Threats by corporations that they will not come to, or remain in Maine unless tax subsidies are provided are little more than a bluff. In many cases the bluff is obvious. Wood products and paper making corporations (most receiving large tax subsidies) were here long before tax subsidies were available; they will be here if these subsidies are ended, because the trees are here.
L.L Bean and Bath Iron Works, also recipients of large tax subsidies, and also here before the subsidy era began, have a valuable identity with Maine, huge costs sunk in plant and warehouse facilities, and trained workforces; moving away is all but impossible. Their profit margins were born in Maine and will remain here without these subsidies.
Finally, the Wal-Marts, Targets, and Home Depots of the world have a proven business model, and a national or global growth strategy. They want their share of the Maine market. If tax subsidies did not exist, these corporations would still be knocking on our door; we don’t have to pay them to come to Maine.
In short, caving in to veiled threats is not necessary.
Instead, elected officials should listen to experts in the field of plant expansion and business location, who continually point out that these decisions do not turn on tax subsidies. They are driven, first, by economic factors – the availability and cost of labor, raw materials, and transportation for both inputs and final products going to markets. Also important are projected sales, profit margins, and increases in market share in locations being considered.
Second, quality-of-life factors are examined – e.g., the adequacy and cost of workforce housing, whether public safety needs are adequately met, the quality of public and/or private schools in the areas being considered, and the fairness, stability of state and local governments.
Corporations will weigh these factors slightly differently as their individual business models and corporate values dictate, but the bottom line remains the same: they expand in, or move to, an area because they anticipate making money in that location. It’s that simple. They give little weight to tax subsidies in this decision-making calculus.
That said, it seems foolish for elected officials to continue to believe that tax subsidies will create jobs. But it is also unrealistic to believe that these subsidies will simply go away – they won’t. Subsidies can, however, be reduced and our corporate welfare system can be refocused. Here is how we can achieve these ends:
• Existing Business Equipment Tax Reimbursement, Tax Increment Financing, or other annual tax disbursements to corporations in excess of $500,000 could be reduced by 50 percent; disbursements below $500,000 could also be reduced on a downward scale, leaving commitments below $100,000 intact.
• The duration of existing BETR, TIF or other tax disbursements to corporations could be reduced by 50 percent; if this results in ending a particular corporate disbursement, that’s fine; the era of 12-, 20-, and 30-year payout periods must end.
• For new commitments of state or local tax revenues to corporations, a “cap” (an upper limit on the total commitment) could be fashioned: $5 million-$10 million for capital investments that exceed $100 million seems reasonable. The cap would be reduced for smaller capital investments.
• The allowable time-frame over which “capped” commitments of state or local tax revenues would be paid out could be limited: three to seven years seems reasonable, depending on the level of the “capped” commitment.
• For new “capped” commitments of state or local tax revenues to corporations, a “jobs” commitment could be fashioned. This commitment would be commensurate with the level of the tax subsidy, and should extend for the newly fashioned payout period (perhaps longer). Failure to meet a “jobs” commitment would terminate the tax subsidy.
• Aside from relatively minor tax-subsidy benefits, corporations could be required to select the TIF, income tax credit (or other) tax subsidy provision that works best for them; pyramiding subsidies (so-called double- or triple-dipping) must end.
• Corporations could be prohibited from negotiating with more than one Maine municipality (playing them off against one another) in an effort to maximize their corporate subsidy benefits.
• A corporate “need” or “means” test could be fashioned to determine future eligibility for state or local tax subsidies. Paying out millions to Fortune 500 corporations must end. Low-income people routinely face such tests to determine eligibility for welfare benefits.
• Decoupling TIF agreements from existing school aid, and county tax apportionment provisions, seems necessary. The majority of municipalities do not enter into TIF agreements. Current law penalizes them; they receive less school aid than they should, and pay higher county taxes.
These suggestions can be expanded or narrowed as the Legislature chooses, but their intent is clear: corporate tax subsidies must be smaller, extend for shorter periods of time, target smaller firms, and focus on jobs. The law should prevent corporations from bargaining with multiple towns to get the best subsidy deal, and should create greater fairness between towns that choose to grant TIFs and those that do not.
If retirement benefits for Maine teachers and state workers can be reduced on the theory that we can’t afford the commitments made, tax subsidies for wealthy corporations can/should be similarly reduced.
We can do this.
Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at email@example.com.
In this, the second of two columns on “corporate welfare” in Maine, Orlando Delogu proposes strategies for limiting the practice. Last month: Corporate welfare is unaffordable, the shameless pursuit of these benefits by corporations pitting one town against another is little more than extortion, and these giveaways do not grow Maine’s economy.