In 2003, the Maine Legislature created Pine Tree Development Zones, a tax expenditure program designed to spur job creation in economically distressed areas of the state. The idea was that by giving businesses in the Zones tax breaks, those businesses would be able to create jobs they wouldn’t have otherwise created.
Nearly two decades later, we still lack any evidence that the program is able to deliver on those goals. A 2017 review by the Legislature’s nonpartisan watchdog organization found that the program’s design did not support its job-creating goal.1
Now, the PTDZ program is set to expire, ending this wasteful program and restoring much-needed state revenue that can be invested in the things that truly spur economic growth: Education, health care, infrastructure, and other public investments that make it easier for families to live and businesses to serve their customers.
Pine Tree Development Zones are a failure. Lawmakers should let the program expire.
PTDZs cost Maine millions
Pine Tree Development Zones — similar to the “Enterprise Zones” or “Opportunity Zones” seen in other parts of the country — designate geographic areas in need of jobs and economic development and offer special tax breaks and other benefits with the expectation that employers will create new jobs in these areas. Qualifying employers in these zones are then eligible for up to 10 separate benefits under the program, including expanded tax breaks, discounted utility rates and lax restrictions under other state and local programs.
The Legislature expanded the program’s scope dramatically after its creation in 2003. Rather than just the most depressed areas of the state, eligible businesses could reap benefits no matter where they were located. Lawmakers also expanded the types of businesses that could receive benefits, such as the expansion to include call centers in 2015.
The program was scaled back slightly in 2018, with the program expiring for businesses in parts of Cumberland and York counties. The program is slated to expire completely at the end of this year. But lawmakers are considering a bill, LD 730, to extend the program until 2024.
PTDZs were estimates to cost Maine $12.2 million in fiscal year 2017.2 About half of that cost is attributed to the program’s expanded Employment Tax Increment Financing (ETIF), which is an income tax credit for businesses adding 5 or more qualifying employees. PTDZ employers receiving ETIFs are able to keep 80 percent of their qualifying employees’ income tax withholdings.
No proof PTDZs create jobs.
Pine Tree Development Zones have failed to hold up to administrative scrutiny. To obtain their benefits, businesses must submit a letter simply stating that the jobs they created would not have happened without the tax cuts and other benefits available through the program. There’s no requirement to prove or disprove the claim. The businesses word is considered proof enough.
But research show tax incentives are poor tools for job creation.3 Tax expenditures are rarely a deciding factor in hiring or location decisions. That’s because considerations like workforce skills, infrastructure, and demand for products and services weigh more heavily on business decisions than the relatively small amount that businesses allocate to state and local taxes.
Proponents of these sorts of tax expenditures often claim that they are tools to recruit businesses from other states. But the data reveals that these cross-state business moves account for only a fraction of job creation: Between 1995 and 2013, 87 percent of private sector job creation came from businesses already located within a state; 11 percent were from businesses establishing new branches within another state; and only 3 percent came from businesses moving their operations to another state.4
Maine is better off focusing on job creation strategies that work to help home-grown businesses thrive and expand: Investments in public schools and universities, high quality infrastructure, and family and worker friendly communities with important services like quality childcare and care for aging loved ones.
While Pine Tree Development Zones have offered huge benefits for some businesses, there’s no evidence they have delivered the jobs Mainers were promised. It’s time to accept the program for the failure it is, and let it expire.
Notes:
[1] “Pine Tree Development Zones – Program Design Does Not Support Intended Goals.” Office of Program Evaluation and Government Accountability of the Maine State Legislature. August 2017. https://legislature.maine.gov/doc/1809
[2] Ibid.
[3] Wiens, Jason, Emily Fetsch and Chris Jackson. “Are Tax Incentives the Answer to More Job Creation?” Federal Reserve Bank of Philadelphia. Summer 2015. https://www.philadelphiafed.org/community-development/are-tax-incentives-the-answer-to-more-job-creation
[4] Mazerov, Michael, and Michael Leechman. “State Job Creation Strategies Often Off Base.” Center on Budget and Policy Priorities. February 3, 2016. https://www.cbpp.org/research/state-budget-and-tax/state-job-creation-strategies-often-off-base
