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October 20, 2008 Inside Out

Good with the bad | Expanding a key Pine Tree Development Zone incentive could keep Maine moving forward

By Matt Jacobson

The financial headlines of the last few weeks have been unsettling: “Financial Crisis,” “Collapse of the Financial Market,” “America’s Banks Fail.” There is a lot to worry about and serious people are calling this our worst financial crisis since the Great Depression. The news has been disturbing for all of us — individuals, companies and governments. And it arrives on the heels of record energy prices, the wars in Afghanistan and Iraq and a presidential election. Here in Maine, we seem to be battered by these events without much ability to influence them.

Many businesses in Maine were already struggling and this new crisis has made a difficult economic environment even more challenging. Every week there is news of a company eliminating jobs or closing their doors. Hundreds of our neighbors have lost their jobs. Demand for public services goes up and taxes are increased to support the new demand. More companies fail under the weight of increased costs and our state is caught in a downward spiral with no end in sight.

So what can we do to enhance our prospects?

No matter the economic conditions outside of our state, there are always three ways to attract jobs and opportunity to Maine: We can still recruit new companies, we can retain and expand our existing businesses and we can incubate new companies. Since the companies we would like to retain are the same companies every other state and many foreign countries are actively recruiting, we need a unique and coordinated strategy in each of the three areas to attract jobs and opportunity. And because the easiest customer to get is one you already have, let’s consider our existing businesses.

Expanding eligibility

In Maine, we created Pine Tree Development Zones to attract businesses. This program is important and competitive with those in other states and countries. One of the main incentives in the PTZ program is called the Employment Tax Increment Financing, or ETIF. ETIF refunds 80% of new employees’ state income tax for 10 years to a company that locates in Maine. Jonathan McDevitt, an executive vice president at NotifyMD — who opened in Farmington last year — says his company would have located elsewhere if not for the Pine Tree Zone benefit.

Maine has learned that the market requires us to offer competitive incentives to make our state a viable alternative for companies looking to relocate. Recently, our Legislature modified the PTZ to include expansions in Maine for Maine-based manufacturing companies. Now, a Maine company that has been manufacturing in the same location for more than three years and wants to expand and add employees qualifies for PTZ benefits. We have begun to understand that public policy can have a significant impact on whether a company based here grows here.

Let’s apply this lesson to all of our existing businesses. How about we provide any company already located in Maine who meets the PTZ criteria a 40% ETIF? Good companies who pay a good wage — to take advantage of the PTZ benefits, a company must pay more than the average wage in their region and provide health benefits — would get a cost reduction. A company that has 100 employees and pays each of them $40,000 per year would receive $136,000 per year in ETIF reimbursements. Over 10 years, the benefit would be almost $1.4 million. The company could buy new equipment to invest in their facility in Maine. Or it might choose to hire more workers. Or it just might be able to continue to pay for energy and logistics and stay open in Maine. Maybe some companies that are not currently eligible would choose to raise their wages or offer health benefits to make themselves eligible for the PTZ and ETIF.

Some will say that this approach would be too expensive and Maine can’t afford it. I suggest we can’t afford not to try. Twenty-three percent of Maine people are enrolled in MaineCare, our state’s Medicaid program. The national average for Medicaid enrollment in the United States is only 15%. How many more displaced workers will have to resort to that government program for health care, and what will that cost? Right now, about 80% of the state’s budget goes toward health care and K-12 education. How much more will we pay for health care if more of our companies fail?

Matt Jacobson, president of Maine & Co. in Portland, can be reached at mjacobson@maineco.org.

 

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