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January 5, 2004
In the zone | What could Pine Tree Zone designation mean for Augusta-Waterville? That depends on who you ask.
By Rebecca Zicarelli
There's a lot of activity these days at the former Kimberly-Clark paper mill in Winslow, now called the Kennebec River Development Park. The mill was purchased in 1999 by Marden's Surplus and Salvage, which was attracted to the facility's 275,000-square-foot distribution center. Marden's leases additional space in the complex to more than a dozen smaller companies, which provide 250-300 jobs. Even so, those jobs are a far cry from the 1,000 people who used to make paper there.
But Paul LePage, Marden's general manager, hopes that will change if the Kennebec Valley Pine Tree Zone takes effect next spring. The Kennebec Valley Pine Tree Zone ˆ pending the Department of Economic and Community Development's approval of the region's application for the designation ˆ would be one of eight such zones being set up across the state. Created by legislation passed last year, the zones are the Baldacci administration's preliminary effort to bring jobs and prosperity to Maine. Companies that qualify for Pine Tree benefits will not have to pay sales tax on materials for renovations and construction of space, and companies that locate in a zone will receive a host of tax incentives, including a refund of all corporate income tax for five years.
But there's a catch. To qualify for Pine Tree benefits, those companies will have to create new jobs in manufacturing, finance or applied technologies, and they will have to prove they couldn't create those jobs without the incentives. Because the benefits only apply to new jobs, most of the economic developers in the Kennebec Valley say they haven't heard much interest from established businesses looking to expand. LePage says none of his tenants have asked about the program.
The mill would be one of 19 sites in the Kennebec zone that stretches from Wiscasset to Jackman ˆ from the ocean to the Canadian border. LePage says the salvage and surplus retailer will not benefit from the mill's inclusion in the Pine Tree Zone directly, since retail businesses are not eligible for Pine Tree designation, but he hopes it can benefit future tenants and, by extension, Marden's. "This is an older facility," LePage says. "The financial advantages will go to companies that come to Maine who could use the facility to create jobs. We [bought the mill] because it might bring back jobs to the area."
Even with Pine Tree Zones, LePage says, the state has a long way to go if it hopes to attract new business. "The way we look at it, Maine is not a business friendly state," he says. "We know this opportunity is the closest thing to working with the state, which is looking at the effort to develop specific properties. But the tax code is the real problem."
John Butera, executive director of the Central Maine Growth Council, agrees that the real problem is taxes. "I hope the Legislature, the public, town officials, everybody brought into this, doesn't think [Pine Tree Zones] are the be all and end all," he worries. "I'm not sure that because we have Pine Tree Zones, business will start flocking to Maine. But this has gotten a lot of folks to pull together for a common cause. When SCI closed, when Hathaway closed, we felt it throughout the region."
Attracting investment
Jack Cashman, commissioner of the Department of Economic and Community Development, says Pine Tree Zones have two purposes. "First, we're trying to attract investment into areas of the state where we've had a difficult time. Prosperity in Maine needs to be better distributed. Second are the problems of being nationally competitive because of our overall tax burden and utility costs. This is a tool to market Maine as a good place to invest money."
The legislation allows for eight zones, each with up to 5,000 acres of designated land and up to 20 designated locations. Companies that qualify for Pine Tree designation and locate in one of the designated sites will receive a sales and use tax exemption for construction materials and equipment purchases; an 80% employee tax increment financing for 10 years, up from the 75% ETIF that non-Pine Tree companies can receive; a 100% refund on corporate income tax and insurance premium taxes for five years, and a 50% refund for the next five years; and the possibility of local tax increment financing that will not be counted against a municipality's existing TIF cap.
To qualify, the company must demonstrate that it will create new jobs in the zone. Businesses already operating in the state, but outside the zone, as well as retail and health care businesses, are not eligible. Eligible firms must be approved by DECD, and sign what are called "but for" letters, indicating that the creation of new jobs in the zone and new investment would not be made but for the Pine Tree incentives.
