Business leaders fear changes in BETR program

AUGUSTA – Several leaders of Maine’s business community charge that two studies included as part of the Democratic majority budget are aimed at repealing or substantially changing the Business Equipment Tax Reimbursement program.

“Every company that uses the BETR program should be aware that the budget contains two provisions that line up additional potential changes,” Chris Hall, vice president of the Maine State Chamber of Commerce, said last week.

“These could be very substantive changes.”

The two provisions are separate but related studies. One section of the proposed budget requires the new Office of Government Programs and Accountability to study the effectiveness of both BETR and tax increment financing.

The Business Equipment and Tax reimbursement program has been the fastest-growing state program since it was implemented under Gov. Angus King. It provides companies with a cash payment from the state to pay for the property tax assessed by local communities on business equipment.

Tax increment financing allows businesses to fund capital needs by not having to pay taxes on those capital investments for a period of time.

A second study directs Maine Revenue Services to study which companies use both tax programs and report that detailed information back to the legislature.

“It has been an incredibly successful program in getting companies to invest in new equipment,” Hall said. “That has improved Maine’s economy and created jobs and in some cases saved jobs.”

Hall’s concerns about the studies are shared by other business leaders. Jim McGregor, the executive vice president of the Maine Merchants Association, said the retail change slipped into the budget without hearings and with little discussion and should be a warning to the business community.

“This year, it’s stores over 100,000 square feet; what if they need another million dollars or so for something next year? Will they take the rest of retail?” he said.

Democrats on the Appropriations Committee voted to take away the BETR benefit for retail operations with more than 100,000 square feet starting with property tax assessments in 2006. But it does protect large grocery store chains and large Maine based stores like LL Bean from losing the benefit. The change is estimated to save about $400,000 in the 2007 budget year.

“The study is to look at the effectiveness of these programs,” Rep. Ben Dudley, D-Portland, told a democratic caucus. “We don’t really know about who is using these programs and whether they have been successful in creating jobs.”

Both he and Rep. Arthur Lerman, D-Augusta, expressed concern over the growth of BETR and the kinds of business equipment covered by the program during Appropriations Committee deliberations.

“I am not sure we want retail as part of this,” Lerman said. “I think we should take a look at that and all aspects of BETR.”

Lerman served on the Taxation Committee last session and was critical of the increasing costs of the program. It is expected to cost more than $140 million in the proposed two-year state budget. Because it is based on reimbursing local property taxes, state officials can only estimate what the program will cost.

“I think businesses should be concerned about what may happen,” David Clough, state Director of the National Federation of Independent Businesses, said last week. “But I don’t think it should be a surprise that there are people that do not like this program and want to get rid of it.”

He said there have been several bills proposed since the program was implemented to either curb it or totally repeal it. He said the nearly constant effort to change the program has hurt development efforts.

“Business likes stability so they can plan for the future,” he said. “The efforts to change BETR have an impact on business planning.”

Hall agreed. He said the key to Maine’s economy improving is private sector investment in equipment that creates jobs. He said too many lawmakers do not get the connection between private sector investments and the tax revenue it creates for government.

McGregor said there is no doubt that unpredictability in state tax policy has an impact on business investment decisions.

“I think it is a real concern among people looking to develop in Maine,” he said. “I think it does influence decisions.”

McGregor said BETR and other state and local tax incentives “pale in comparison” to those offered in other states. He said other state governments have got the message that tax incentives that create jobs are fundamental to improving a state’s economy.

Clough said the latest unemployment statistics, showing a slight increase in unemployment in February, should be of concern to lawmakers.

“We need more jobs in Maine,” he said, “and jobs come from the private sector investing in new technology.”