In 2006, the Legislature’s nonpartisan watchdog office attempted an audit of 46 Maine programs that offer millions of dollars annually in tax credits, incentives and exemptions in an attempt to spur economic development and job growth.

“These programs, taken together, constitute an investment portfolio that ideally should be designed and managed to assure that the state is getting the best return on its investment,” the report, conducted by the Office of Program Evaluation and Government Accountability, concluded.

But while the state gave up $602 million in tax revenue to fund the programs between 2003 and 2005, OPEGA found Maine’s approach to managing these programs was nothing like that of a financial manager. The state had no coordinated way to monitor their effectiveness, and state law often didn’t require the agencies running the programs to collect data from those benefiting from the tax breaks.

As a result, according to OPEGA, the state could be investing in ineffective, outdated and unneeded programs; spending more than necessary to manage them; and missing other investment opportunities that could have an impact.

“The current level of risk in Maine’s economic development portfolio exists in large part because critical elements necessary for evaluating performance and achieving real transparency and accountability have been, and still are, lacking,” the report read.

Now, more than six years after OPEGA registered its warnings, Maine policymakers are on the verge of having significantly more information in hand to judge the performance of the state’s economic development incentives and tax credits — information they can use to decide whether the programs should continue. And some programs could be scaled back or scrapped altogether.

A provision in the state’s new, two-year budget charges a group of lawmakers, economists, tax experts and business representatives with combing through Maine’s tax laws and coming up with $40 million in additional tax revenue by eliminating or reducing tax breaks, credits and exemptions. The panel will also be asked to develop a regular evaluation process for those incentives.

Meanwhile, the state Department of Economic and Community Development has hired an outside firm to review at least eight economic development initiatives in state law and determine whether they’re creating jobs, as intended. That review is due to lawmakers this winter.

“I believe all of these programs were in put in place with good intentions, to spur economic development, to create jobs, to maintain and protect jobs or to change behavior for the better,” said state Sen. Emily Cain, D-Orono, who proposed legislation during the recently completed session to institute a regular review for the state’s so-called tax expenditures. “What we don’t do enough of, or in some cases, do any of, is stop and say, ‘What are the individual goals of that program, and what is the outcome?’”

Not alone

Maine isn’t alone in taking a largely hands-off approach to judging the performance of programs meant to spur economic growth through the tax code.

“They’re created very piecemeal and on an ad hoc basis,” said Robert Zahradnik, an expert on economic development tax incentives with the Pew Charitable Trusts. “Over time, states begin to have more and more tax incentives and, sometimes, they don’t realize how many they’ve put in place.”

And it hasn’t been common for policymakers to put mechanisms in place to review incentives regularly and determine whether they’re meeting their original intent, Zahradnik said.

In a 2012 review of state policies, the Pew Charitable Trusts labeled Maine one of 25 states “trailing behind” in terms of regularly measuring the economic impact of different tax incentives and using that information to inform policy decisions.

But more states have started to look critically at their tax incentives, according to Zahradnik, especially as they try to balance tight budgets.

In 2009, for example, lawmakers in Oregon attached a sunset clause to most economic development tax credits. When the first wave was set to expire, a task force reviewed the credits to determine whether they had been effective and held public hearings. Lawmakers, according to Pew, let 10 credits lapse, redesigned seven others and allowed four to continue.

The changes allowed Beaver State lawmakers to reach a budget savings goal, similar to the $40 million savings goal Maine lawmakers have given the 13-member tax incentive review task force.

Tax incentives are a politically tricky topic, as any attempt to reduce or eliminate them can be characterized as an attempt to raise taxes. But when policymakers have high-quality information available, Zahradnik said, the normal political pitfalls can be avoided.

“Oftentimes, if the thought process going into it is either about keeping them or getting rid of them, that can make the politics difficult,” he said. “There’s just a lot of room for policy improvement and policy reform when you have better data to understand these.”

Evaluating Maine’s tax incentives

Maine law currently requires little more than a biennial report from Maine Revenue Services that lists each tax expenditure in state law, explains it, estimates how much tax revenue the state forgoes to fund it, and details how many taxpayers benefit from it.

In addition, the agency annually reports on six economic development tax incentive programs designed to spur job growth and business investment. That report estimates how much tax revenue the state goes without to fund each incentive and, for the Business Equipment Tax Reimbursement program — which reimburses businesses for local property taxes they pay on machinery and equipment — lists the businesses that benefit.

Bangor Publishing Co., owner of the Bangor Daily News, was reimbursed $15,427 in the fiscal year ending June 30, 2012, and Northeast Publishing Co., which is owned by Bangor Publishing, was reimbursed $9,830.

Now, the state budget requires the tax expenditure review task force to design a process for an ongoing tax break evaluation. That’s, of course, after the group finds $40 million in savings from eliminating or shrinking certain tax breaks.

It’s been difficult in the past to strike different tax incentives, credits and exemptions from Maine law. When a bipartisan group of 11 lawmakers this spring proposed a far-reaching overhaul of Maine’s tax code that would have wiped out most deductions, credits, incentives and exemptions, the representatives from industries that benefit from the tax breaks came out en masse to oppose the tax reform package.

But the state budget provision requires $40 million in savings. If lawmakers can’t agree on them by next summer, the $40 million comes from the state’s municipal revenue sharing fund, which directly helps towns and cities. That fund already sustained significant reductions in the two-year budget.

Nobody wants to see revenue sharing cut further, Cain said. “It really has teeth in it,” she said. “It has some accountability that hasn’t been there in the past.”

But not everyone wants to see $40 million in tax breaks wiped out.

“The way it was marketed to the Legislature was, we were going to close some loopholes,” said Republican Senate Leader Michael Thibodeau of Winterport. “My concern is, one person’s loophole is another person’s incentive to make investments in this state.”

Still, Thibodeau is on board with regular evaluations of the state’s tax incentives. “A review of tax incentives to make sure they’re effective and actually creating the jobs they were set in place for is good government,” he said.

Gov. Paul LePage’s administration supports regular evaluations, too. While the tax expenditure review task force does its work, a firm the state has hired is evaluating the effectiveness of tax expenditures like the Pine Tree Development Zone credit, which encourages businesses to set up in Maine by offering substantial tax breaks for 10 years.

After a 2012 law set up a funding source for a biennial evaluation — by holding back 0.8 percent of tax credit benefits from the companies receiving them — lawmakers are expecting the first review by Feb. 1, 2014.

“This is something that, certainly, we hope will give us the information we need,” said Doug Ray, spokesman for the state Department of Economic and Community Development, “on whether programs need to be tweaked, eliminated or enhanced.”

Matthew Stone is BDN opinion page editor.