Report: Pine Tree Development Zone Program May Not Be Working

Aug 28, 2017

A new report suggests that an economic incentive program designed to help struggling areas of the state is poorly designed and is unlikely helping economically depressed areas. The analysis from the legislature’s watchdog agency says that the Pine Tree Development Zone program lacks the needed data collection and accountability to assess its true capacity to create jobs, and recommends a major overhaul. But some lawmakers think it’s time to scrap the 13-year-old program that costs the taxpayers $12 million a year.

The Pine Tree Development Zone program was created by Democratic Gov. John Baldacci in 2003, and touted as a way to attract business and create jobs in economically depressed areas.

But according to a report from the Office of Program Evaluation and Government Accountability, or OPEGA, the program isn’t designed to achieve that goal.

OPEGA senior analyst Jennifer Henderson presented the findings to the legislature’s Government Oversight Committee on Wednesday.

“We don’t know – we can’t report today what it has actually achieved in terms of jobs. But we can tell you, unequivocally, that the design does not guarantee that a vast number of jobs will be created,” OPEGA senior analyst Jennifer Henderson told the Government Oversight Committee on Wednesday.

The Pine Tree Development Zone program provides qualifying businesses with an array of tax benefits, including income tax credits and sales tax exemptions for the purchase of business equipment. In exchange, the businesses agree to create jobs.

But under the current version of the program a qualifying business can immediately receive Pine Tree Development Zone benefits, but won’t have to create a single job until two years later. And even then, says Henderson, the hiring requirement is minimal.

“And so you could have a business hiring just one new employee with a fairly significant amount of benefits,” Henderson said.

The Department of Economic and Community Development, one of the agencies that administers the program, does collect job creation statistics from businesses in Pine Tree, but the numbers are self-reported.

OPEGA director Beth Ashcroft said, “We think there’s significant risk that using just those numbers will significantly overstate, or understate, what the actual program outcomes are here.”

In fact, OPEGA found other data deficiencies as well. Pine Tree provides sales tax exemptions to businesses for purchases, but there’s no accounting of whether those purchases are for business purposes. And its possible that the program’s income tax credit could exceed a business’ actual tax liability.

OPEGA also found that the original purpose of the program – to spur job and business growth in economically depressed areas – was subverted when lawmakers changed the law to allow the entire state, including much more prosperous areas, to participate in Pine Tree.

Finally, lawmakers have created carve-outs that allow businesses in some areas to provide a lesser job benefit to employees. That happened two years ago when the Legislature allowed call centers in Aroostook and Washington counties to qualify for Pine Tree, but to skirt a requirement that they pay workers more than the county’s median income.

“There’s very little accountability,” said Democratic Sen. Bill Diamond, of Windham who sits on the Government Oversight committee. He says its time to ditch Pine Tree and find a new economic development strategy.

“This fish is way too big to fry. We have to start over because there’s so many complications. It’s so complex. It’s gotten to a point where it’s totally lost the profile and purpose that it had originally,” Diamond said. “I think it’s good to have something. And I think the committee recognizes that.”

Fellow committee member Thom Saviello, a Republican state senator from Wilton, says he supported the program in 2003 because the state needed a business attraction tool.

“But listening to this, it sounds like, to me, that it’s time has come and gone. Unless we want to recommend making major overhaul work to it,” said Saviello.

But the LePage administration may not agree. In his written response to the OPEGA report, DECD commissioner George Gervais said lawmakers should, “Look past the process and bureaucratic minutia,” and ask businesses directly whether the Pine Tree program is working.

The OPEGA report didn’t evaluate whether Pine Tree has actually attracted investment, or whether the program is even set up to measure it. But the business community will get the chance to have their say when the oversight committee holds a public hearing on the report in mid September.

This story was originally published Aug. 25, 2017 at 6:13 p.m. ET.