The proposal to create a Kennebec Valley Pine Tree Zone is due largely to the efforts of Ken Young, executive director of the Kennebec Valley Council of Governments. Young says he has long been concerned with lack of cooperation among towns to create economic growth throughout Maine. "The application procedure has been good for the region and KVCOG. It's brought together people interested in economic development, people who haven't always cooperated before. Our role [at KVCOG] is as a facilitator. It's a new standard for Maine. We started with 40 different sites in 16 communities. Over the months, that's changed to 19 sites in 16 communities, and currently there are 18 sites in 18 communities. We've used a steering committee and sub-committees to develop the application, and we're 90% done." Part of that work has been to have the sites in each community approved by town meetings in each.
Young agrees that the Pine Tree Zones are only a first step in a long-overdue revamping of the state's business climate and tax structure. "It might cause a business that wasn't interested in Maine to look again," he says, "and it might convince a company to go ahead. If you're here in Maine, you're already committed to looking for opportunity to reduce costs. If you're not here, it might be the thing that tips you in. [Pine Tree Zones] give us a slightly broader array of tools ˆ on the margins it might make a difference. But if we need another layer of incentives, wouldn't it make more sense to fix the underlying problem of revenue collection?"
According to Mike Duguay, director of economic development for the City of Augusta, "We hamstring our advantages with the workforce and our people's skill with our disadvantages on the numbers. Our corporate tax of 8.5% is much higher than anyone else out there. The perception is that we are not open for business." Duguay hopes the Pine Tree designation will help him attract new businesses to Augusta's Pine Tree sites such as the former Sanmina-SCI building, once the sprawling home to a computer-component manufacturer that employed more than 400 people. (For an update on the property, see "Mattson moment," page 21.) Duguay says the Pine Tree Zone will help showcase things that don't typically make it to the spreadsheets corporate executives review in their site-selection review. "When you talk to companies with multiple locations, they will tell you Maine facilities usually are more productive, the breakage and error rates are lower. It's not the water; I think our people are better. We never get a chance to sell our workforce. Pine Tree Zones will level the playing field. We need to advertise that we're a good place to do business."
"Not for lack of trying"
Cashman says that even as the eight regions finish up applications for Pine Tree Zones and the DECD finishes drafting the final rules on how the zones will work, the state also has to begin marketing the concept. "We need editorials and stories in magazines and business publications about what we've done and have to offer," he says. "We'll be looking for proposals from promotional people, national proposals."
Doug Cutchin, president and COO of Sheridan Corp., a commercial construction company with offices in Fairfield and Portland, is also president of the Waterville Development Corporation, a fledgling nonprofit charged with attracting businesses and creating jobs in the city of Waterville. One of the group's projects is developing The Head of Falls, an 11-acre parcel in Waterville stretching from the falls to the Hathaway plant. Cutchin says he's only heard from a couple of companies interested in learning more about Pine Tree benefits, but he points out that the Pine Tree initiative is still in the hands of economic developers rather than under consideration by actual businesses.
Even so, Cutchin says he has a sense of the business community's take on the zones. "If I have a property that falls within a zone, I'm probably mildly enthusiastic. If I don't, and I'm not contemplating expansion and don't think it will attract a competitor to the area, I'm for it. But If I fear somebody new, a competitor, coming in from outside, I'm probably not pleased with it."
Cashman points out those new companies, competing or not, won't be here if the incentives aren't offered. "We need a vibrant economy to feed a strong social structure ˆ it cures a lot of ills," he says. And he says the incentives for Pine Tree qualified companies could get even better with the next round of legislation. "We'll introduce a bill in January to reduce energy costs. Companies that locate inside the Pine Tree Zones wouldn't have to pay stranded costs for electricity."
