A “good” tax break in the making

Historic rehab
By LANCE TAPLEY  |  February 20, 2008

"Tax break heaven: The rich get richer, the middle class picks up the tab, and the state goes broke. Here’s why." By Lance Tapley.

"Corporate welfare state A little change in the tax law with big consequences." By Lance Tapley.
Legislative Document 262, “An Act to Amend the Credit for Rehabilitation of Historic Properties,” broadly expands state income-tax credits to firms that rehab old buildings. It would create a new tax break.

Unlike tax breaks resulting from what critics call gun-to-the-head corporate extortion — give us millions, or we’ll leave the state — LD 262 has a broad coalition behind it, from self-interested trade groups like the Associated General Contractors of Maine to do-gooders such as the anti-sprawl outfit GrowSmart Maine. It has the laudable aim of transforming vacant mills into apartments and crumbling downtown buildings into sleek office suites — and boosting local economies in the process.

Legislative leadership supports it, and so does Governor John Baldacci. Last year, the Taxation Committee gave it a unanimous “ought to pass” report. It looks golden.

But, like many tax breaks, LD 262 and the politics behind it are more complicated than they appear:

The bill says it gives a tax credit, offsetting state taxes a developer might otherwise owe. But it’s a “refundable” credit. Housing consultant Amy Cole Ives, who wrote the bill when she worked for the Maine Historic Preservation Commission, says a developer gets “a refund check [for rehab expenses] from Maine Revenue Services” even if the developer doesn’t owe income tax. In other words, this is a handout. A developer could receive up to $5 million a year for four years for a single project, limited to 25 percent of the rehab expenses.

Within a few years, State House analysts say, it could cost the state $14 million annually, though the Legislature would have to reauthorize it in five years. But the cost is only an educated guess. In fact, there is no limit to how much public money could go to developers. Maine has many old mills and other old buildings that developers might like to buy — generally, they’re cheap — use state money to rehabilitate, and then turn into a rental-income stream for years. And developers spending as little as $50,000 would get a check from the state. For small projects, the buildings do not even have to be “substantially rehabilitated.” Proponents offer big numbers for the economic benefits of the bill, but they, too, are guesses.

If this bill is passed, some politically connected rich people would get richer, practically risk-free, courtesy of average Mainers’ wallets. A major lobbyist for the bill is the real-estate company now known as Mattson (formerly Harper’s Development), whose president is Kevin Mattson, a former Maine Democratic Party executive director. His partners include hyper-lobbyist and Baldacci fundraiser Severin Beliveau. “It takes rich people with resources” to rehab old buildings, says Representative Theodore Koffman, a Democrat from Bar Harbor who is LD 262’s lead sponsor. The bill’s subsidy of 25 percent of the developer’s rehab expenses Koffman sees as “their insurance policy,” guaranteeing them a profit.

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