But unlike in a similar federal program on which the state program is modeled, the “tax credits” that the state gives out are “refundable.” Here’s where things get strange: even if you don’t owe taxes in Maine — even if you have no other connection to Maine — if you are given these pieces of paper called “New Markets Tax Credits” because you invested in, for example, Thermogen, you are entitled to have 39 percent of your investment refunded by Maine Revenue Services.
And in both the state and federal programs, the investors in many cases aren’t even investors in the sense that they risk equity capital in the deal. Instead, they’re lenders. Banks, insurance companies, and other financial institutions lend money at interest to the enterprise involved. So in addition to payments on their loan, they also get big payments from the state. Cate Street has said the lender to Thermogen is expected to be US Bank, one of the nation’s largest.
Since 2012, several other companies have received New Markets credits, and others are expected to. Their cost to taxpayers, according to Maine Revenue Services, will reach a legislated cap of $20 million annually within a couple of years.
In 2013 the Legislature passed another New Markets bill, loosening the program’s rules specifically to benefit Cate Street’s Thermogen project — also unanimously and without debate. For both this bill and the 2011 legislation, written testimony by proponents to the Taxation Committee wasn’t exactly straightforward: the word “refundable” wasn’t used. There were no opponents to either bill.
When asked to explain the 2013 legislation, its sponsor, Democratic Representative Stephen Stanley, of Medway, said it would be best to talk with Cate Street’s lobbyists, Pierce Atwood, of Portland, Maine’s biggest law firm: “They know it better than I do.”
A Pierce Atwood employee involved in New Markets matters is former Democratic Governor John Baldacci, according to Charlie Spies, head of CEI Capital Management, one of the national middlemen-agencies vying to complete the Thermogen deal. He told the Phoenix that he had discussed the state New Markets legislation with Baldacci. When contacted, Baldacci said he couldn’t comment on dealings involving clients.
CEI Capital Management, of Portland, is a profit-making subsidiary of Coastal Enterprises, a nonprofit business-development outfit headquartered in Wiscasset.
The New Markets idea is “entirely corporate welfare,” said Will McBride, using language surprising for the chief economist of the conservative Tax Foundation
in Washington, D.C. Refundable credits, he added, make it “doubly bad.” They constitute “an extra pot of money,” enticing to “fraudsters.”
But assuming, for instance, that Thermogen is a legitimate project, why doesn’t the state just grant $7 million to its owner, Cate Street, instead of paying an additional $8.6 million to do so? That alternative is “an argument I’ve heard for seven years,” said Spies, who lobbied in 2011 to create the New Markets scheme. He said money flowing to a project in this complex way provides “capital market discipline” — implying that the business would be carefully scrutinized and monitored.
The New Markets deal also provides, according to Cate Street’s numbers for the Thermogen plant, around $3 million in “transaction,” “structuring,” and “administration” fees that Spies’s company may benefit from.