Tax incentive evaluation ratings
- Maine is leading other states because it has a well-designed plan to regularly evaluate tax incentives, experience in producing quality evaluations that rigorously measure economic impact, and a process for informing policy choices.
- By tasking a legislative program evaluation office with evaluating incentives, Maine’s law follows a proven approach.
- In the first round of evaluations, the state is studying the New Markets Capital Investment Program, which is subject to much debate.
Maine evaluation law
Year enacted: 2015.a
Who evaluates: Office of Program Evaluation and Government Accountability.
Length of review cycle: Six years.
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In 2013, as Maine struggled to balance its budget, lawmakers charged a special Tax Expenditure Review Task Force with recommending tax credits, exemptions, and deductions that could be reduced or eliminated to save $40 million. Finding those savings proved exceptionally difficult, however, for a simple reason: As the task force itself acknowledged, without evaluations in place, they had little basis for determining which tax expenditures were expendable.b The experience drove home for lawmakers the need for better information, something that stands to be provided by a 2015 law requiring the Legislature’s Office of Program Evaluation and Government Accountability (OPEGA) to regularly evaluate tax incentives and other credits, exemptions, and deductions.c
By tasking OPEGA with evaluation, Maine is following a proven approach. Legislative program evaluation or audit offices in Washington and Florida have been producing high-quality evaluations for years. With a nonpartisan staff experienced at studying government programs in-depth, OPEGA is well-positioned to do the same.
OPEGA’s first evaluation under the process, published in 2017, examined the New Markets Capital Investment Program. The evaluation included an examination of the program’s goals and whether they have been achieved, rigorous analysis of its economic impact, and detailed recommendations for improving its effectiveness.d
This information should prove valuable as lawmakers consider the future of the New Markets program, which has been the subject of controversy. A Maine Sunday Telegram investigation found that an out-of-state private equity firm had made one-day loans to a paper mill to artificially increase the size of its investment under the program and thereby increase its haul of tax credits. Even though the mill ceased operations in 2014, the state still had an obligation of $16 million in credits.e The state authority that oversees the New Markets program has since banned one-day loans.f
Maine’s 2015 law has a broad scope, requiring evaluation not only of economic development tax incentives, but also other tax expenditures. However, the law allows legislators to set priorities to make OPEGA’s workload more manageable. Some programs receive “full evaluations” with detailed analysis of their empirical results, while others receive “expedited reviews” that focus more on their goals and whether they’re still relevant.g Using similar tiers of review has worked well for Washington.
One weakness of Maine’s law is that the frequency with which each tax expenditure must be evaluated is not specified. The schedule for evaluations approved by the Legislature’s Government Oversight Committee in 2015, however, requires each tax expenditure to be evaluated once over the next six years.h By maintaining that schedule for review, lawmakers will ensure that they have up-to-date information on each tax incentive.
- Maine Rev. Stat. tit. 3, § 998 to 1001, http://www.mainelegislature.org/legis/statutes/3/title3sec998.html.
- Maine Tax Expenditure Review Task Force, “Tax Expenditure Review Task Force Report” (December 2013), 7–9, http://www.maine.gov/legis/ofpr/appropriations_committee/materials/ Reports%20to%20AFA/TERTF_final_draft_report.pdf.
- Maine Rev. Stat. tit. 3, § 998 to 1001.
- Beth Ashcroft (director, Maine Office of Program Evaluation and Government Accountability), interview with The Pew Charitable Trusts, Jan. 31, 2017.
- Whit Richardson, “Payday at the Mill: How Sophisticated Financiers Used a Maine Investment Program They Devised to Wring Millions of Dollars in Risk-Free Returns at Taxpayer Expense,” Maine Sunday Telegram, updated Oct. 28, 2016, http://www.pressherald.com/2015/04/19/payday-at-the-mill/.
- Darren Fishell, “FAME Bans ‘One-Day Loans’ Like What Cate Street Used,” Bangor Daily News, Oct. 15, 2015, http://bangordailynews.com/2015/10/15/business/fame-bans-one-day-loans-like-what-cate-street-used.
- Maine Rev. Stat. tit. 3, § 999 to 1000.
- Maine Government Oversight Committee, “Meeting Summary” (Sept. 8, 2015), 11–12, http://legislature.maine.gov/uploads/originals/9-8-15-goc-meeting-summary.pdf; Maine Office of Program Evaluation and Government Accountability, “Proposal for Legislative Review of Maine State Tax Expenditures” prepared for the Government Oversight Committee and the Joint Standing Committee on Taxation (March 2, 2015), 13, https://legislature.maine.gov/uploads/originals/final-proposal-for-legislative-review-of-tax-expenditure.pdf.