In the long run, Cashman says, the overall plan is to lower the tax burden for everyone in the state. "We don't want to be in the top five [states], we want to be below the New England average," he says. "But you can't do that in a year. In the short term, this is a marketing tool to try to address those shortcomings. We don't disagree that the overall good is to lower the tax burden, but you can't do that in 12 months." And he thinks the state's timing is good, with the national economy beginning to grow again. "If the nation's down, we all suffer. When the economy turns, we want to take advantage of the upswing. If we're not successful, it's not for lack of trying."
But Paul LePage, Marden's general manager, hopes that will change if the Kennebec Valley Pine Tree Zone takes effect next spring. The Kennebec Valley Pine Tree Zone ˆ pending the Department of Economic and Community Development's approval of the region's application for the designation ˆ would be one of eight such zones being set up across the state. Created by legislation passed last year, the zones are the Baldacci administration's preliminary effort to bring jobs and prosperity to Maine. Companies that qualify for Pine Tree benefits will not have to pay sales tax on materials for renovations and construction of space, and companies that locate in a zone will receive a host of tax incentives, including a refund of all corporate income tax for five years.
But there's a catch. To qualify for Pine Tree benefits, those companies will have to create new jobs in manufacturing, finance or applied technologies, and they will have to prove they couldn't create those jobs without the incentives. Because the benefits only apply to new jobs, most of the economic developers in the Kennebec Valley say they haven't heard much interest from established businesses looking to expand. LePage says none of his tenants have asked about the program.
The mill would be one of 19 sites in the Kennebec zone that stretches from Wiscasset to Jackman ˆ from the ocean to the Canadian border. LePage says the salvage and surplus retailer will not benefit from the mill's inclusion in the Pine Tree Zone directly, since retail businesses are not eligible for Pine Tree designation, but he hopes it can benefit future tenants and, by extension, Marden's. "This is an older facility," LePage says. "The financial advantages will go to companies that come to Maine who could use the facility to create jobs. We [bought the mill] because it might bring back jobs to the area."
Even with Pine Tree Zones, LePage says, the state has a long way to go if it hopes to attract new business. "The way we look at it, Maine is not a business friendly state," he says. "We know this opportunity is the closest thing to working with the state, which is looking at the effort to develop specific properties. But the tax code is the real problem."
John Butera, executive director of the Central Maine Growth Council, agrees that the real problem is taxes. "I hope the Legislature, the public, town officials, everybody brought into this, doesn't think [Pine Tree Zones] are the be all and end all," he worries. "I'm not sure that because we have Pine Tree Zones, business will start flocking to Maine. But this has gotten a lot of folks to pull together for a common cause. When SCI closed, when Hathaway closed, we felt it throughout the region."
Attracting investment
Jack Cashman, commissioner of the Department of Economic and Community Development, says Pine Tree Zones have two purposes. "First, we're trying to attract investment into areas of the state where we've had a difficult time. Prosperity in Maine needs to be better distributed. Second are the problems of being nationally competitive because of our overall tax burden and utility costs. This is a tool to market Maine as a good place to invest money."
The legislation allows for eight zones, each with up to 5,000 acres of designated land and up to 20 designated locations. Companies that qualify for Pine Tree designation and locate in one of the designated sites will receive a sales and use tax exemption for construction materials and equipment purchases; an 80% employee tax increment financing for 10 years, up from the 75% ETIF that non-Pine Tree companies can receive; a 100% refund on corporate income tax and insurance premium taxes for five years, and a 50% refund for the next five years; and the possibility of local tax increment financing that will not be counted against a municipality's existing TIF cap.
To qualify, the company must demonstrate that it will create new jobs in the zone. Businesses already operating in the state, but outside the zone, as well as retail and health care businesses, are not eligible. Eligible firms must be approved by DECD, and sign what are called "but for" letters, indicating that the creation of new jobs in the zone and new investment would not be made but for the Pine Tree incentives.
