AUGUSTA, Maine — Gov. Janet Mills outlined a consensus plan on Thursday to replace long-standing business tax breaks that have been criticized but remained in place absent workable alternatives.
The Democratic governor’s plan would be a far more generous group of incentives than the ones it would eliminate and turn from Maine’s early-2000s focus on tamping down rural unemployment toward a modern one — incentivizing workforce training during a pandemic-era labor shortage that has been mostly attributed to a wave of retiring older workers.
Early backers of the plan include top Democrats and Republican lawmakers and business groups, a coalition that virtually ensures it will sail through the Legislature. Some of those same groups defended tax breaks that would be replaced when legislative studies questioned the benefits of two of the three programs now on the chopping block.
Mills’ plan would enshrine a new “Dirigo Business Incentive” by 2025, letting businesses that train three or more workers through approved programs $2,000 per worker, as well as allowing 15 percent credits on capital investments in counties other than York, Cumberland and Sagadahoc, which would qualify for 7.5 percent credits.
“What I like about the program is it rewards companies for investing here, investing in hard assets and investing in their workers,” said Peter DelGreco, CEO of Maine and Company, which attracts businesses to Maine. “So I think it’s got the potential to be incredibly productive.”
The best-known tax break that would be replaced is the Pine Tree Development Zone program, which was a 2003 response to high unemployment in more rural areas of the state. Both it and an older employment tax increment financing credit have similar aims of subsidizing jobs in areas outside of Maine’s economic center in the Portland area.
Along with the Maine Capital Investment Credit, which allows businesses to deduct upfront expenses, the tax credits that would be replaced under the plan cost the state an estimated $19.6 million in the 2022 fiscal year, according to a Maine Revenue Services report.
The new program as contained in a pending bill from Senate President Troy Jackson, D-Allagash, would be more than twice as big, costing $54.5 million in the first full year of implementation, said Victoria Foley, a spokesperson for the Maine Department of Economic and Community Development.
All of the business tax breaks that would be replaced under the new program have been criticized in recent years. The development zones have been singled out the most, although they have been routinely extended by lawmakers who lacked ready alternatives. Mills’ plan would extend the existing breaks until the new program begins in early 2025.
A 2017 study by the Legislature’s watchdog arm found the zones do not support intended goals and that adequate data did not exist to assess outcomes. Two years later, the same agency criticized the tax increment program for not addressing business development barriers. In 2020, it called the capital credit overly complicated and said it was unlikely to drive investment here.
Business groups including the Maine State Chamber of Commerce have pushed back on those findings, as well as similar ones on other programs. In a response to the legislative study on the development zones, former Gov. Paul LePage’s economic development chief said the conclusions could be misleading and called it Maine’s “major business attraction tool.”
DelGreco, who has been working on the overhaul for roughly a year alongside the Mills administration, was a defender of those programs, although he said the development zones were “written for a different economy” and may have gone beyond its useful life.
“It was performance-based and did OK,” he said. “This feels like it’s going to have some of those similar guardrails on it to make sure bad things won’t happen.”