As part of a multiyear review of business tax credits, the state’s government accountability office reported today that the Pine Tree Development Zone (PTDZ) program does not live up to its promise of creating good jobs in higher unemployment areas.
Pine tree development zones, sometimes called enterprise or opportunity zones in other parts of the country, designate geographic areas in need of jobs and economic development and offer special tax breaks to businesses that create jobs in these areas. The problem is that these programs are costly and generally unable to demonstrate that they have created jobs or improved economic conditions. Furthermore, the biggest beneficiaries of these programs are businesses located in the states more prosperous areas, not those in rural Maine where job growth has been hard to come by.
On the surface, the PTDZ program appears to be a small program, but it unlocks additional tax breaks for participating businesses by boosting the payouts of or extending eligibility to nearly a dozen other tax break programs. All told, the PTDZ program and the additional benefits it triggers costs the state roughly $11 million a year.
Poorly structured reporting and eligibility requirements make assessing PTDZ’s effectiveness challenging. For example, the goal of the program is to increase the number of quality jobs, but the program allows businesses to receive PTDZ credits and many of the add-on benefits of the program for two years even if they do not create a single job. Furthermore, businesses are not required to provide any proof that their job creation would not have happened without the PTDZ credits.
Today, the legislature’s Office of Program Evaluation and Government Accountability (OPEGA) was unable to attest that any jobs were created by this program. They also emphasized, that over the years, the program’s job quality requirements have been eroded. The program is intended to target financial, manufacturing, or technology businesses that create jobs offering benefits and annual income greater than the county per capita income. Over time the legislature amended the program to allow some companies that were laying off workers to claim the credit, and allowed call centers in northern counties of the state to participate in the program with less strict income standards for their qualifying workers.
OPEGA also noted another major design flaw of the program is that PTDZ has the greatest value to the most developed areas of the state with the strongest job markets, the opposite of what the law specifies. The PTDZ program overlaps with another tax credit called the employment tax increment financing (ETIFs) that gives employers a tax credit equal to a percentage of their qualifying employees tax withholdings. ETIFs offer a 75% reimbursement for areas of the state with very high unemployment and a 30% reimbursement in areas of relatively low unemployment. All participants in the PTDZ are eligible to have their ETIFs reimbursed at 80%. This is a small increase for businesses in high unemployment areas of the state, but a large increase for businesses in low unemployment areas who would otherwise only be reimbursed at a rate of 30%.
The PTDZ program is scheduled to end payments in 2028, but applicants can still apply for credits until December of this year. The PTDZ and other tax break programs like ETIFs with poor reporting and enforcement issues make it impossible to discern if public money is well spent. OPEGA reports for the ETIF program are expected later this year.
In total, Maine spends more than $125 million a year on income tax expenditures for businesses, many of which are redundant and poorly targeted to meet program goals. Meanwhile, the state is still failing to meet its baseline commitment to education funding and is underinvesting in other surefire economy boosters like infrastructure improvements. Lawmakers should eliminate programs that don’t meet their goals, and work to target state resources toward the foundations for a strong economy and thriving communities.
