Return of the double dip

A long-standing regular feature of every legislative session is the debate on the cost and effectiveness of state programs to encourage business growth in Maine. In recent years, much of the debate has focused upon the Business Equipment Tax Reimbursement (BETR) program, the Tax Increment Financing (TIF) program and double dipping, the phenomenon that occurs when a business uses both programs to get two refunds for one tax bill.

The debate is afoot again this session and, by coincidence, the business in the spotlight is International Paper, the second largest BETR recipient in the last fiscal year at more than $2.7 million. IP put itself in the news this past week by announcing the closing of two sawmills in the small northern Maine towns of Costigan and Passadumkeag, with the loss of 250 jobs, a dispute over the severance package and the question of whether the company would lock the doors or sell the mills and give someone else a shot at saving those jobs.

IP was dragged into the news a few days later by the Maine Citizen Leadership Fund, a public interest watchdog group tax pays special attention to tax breaks for business. According to the group, IP also was the state’s largest double dipper for 1999, collecting more than $1.8 million in cash refunds under both BETR and TIF the same taxes paid on the same equipment and, under existing contracts, will be the largest double dipper for the coming decade, at more than $29 million.

The double dip possibility was created when BETR came into being in 1995. The program, in which the state refunds to businesses 100 percent of the equipment tax they pay to their host communities, did not rule out refunds for taxes already refunded by the community through a TIF agreement. Technically, the equipment tax was “paid” to the town and thus is eligible for a state refund as well. The annual cost of double dipping has grown from $2.5 million in 1996 to nearly $10 million in 2000 and it could be as much as $12 million this year. Interestingly, although the BETR law is silent regarding double dipping for TIFs, it does specifically exclude refunds for equipment covered by other programs, such as the pollution-control tax exemption.

Legislation to eliminate the double dip has been introduced before and has died after being promptly assaulted as anti-business. This session, Rep. Richard Mailhout of Lewiston is giving it another try and lawmakers must give it serious consideration – double dipping is simply getting too expensive to ignore.

Better still, lawmakers should conduct a top-to-bottom reassessment of BETR, no longer be satisfied with vague assertions about business climate and demand a demonstrable return on taxpayer investment. The cost of this reimbursement program has exploded from a modest $5 million appropriation in 1995 to now approach $60 million and there remains no proven connection behind the amount of reimbursement and job creation, job quality or even job retention, which, after all, are the only justifications for business tax breaks in the first place. In fact, all six businesses that received more than $1 million in BETR reimbursement in the last fiscal year have a recent history of substantial layoffs.

Defenders of the double dip say TIFs are a local decision and communities should be able to decide for themselves what incentives to offer business, even if it comes on top of a state incentive. This defense may provide a key to reform of Maine’s economic development initiatives: Given the state’s poor record in differentiating between giving tax breaks to businesses that are adding or at least keeping good jobs and those that are laying people off, perhaps the local business-equipment tax should be eliminated and the state should simply reimburse municipalities for the lost tax revenue. If the decision to allow a second dip is best made at the local level, perhaps the decision about the first should be as well.