The paper mill in East Millinocket has been closed for more than a year. Yet, for the next several years, the state will continue to cut checks — totalling $16 million in taxpayer money — to out-of-state investors who pledged to invest in the mill.
As reported by the Maine Sunday Telegram, these investors took advantage of unsophisticated lawmakers and Finance Authority of Maine board members to develop a complex financial deal that netted investors a hefty payback while East Millinocket is left with an empty mill building. In a deal approved by FAME in 2012, Cate Street Capital secured $40 million in financing from two companies, Stonehenge Community Development and Enhanced Capital Development. Nearly $32 million was used for a one-day loan, which involved the transfer of ownership of mill assets among associated entities with the two development companies getting their money back. Of the remaining money, Cate Street used $7 million to repay other debts, and $1 million went toward brokerage fees.
The $40 million total qualified the companies for $16 million in refundable tax credits — worth 39 percent of the transaction value — under the Maine New Markets Capital Investment Program. None of the money was invested in the paper mill.
With $16 million in state funds essentially blown to the wind, you’d expect outrage — maybe even a few apologies — from state officials. There have been a few hushed mea culpas, but mostly there has been a lot of finger-pointing in Augusta.
One person, Christopher Roney, a lawyer for FAME, raised serious concerns about the structure of the deal. He was concerned that Cate Street planned to use the money to pay past debts, not make investments for the future. He also didn’t like the one-day loan plan. He was able to add the condition that Cate Street would invest $9 million of its money into the mill and ultimately supported the deal. But that money was never invested in the mill.
Roney, who wrote the rules for the New Market credits, had included language that required “substantially all” of the investment be spent in the low-income community. That requirement was later dropped when another applicant balked at the requirement and threatened to withdraw all of its pending investments in Maine.
What must be done in the short term is to tighten up the requirements for receiving tax credits under the Maine New Markets Capital Investment Program. Lawmakers, some of whom now admit they didn’t understand the Cate Street deal, should rely on — and listen to — experts like Roney to write tougher, enforceable standards.
A bill that would double the amount of tax credits available under the Maine New Markets Capital Investment Program, to $500 million, sailed through the Committee on Labor, Commerce, Research and Economic Development earlier this month. There are now efforts to amend it to tighten the program’s requirements.
The problems aren’t just with the New Markets program. Maine offers hundreds of incentives to businesses with very few requirements.
Nearly a decade ago, the Office of Program Evaluation and Government Accountability reviewed 46 state loan, tax credit and business incentive programs. In its 2006 report, OPEGA found that a quarter of the programs had no clearly stated public purpose, a quarter did not have specific and measurable goals and objectives, and a third did not regularly report their performance. In addition, funding for more than a third of the programs was not regularly reviewed. More than 90 percent didn’t collect sufficient data to assess their value. As a result, OPEGA concluded, the state could be investing in programs that are ineffective or no longer necessary, spending more than necessary or missing opportunities to provide incentives to some businesses while over-subsidizing others.
Other reviews are in place, but they are minimal. Maine Revenue Services, for example, reports on tax expenditures every two years with an emphasis on how many taxpayers get each incentive and how much general fund revenue is lost from the exemption. It also reports on six economic development incentive programs. It does not calculate whether jobs were preserved or created.
Finally, rather than tackling this corporate welfare, Gov. Paul LePage and Republicans in the Legislature continue to rage against welfare fraud by individual, impoverished recipients of public benefits. In one instance, a group of well-dressed lobbyists, financiers and lawyers, most with no connection to the state, walked away with $16 million in state funds for promises they didn’t even try to fulfill. In the other, Maine people who need assistance — often for a short time — are continually demonized and targeted as lazy cheaters.
It seems the state is looking for fraud in the wrong place.