The proposal to create a Kennebec Valley Pine Tree Zone is due largely to the efforts of Ken Young, executive director of the Kennebec Valley Council of Governments. Young says he has long been concerned with lack of cooperation among towns to create economic growth throughout Maine. "The application procedure has been good for the region and KVCOG. It's brought together people interested in economic development, people who haven't always cooperated before. Our role [at KVCOG] is as a facilitator. It's a new standard for Maine. We started with 40 different sites in 16 communities. Over the months, that's changed to 19 sites in 16 communities, and currently there are 18 sites in 18 communities. We've used a steering committee and sub-committees to develop the application, and we're 90% done." Part of that work has been to have the sites in each community approved by town meetings in each.
Young agrees that the Pine Tree Zones are only a first step in a long-overdue revamping of the state's business climate and tax structure. "It might cause a business that wasn't interested in Maine to look again," he says, "and it might convince a company to go ahead. If you're here in Maine, you're already committed to looking for opportunity to reduce costs. If you're not here, it might be the thing that tips you in. [Pine Tree Zones] give us a slightly broader array of tools ˆ on the margins it might make a difference. But if we need another layer of incentives, wouldn't it make more sense to fix the underlying problem of revenue collection?"
According to Mike Duguay, director of economic development for the City of Augusta, "We hamstring our advantages with the workforce and our people's skill with our disadvantages on the numbers. Our corporate tax of 8.5% is much higher than anyone else out there. The perception is that we are not open for business." Duguay hopes the Pine Tree designation will help him attract new businesses to Augusta's Pine Tree sites such as the former Sanmina-SCI building, once the sprawling home to a computer-component manufacturer that employed more than 400 people. (For an update on the property, see "Mattson moment," page 21.) Duguay says the Pine Tree Zone will help showcase things that don't typically make it to the spreadsheets corporate executives review in their site-selection review. "When you talk to companies with multiple locations, they will tell you Maine facilities usually are more productive, the breakage and error rates are lower. It's not the water; I think our people are better. We never get a chance to sell our workforce. Pine Tree Zones will level the playing field. We need to advertise that we're a good place to do business."
"Not for lack of trying"
Cashman says that even as the eight regions finish up applications for Pine Tree Zones and the DECD finishes drafting the final rules on how the zones will work, the state also has to begin marketing the concept. "We need editorials and stories in magazines and business publications about what we've done and have to offer," he says. "We'll be looking for proposals from promotional people, national proposals."
Doug Cutchin, president and COO of Sheridan Corp., a commercial construction company with offices in Fairfield and Portland, is also president of the Waterville Development Corporation, a fledgling nonprofit charged with attracting businesses and creating jobs in the city of Waterville. One of the group's projects is developing The Head of Falls, an 11-acre parcel in Waterville stretching from the falls to the Hathaway plant. Cutchin says he's only heard from a couple of companies interested in learning more about Pine Tree benefits, but he points out that the Pine Tree initiative is still in the hands of economic developers rather than under consideration by actual businesses.
Even so, Cutchin says he has a sense of the business community's take on the zones. "If I have a property that falls within a zone, I'm probably mildly enthusiastic. If I don't, and I'm not contemplating expansion and don't think it will attract a competitor to the area, I'm for it. But If I fear somebody new, a competitor, coming in from outside, I'm probably not pleased with it."
Cashman points out those new companies, competing or not, won't be here if the incentives aren't offered. "We need a vibrant economy to feed a strong social structure ˆ it cures a lot of ills," he says. And he says the incentives for Pine Tree qualified companies could get even better with the next round of legislation. "We'll introduce a bill in January to reduce energy costs. Companies that locate inside the Pine Tree Zones wouldn't have to pay stranded costs for electricity."
In the long run, Cashman says, the overall plan is to lower the tax burden for everyone in the state. "We don't want to be in the top five [states], we want to be below the New England average," he says. "But you can't do that in a year. In the short term, this is a marketing tool to try to address those shortcomings. We don't disagree that the overall good is to lower the tax burden, but you can't do that in 12 months." And he thinks the state's timing is good, with the national economy beginning to grow again. "If the nation's down, we all suffer. When the economy turns, we want to take advantage of the upswing. If we're not successful, it's not for lack of trying."
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