat shops there is to have suicide nets to keep their employees from jumping!

    Lets make laws preventing the offshoring of manufacturing to foriegn countries!

    It’s the ONLY answer!

      1. We’re headed in the right direction, when the corporate shills who claim to be government gets us down to a wage of $14 a week we’ll be ready.

        1. well, actually the Chinese workers do have State operated Unions and national health care , too. 
          So we have a ways to go to compete with China, as is YOUR  goal. 

  8. It is interesting that Baldacci implemented a program which actually sounds like it originated with GOP conservatives.  No wonder it is a failure.

  9.  Interesting thoughts but little practical information on the resulting employement generated by this program.  Perhaps part two will be more enlightening on that aspect of program.  So far a lot of imput from economist, politicians, and academics.  Strange how you can see economist quoted often about economic policy, in theory.  However, one rarely sees an economist giving someone like Warreb Buffet a run for his money in wealth generation.

  10. “In the coming week,” said the Democratic governor, “I will be putting forth a detailed economic strategy. It will include ‘Pine Tree’ opportunity zones to spur economic growth in areas of Maine that really need it.”
    Then Gov. LePage hung a sign advertising the existing policies, within weeks of becoming Govenah. 

    What can be said about this that does apply to the LePage Administration ?  

  11. There is little doubt that PTZ’s have contributed to job growth in Maine, but that is not to say they always work. It is remarkable that this piece appears to rely entirely on the opinions of people who don’t manage active production or manufacturing businesses. Perhaps the authors should speak with some  who do. PTZ’s are particularly important for businesses that must compete with out-of-state and foreign enterprises and those businesses are particularly important for Maine.

  12. The Pine Tree Zone tax incentive program is just one of dozens of state-funded “economic development” programs that cost the state over $200 million per year. OPEGA did a review of a number of these programs and issued a report in 2006. Among other things, OPEGA found that these programs lacked measurable goals and/or the data to support the cost-benefits of these programs. Talk about low-hanging fruit!

    The OPEGA report, “Economic Development Programs in Maine”, can be found at:

    http://www.maine.gov/legis/opega/Reports.html

  13. Why is letting someone keep what they earned from their labors considered welfare?  Why is stealing it at the point of a gun and giving it to someone else not theft?

    Peace=War
    Freedom= Slavery
    Ignorance=Strength

    1. Because you have to take more from those who abide by the law to cover their share, that’s why.  In otehr words, you and me pay more because tehy pay nothing. 

      Its easy to understand if you try.

    2. You would be absolutely correct IF the incoming business used no infrastructure, created their own (at their expense) police and fire departments, and repaid Maine’s citizens for the education their employees received at taxpayer expense., Infrastructure would include roads, airports, ports, municipal utilities, government owned, operated or installed satellites, the internet, and the US military services  which are used often to protect corporate interests overseas.

      If you work you pay for all of this.  Why shouldn’t they?

  14. Do you know what the real premise is, if we keep letting companies have tax breaks , and they create very little to no jobs with the tax breaks and we the taxpayers and land owners keep on having to pay more taxes to cover the businesses share of the towns tax base. There will be all kinds of businesses here but no people to work for them ! Maine TAXATION LAND ! NOT VACATION LAND ! 

  15. Well, I’m a conservative and I don’t think the government should be subsidizing any person or any company for any reason.  

  16. I’m a conservative too, and I believe that any time “the State” takes money from one group, and gives it to another there is a potential to have that money labeled “welfare.”

    MBNA moved into Belfast. They got tax breaks from the town the State and the County.  The government changed our banking laws (so MBNA would be comfortable) We lost our free ATM’s and we gained “late fees” “over limit charges” and an unlimited interest rate which had previously been capped at 18%.  the result was that MBNA didn’t last ten years, Bank of America bought them, and now we have some BoA offices, but their Corporate Headquarters are in South Carolina.

    I don’t have ANY hope (in the current environment) that corporate welfare and government “gifts” will end.  The State should (at the very least) mandate that a corporate entity getting ten years worth of these “gifts” remain in the State for at least the ten years.  The alternative being they can pay the State back when they leave early.

  17. Without a doubt,    and I don’t care how old it is……it’s more than what THIS governor has accomplished as it regards jobs.

  18. “Why are governments so enamored of tax incentive programs — Maine has a total of 46 — when there is so much skepticism from economists?”

     One word……..KICKBACKS.

  19. Should all tax incentives be eliminated?

    Including the deduction for mortgage interest or just the ones that may not apply to you?

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