August 21, 2015
FAME Approves Rule for Maine New Markets Capital Investment Program
At its August 20, 2015 meeting, the Board of Directors of the Finance Authority of Maine (FAME) approved rulemaking related to the Maine New Markets Capital Investment Program. The Board adopted an emergency rule to prohibit one-day loans effective immediately, and authorized a regular ninety-day rulemaking process to commence with respect to the program, as well.
FAME has administered the Maine New Markets Capital Investment Program since the Legislature created it in 2011. It does so in cooperation with Maine Revenue Services and the Maine Department of Economic and Community Development.
The program is designed to attract investment in economically distressed areas of the state. It allows eligible investors to claim tax credits against state taxes in amounts up to 39 percent of a project’s total cost. The maximum aggregate amount of tax credit authority is set forth at $250 million, of which approximately $50 million is left. The amount of tax credits capable of being claimed per fiscal year is limited to $20 million. The program allows a total of $100 million in actual tax credits, with approximately $20 million in credits remaining.
A one-day loan is a financing mechanism involving a short-term loan made to refinance funds already invested in a project, or existing equity in a business, whereby the proceeds are loaned and repaid on the same day. Such loans are allowed under the federal New Markets Tax Credit Program to be counted as investments eligible for tax credits. Most credits that have been issued under the state program have not utilized one-day loans and have been beneficial to the targeted communities. Some deals authorized under the program have utilized one-day loan structures that did not, however, ultimately result in a commensurate level of investment being made in the designated low-income communities.
A December 2014 report prepared by Dr. Charles Colgan, former state economist and Director of the Maine Center for Business & Economic Research at the University of Southern Maine, estimated that the return on investment to the state under the program has been at least $1.56 for every $1 in tax credits issued.
The emergency rule is designed to end eligibility of one-day loans and similar transactions based on the agency’s view that they do not offer the level of direct public benefit that was intended by the Legislature when the program was created. Under the new, temporary rule, no investment will be eligible for tax credits if more than 5% of the investment is used to refinance prior investments, to make equity distributions, to acquire an existing business, or to pay transaction fees.
In adopting the emergency rule, the Board found that emergency action was needed to avoid immediate threat to public health, safety, or the general welfare. At the same time, the Board voted to commence regular, non-emergency rulemaking over the next ninety days. A public hearing to receive comments on the proposed regular program rule, which mirrors the language of the adopted emergency rule, will take place at the September 17, 2015 board meeting.
“We want to ensure that this economic investment program operates effectively and fairly for the taxpayers of Maine,” stated Ray Nowak, FAME Board Chair.
During the First Regular Session of the 127th Maine Legislature, a bill to provide more funding for the program, L.D. 297, An Act to Increase Allowed Investments Under the Maine New Markets Capital Investment Program, was considered but not enacted by lawmakers. FAME actively participated in discussions related to the legislation and brought forth an amendment that would have clarified what constitutes actual investment, and thereby limited or eliminated one-day loans. Although the amendment was supported in both the majority and minority reports of the Joint Standing Committee on Labor, Commerce, Research and Economic Development, other language and issues prevented members from agreeing upon a bill that could pass.
“The program overall has been successful and important to Maine’s economic development,” stated Bruce Wagner, Chief Executive Officer of FAME. “Although we have concerns about past usage of the program, we want to ensure that it continues in the future since its benefits have far outweighed its drawbacks.”
Examples of particularly beneficial investments approved by the FAME Board include: St. Croix Tissue in Baileyville; the Portland Press Hotel and Putney Veterinary in Portland; Athens Energy Biomass Facility in Athens; Quoddy shoe manufacturing in Lewiston and Washington County; and Molnlycke Mfg US, LLC in Brunswick.