Tax breaks in lawmakers' sights
More than a half dozen state programs that extend tax breaks to businesses — some going back as far as 1973 — are being scrutinized by the Legislature’s taxation committee as lawmakers dig to plug a $400 million budget hole.
The programs, ranging from a shipbuilding tax credit to a production machinery sales tax exemption, save their beneficiaries nearly $76 million a year, an appealing chunk of change that redirected could boost the state’s lagging revenues.
“We’re looking at them from the taxation committee because we know appropriations will look at these and we want to be prepared to say whether they should stay or not,” says committee member Rep. Kathy Chase, R-Wells, who met with members of Maine Revenue Services and the Department of Economic and Community Development for nearly three hours Dec. 29 to better understand how the breaks work.
But that is an elusive goal. There has been little accountability within the seven programs the committee is focused on (see chart below) over the years, complicating how to assess the programs’ impact. For instance, the fuel and electricity sales tax exemption awarded to manufacturers saves those companies roughly $33 million a year, but the state can’t say with any certainty who receives the benefit or how much it benefits a specific business, says Chase. Fuel and electrical suppliers, which grant the exemption, file with MRS annually reporting the sales tax exemption in the aggregate.
That lack of accountability is a major reason the programs were flagged by the Office of Program Evaluation and Government Accountability in the State Planning Office in its 2006 review of economic development programs. Each of the programs under consideration received a designation of “high risk” by the report’s authors because of lapses in reporting, controls, inefficiencies or other measures of accountability.
Chase says the taxation committee is particularly focused on these programs because they represent a lot of money. In the 2006 OPEGA report, 46 economic development programs totaling $200 million in exempted revenue were cited as questionable, but the business tax break programs represented 44% of those funds, with manufacturers getting the lion’s share of the breaks.
Reviewing those programs is, not surprisingly, raising some concerns. Lisa Martin, executive director of the Manufacturers Association of Maine, says many members are not yet aware that the fuel and electricity sales tax exemption could be eliminated. While she acknowledged the state’s need to balance the budget, loss of the credit “will be detrimental,” she says.
David Jansen of Janseneering Inc. in Falmouth estimates loss of the credit would cost his composites business $2,000 a year, an expense he can’t afford after his medical insurance premiums rose 43% last year and his unemployment compensation premiums climbed 51%, all while business dropped 37%. “It is likely this increase will be the straw that leads me to lay off one or more employees,” he said in an e-mail.
Another program, the shipbuilding facility credit, was established in 1997 to help fund Bath Iron Works’ multi-million-dollar, land-level transfer facility. Taking away the credit “certainly wouldn’t be helpful to us and what we’re trying to do every day at the shipyard,” says BIW spokesman Jim DeMartini.
The credit was part of a three-part incentive package worked out with the company, the city of Bath and the state. The income tax withholding credit allows BIW to retain up to $3.5 million a year over 20 years, capped at $60 million, if the shipyard employs at least 3,500 full-time workers and makes at least a $200 million investment in its facility. As of 2008, BIW’s investment topped $300 million, and it employed 5,800 workers, according to Maine Revenue Services.
Officials at BIW, which is owned by Virginia-based General Dynamics, are “certainly going to watch this very carefully,” says DeMartini. “It’s an important aspect of our ability to stay competitive and keep doing business.” The credit continues to be an incentive for improvements, says DeMartini, especially as BIW explores expanding its Ultra Hall facility, where large portions of ships are built.
Weighing the stakes
Chase says the committee members’ questions of MRS were straightforward — who are the corporations or businesses that took advantage of the programs; how many people do they employ; have employment numbers gone up or down since their programs started? While MRS said they couldn’t identify the businesses, staff said they could provide business categories, the high and low cost savings within each, and other non-confidential data, says Chase. A report is expected by Jan. 12.
“Manufacturing has certainly lost jobs, but does that mean investments aren’t working, or are there more efficient production technologies?” asks Chase. “If there’s more efficient production, is there more profit at the end? That’s a tough analysis for MRS.”
Chase says she chafes at considering measures that would hurt Maine businesses, but acknowledges that everything is on the cost-cutting table right now.
“Anything you do that causes business to have higher costs is risky,” she says. “[You wonder] ‘Will they reduce the work force as a result, or even leave the state?’ None of us want to impact business negatively more than we have to.”
Mainebiz staffers Mindy Favreau, Jackie Farwell and Carol Coultas contributed to this report.
Mainebiz web partners
Most Recent
Most Recent
Comments