In 2015, the Government Accounting Standards Board (GASB) released Statement Number 77, advising local and state governments to disclose the amount of revenue lost from tax abatements. Tax abatements are agreements between the government and an individual or entity whereby the government agrees to collect less tax revenue in exchange for actions that contribute to economic development. For example, state government might give a tax abatement to a company in exchange for creating a certain number of jobs in the state.
According to Good Jobs First, a national policy resource center that promotes corporate and government accountability in economic development, Maine lost $31.5 million in revenue due to tax abatement programs to provide “business incentives” and promote “job creation and retention” in fiscal year 2018. These losses were endured due to three programs identified by Good Jobs First; Employment Tax Increment Financing (ETIF), the New Markets Capital Investment Program and the Pine Tree Development Zone Program.
The ETIF program is administered through the Maine Department of Economic and Community Development and was designed to help new and established businesses hire new employees by refunding 30-80 percent of state withholdings paid by the business for up to 10 years. Businesses who plan to hire 5 or more employees within two calendar years of certification are eligible to receive a tax abatement through this program. Other requirements for businesses who plan to utilize this program include offering group health care plans, retirement benefits and income above the national average. According to Good Jobs First, the state lost $13.3 million in revenue through the ETIF tax abatement program in fiscal year 2018.
Another tax incentive, the Maine New Markets Capital Investment Program, is administered by the Finance Authority of Maine (FAME). The purpose of this program is to attract capital investments to low-income communities through state tax credits. These tax credits are given to investors when they make equity investments in Community Development Entities (CDE). A CDE is an entity that acts as an intermediary vehicle, or third-party, for the “provision of loans, investments, or financial counseling in Low-Income Communities.”
Recipients of this credit are eligible to receive up to 39 percent of their eligible investment (maximum of $40 million) through state income tax credits, taken in increments over a seven year period. In fiscal year 2018, the state lost $15.4 million to this program.
The third program outlined in the Good Jobs First database is the Pine Tree Development Zone program, which provides tax credits that “greatly reduce, or virtually eliminate state taxes for up to ten years” to businesses who move into a Pine Tree Zone and plan to create new, quality jobs.
Businesses are required to offer income that exceeds per capita income in the county where it resides, access to a group health plan and group retirement benefits. The sectors that are eligible to receive these benefits are biotechnology, aquaculture and marine technology, composite materials technology, environmental technology, advanced technologies for forestry and agriculture, manufacturing and precision manufacturing, information technology and financial services. In fiscal year 2018, the state lost nearly $2.8 million in revenue through this tax abatement program.
In addition to state tax abatements, municipalities offer tax incentives for businesses to reside within their communities. Here is a list from Good Jobs First that lists tax abatement programs in municipalities across the state:
It is important to note that Good Jobs First estimates that only 25.3 percent of local governments comply with the GASB standards for reporting tax abatements. Therefore, the list above is likely non-exhaustive. For example, Presque Isle, Knox County and Cumberland County fail to disclose the revenue lost from tax abatement programs.
It is clear that lawmakers realize the value of having low taxes, but instead of offering tax credits or abatements to niche sectors of the economy, they should consider reducing tax collections and government spending altogether to achieve sustainable economic growth.
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