If the state is going to spend hundreds of millions of dollars each year on tax-incentive programs designed to spur economic development, it should have some way to measure whether those programs are working.
That’s not just common sense — it’s also the basis of a 2006 report from a watchdog agency that recommended the state conduct in-depth reviews of each of these programs while creating new mechanisms for oversight and assessment.
Nine years later, the Department of Economic and Community Development, which administers 17 tax-incentive programs, has made little progress on these recommendations.
As a result, the state agency charged with attracting and retaining businesses still cannot show whether the taxpayer money being spent in support of this goal is being spent well. Maine may be missing opportunities to help grow businesses and create jobs, and could be wasting money on programs that don’t work.
NO PROGRESS
The lack of headway made on this problem, and the reasons behind it, came out last week as the state’s economic development commissioner, George Gervais, testified in front of the Legislature’s Government Oversight Committee.
Gervais told the committee that it is beyond his department’s resources to collect and report the performance information necessary to gauge whether the tax incentives are working, though his department has not requested additional resources for accomplishing this task.
Worse, he said it has not been his department’s focus to implement the recommendations of the 2006 report, and that it is not the department’s job to gather the information, comparing it to “pounding (the businesses) over the head.”
That’s preposterous. The department that hands out tax breaks should want to see the information necessary to tell whether those incentives are working, and the businesses that receive the state money should be happy to participate in any review.
Otherwise, the department is just handing out money and hoping it all works out in the end.
LONGSTANDING PROBLEM
That is clearly the way it has been for some time, certainly predating this administration, and the potential for waste is striking.
The 2006 report, produced by the nonpartisan Office of Program Evaluation and Government Accountability, looked at 46 tax-incentive programs. There are now 59 programs, costing a total of $300 million in public funds last year alone.
Without proper, regular review, the report said, the state was — and is — at risk of investing in programs that are ineffective or no longer necessary. It may be duplicating efforts in some areas, while ignoring others. It is certainly not allowing for an unbiased outside review of spending, raising questions of transparency and accountability.
That’s similar to the conclusion made in a report issued last year on the Pine Tree Development Zone program,
In 2012, the report said, Pine Tree Zones, a 10-year-old business incentive initiative, had direct costs of $457 million, but direct benefits of just $358 million.
Using the “multiplier effect,” though, the program had indirect benefits of $5.3 billion, and indirect costs of just $3.6 billion.
However, it’s impossible to tell which numbers the state should believe. There’s been no effort to understand which pieces of business investment were spurred by the incentives, and which would have happened anyway.
In both cases, the state is making significant investments with taxpayer money without bothering to truly measure its return.
It is now up to the Government Oversight Committee to find a way to change that, and make sure the state’s economic development investments are paying off.
Maine can’t afford another nine years of inaction.
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