Rep. Fecteau calls out corporate tax credit ‘slush fund’
See this post for background on the corporate tax credit scam and last week’s committee vote to recoup taxpayer money lost through sham transactions.
A few months ago the Maine New Markets Capital Investment (NMCI) program was on the fast-track to receiving a new allocation of $250 million in available tax credits as L.D. 297 sought to extend the program’s life. Created in 2011 and nearing the end of its original $250 million allocation, extending the program seemed to face little resistance. In fact, the Labor, Commerce, Research and Economic Development (LCRED) committee originally gave L.D. 297 a 13-0 ought to pass as amended report. Things quickly changed, however, when Portland Press Herald reporter Whit Richardson published his first investigative report concerning the program in mid-April.
As a member of the LCRED committee, I did my due diligence and read the first article. It actually did not change my feelings toward L.D. 297. The article emphasized the misuse of one-day loans by savvy investors, but failed to make much mention that the committee adopted an amendment to address future misuse of one-day loans. It seemed to me past issues with the program had been resolved and the report was not a reflection of things to come. I even went as far as to quell the outrage drummed up by friends on social media. In response to one friend, I wrote, “The law was amended last week to end the transfer of one day loans to ever happen again – the article did not really emphasize this at all.” Coming to the defense of this program grew difficult, however, when Richardson published his second article.
“A grand total of $33.4 million of taxpayer money was used as a slush fund for shrewd investors. In a state like Maine where every budgeted dollar counts, all attempts to get this money back must be taken.”
Soon enough I realized that the vulnerability for misuse extended beyond one-day loans. In one instance, Richardson reveals in the article that the Finance Authority of Maine (FAME) struggled with ensuring accountability within NMCI. He writes, “FAME’s staff used the sentence [concerning investment in low-income communities] as a basis to recommend the board reject Advantage Capital’s $24.8 million investment in JSI Store Fixtures in Milo, which included a one-day loan of $15.8 million.” Using the low-income community rule would not last. Richardson reports three months later FAME’s board succumbed to arguments made by Advantage Capital’s lawyer Chris Howard. As a result, the FAME board voted to remove the accountability rule and hawkish investors walked away with $9.6 million in taxpayer money.
It became clear to me that the 127th Legislature was poised to suffer from the same lack of experts in capital investment and tax credit programs that led to NMCI being passed with such loopholes in the 125th Legislature. I went back and reviewed an analysis of the program’s success provided to LCRED by CEI Capital Management LLC. The program analysis cited three sources for its data. Two of the three sources were CEI Capital Management LLC. As I said in committee, if this were a college paper, the result would be a failing grade for citing oneself.
The other source cited in the paper provided by CEI was Charles Colgan, a former state economist and professor of public policy at the University of Southern Maine, who published a report on NMCI in 2014. Proponents of L.D. 297 used his report as a means to validating the need for this program. Yet, despite compiling this report on NMCI, Richardson reports, “[Colgan] hadn’t heard of a one-day loan before the Great Northern deal was explained to him.” Colgan also told Richardson investment deals are “engineered to take advantage of tax law.” This commentary from Colgan, the same economist whose report is cited as validation for the program, made things clear to me. LCRED needed to pump the brakes on this program and reconsider its previous vote.
Last Thursday, I joined fellow Democrats and one independent on the committee to do just that. We amended the original bill to completely remove one-day loans, freeze any additional funding of NMCI, direct the Government Oversight Committee to investigate the program, institute a clawback measure for any deals deemed “sham transactions,” add an emergency preamble, and end upfront payments of lobbyists involved in these deals. Republicans on the committee disregarded the concerns for accountability and refused to add an Office of Program Evaluation and Government Accountability (OPEGA) review of NMCI in their own ought to pass report.
“When it comes to corporate welfare and out-of-state investors funneling taxpayer dollars into fat paychecks for themselves, Republicans have chosen inaction.”
Most importantly, Democrats and the independent on LCRED want to make sure that all avenues are considered for potentially recouping the millions lost as a result of these sham transactions. $16 million of taxpayer money lost during the Great Northern Paper transaction. $3.9 million of taxpayer money lost during the Nova Seafood Ltd. transaction. $9.6 million of taxpayer money lost during the JSI Store Fixtures Inc. transaction. $3.9 million of taxpayer money lost during the Farnsworth Art Museum transaction. A grand total of $33.4 million of taxpayer money was used as a slush fund for shrewd investors. In a state like Maine where every budgeted dollar counts, all attempts to get this money back must be taken. The report that Democrats on LCRED passed on Thursday will do just that.
The difference between the two ought to pass as amended reports is simple: one aims to be responsible and the others lends its trust to the same hawkish investors that burned taxpayer money the first time. Department of Economic and Community Development George Gervais argues in an editorial submitted to the Portland Press Herald that NCMI allowed Great Northern Paper Mill to stay open two years longer than it would have otherwise. There are a few issues with this notion – both tie back to responsibility. On the one hand, Commissioner Gervais’ statement is utter conjecture. He does not have an independent analysis that confirms Great Northern benefitted from NMCI. The other point of contention is this: if taxpayer money were not spent lining the pockets of investors manipulating one-day loans, perhaps the funds would have been used by good business stewards and Great Northern and its 200 jobs, as a result, might still be here today.
It is time to take a step back and thoroughly review NMCI. Senator Andre Cushing claimed LCRED members who voted to pause this program were sensationalizing the issue. I respectfully disagree. A thorough review of NMCI is not sensational; it is the responsible thing to do on behalf of Maine taxpayers. Furthermore, it is a far cry from the sensationalism that Republicans have partaken in over the last four years concerning the poor and those who use social safety nets like welfare. When it comes to corporate welfare and out-of-state investors funneling taxpayer dollars into fat paychecks for themselves, Republicans have chosen inaction. The approach harshly contrasts the “no stone unturned” tactics they have used to demonize welfare recipients. Unlike Governor Paul LePage who said “a deal is a deal,” I believe a bad deal that leaves the state shammed of millions is one worth investigating to ensure it never happens again. Fraud is fraud.
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