When Maine lawmakers passed the New Markets Capital Investment Program into law in 2011, they tied the tax credit program to ambiguous objectives, not measurable outcomes.
“The Legislature finds that encouragement of investment in qualified businesses and developments located in economically distressed areas of the State and the creation and preservation of jobs are in the public interest and promote the general welfare of the State,” reads the law’s preamble.
They are vague policy statements not presented in measurable form. Yet Maine legislators were prepared to issue up to $20 million in taxpayer money per year to achieve them — hardly the practice of a responsible money manager.
Plus, the New Markets law asserts the following: “The Legislature … finds that the foregoing benefits to the State and its people far exceed the costs to the state of providing the incentives…. The Legislature further finds that the provisions of this subchapter are necessary to accomplish these objectives.”
But those assertions come without any evidence. More importantly, the law provides no plan to eventually judge those assertions about costs and benefits.
In 2012, states passed 180 tax incentive and business assistance programs into law, joining a large portfolio of 1,700 existing programs nationwide. The programs all represent taxpayer investments — the revenue the state is forgoing could have been used for other purposes — but, by and large, they aren’t evaluated in any regular, rigorous fashion that produces evidence policymakers can use to decide whether to continue, refine or end them.
The New Markets program offers qualified investors refundable tax credits worth 39 percent of their total investment in a business in an “economically distressed” area. As a Portland Press Herald investigation recently revealed, investors in the Great Northern Paper mill in East Millinocket used one-day loans to inflate the total value of their investment in the struggling mill, thus qualifying for larger tax credits that Maine will continue to pay out even though the mill has closed. Besides, the investment that did go into the mill’s business paid off long-term debt and brokers’ fees; it didn’t pay for major capital investments, as one would expect from the New Markets Capital Investment Program.
The program’s supporters cite examples in which the New Markets credit has worked well, spurring investments that have resulted in job creation. But policymakers need more than the assertions of program supporters to assess whether a particular incentive belongs in the state’s economic development portfolio. They need rigorous analysis that determines to what extent the investment occurred because of the tax credit, indicates whether the program is cost-effective (compared with similarly intentioned programs or entirely different ways the money could have been spent) and recommends any changes that could make the program more effective.
While Maine has subjected some of its economic development programs to rigorous evaluations — many of the best have been conducted by outside entities that specialize in such evaluations — they haven’t been a regular occurrence for most tax credits, breaks and enticements. The New Markets credit, for example, includes no evaluation requirement.
Maine is among a number of states that are starting to more closely track their investments in economic development incentive programs. This year, the Legislature is considering a regular, six-year evaluation program proposed for all major, tax-oriented economic development policies. The Legislature’s Office of Program Evaluation and Government Accountability has offered a strong start and is fleshing out some of the difficulties involved with accessing the often confidential taxpayer and business data needed to conduct rigorous evaluations. High-quality evaluations will require sufficient funding, and OPEGA — largely an auditing agency — might not be best suited for every review. Oftentimes, outside entities are the only ones with the needed expertise.
Plus, the Legislature needs to do more than set up regular evaluations. Every new tax incentive must have measurable goals attached, then be subjected to regular evaluation. Lawmakers then need to act on the information they gain. End dates for incentives might help, forcing lawmakers to act to renew, modify or end a particular program — and to do so based on the results of regular evaluations.
When financiers press lawmakers to enact new incentives to sweeten an investment deal, Maine taxpayers need to know they’ll have someone keeping an eye on their money.
