For too long, Maine handed out corporate tax breaks with little or no accountability. This is slowly changing and lawmakers took a significant step in this direction by toughening the requirements for a long-term tax break for Bath Iron Works, one of the state’s largest employers.
Before approving the tax breaks, which were pared down from the company’s original request, lawmakers toughened employment requirements and doubled the capital investment the shipyard must make to quality for the tax reduction. Employment, salary and investment information must be reported annually to the state and this information will be publicly available. Too often, state officials have said they don’t have access to such information to determine whether state financial incentives are effective.
This is a useful model for future financial incentives to Maine employers, which have been handed out haphazardly in the past.
BIW had initially sought renewal of its current $60 million tax break for another two decades. This was necessarily controversial.
Opponents argued that the shipyard’s parent company, General Dynamics, is hugely profitable and didn’t need a break from Maine. They argued that the foregone tax revenue could go toward state government programs that are currently underfunded. These are valid points.
The tax reduction, however, it not about General Dynamics. It is about jobs in Maine. Mainers travel from as far away as Aroostook County to work at the shipyard, where average wages are significantly above the state average. BIW’s production workforce, for example, earns an average of $53,000 a year, significantly more than the $38,000 statewide average.
The facility in Bath buys goods and services from hundreds of companies across the state, including $30 million a year spent at small businesses.
The shipbuilder faces stiff competition from a shipyard in Mississippi, which has significantly lower costs than BIW. Earlier this month, Mississippi lawmakers awarded $45 million in subsidies to the Huntington Ingalls Industry shipyard in Pascagoula. Huntington Ingalls received $45 million last year from state taxpayers. It has received $172 million in state subsidies since 2004.
Maine cannot, and should not, match Mississippi’s largesse, but it can’t abandon corporate incentives either.
The amended BIW tax incentives bill, which has been initially approved by the Maine House and Senate, struck an appropriate middle ground by strengthening the standards and reporting necessary to receive state tax breaks.
The tax credits were reduced from $60 million to $45 million and the length of the agreement shortened from 20 to 15 years. More important, the amended bill requires BIW to maintain at least 5,500 jobs in order to qualify for the credit, up from 5,000 in the original bill. If the number of jobs at the shipyard falls below 4,000, BIW will get no tax credits. The original bill would have allowed the shipyard to receive a 50 percent tax credit if the shipyard had fewer than 4,000 jobs.
In addition, the shipyard must make two $100 million capital investments in order to received the tax credits. The shipyard cannot double dip by also receiving other state financial incentives. It is not currently doing so. And, the annual credit will not be refundable in the event that BIW owes no state taxes.
Mike Saxl, a former lawmaker and current BIW lobbyist, said these were the toughest jobs requirements he’s seen in any state tax incentive package. He was the House sponsor of the original BIW tax break legislation 20 years ago.
Opponents of the tax breaks, who spoke passionately at a public hearing, deserve credit for pushing lawmakers to negotiate a better deal for Maine. Lawmakers were right to listen.
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