The state of Maine will pay out $16 million in tax credits over the next three years for an investment that turned out to be largely illusory.
“This payout of taxpayer dollars through 2019 will make whole a commitment the state made in December 2012 to encourage what was—on paper—touted as a $40 million investment in the resurgence of the Great Northern Paper mill,” even though “most of that $40 million was a mirage,” according to an investigation by the Maine Sunday Telegram.
Roughly a year after the investment was received, the mill was shut down by its owner, private equity firm Cate Street Capital, and more than 200 workers were laid off. Shortly thereafter, Great Northern filed for bankruptcy with more than $20 million in outstanding debt. (RELATED: These Billionaires Make Bank When Taxpayers Subsidize Business)
After a 5-month investigation into the deal, the Telegram concluded that, “Most of the investment was an illusion, in which one Cate Street subsidiary used roughly $31.8 million of the investment to buy the mill’s paper machines and equipment from another Cate Street subsidiary, after which that $31.8 million was returned to the original lenders the same day.”
The true value of the investment, therefore, was only $8.2 million, “most of which [Cate Street] used to reduce existing debt.” In fact, the paper claims, “none of the money was invested in the mill.” (RELATED: GAO: Investors Double-Dipping on Tax Credits)
If the $40 million figure had been accurate, the credits would have been worth about 39 percent of the total investment. In reality, however, the rebate is closer to double the amount that was actually invested.
The credits are being paid out through Maine’s New Markets Tax Credits program, which is modeled on a federal program of the same name that has itself been criticized as a subsidy for wealthy investors and large corporations. (RELATED: Coburn Blasts Tax Credit as Subsidy for Large Corporations)
According to The Bangor Daily News, the NMTC credits came under attack during Maine’s 2014 gubernatorial campaign, with candidate Eliot Cutler referring to the program as “corporate welfare and crony capitalism at its worst.”
Despite such complaints, though, “Legislators in Augusta are considering a bill to raise a limit of $250 million to $500 million for the program,” the article claims.
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