AUGUSTA — The state’s economic development commissioner told a committee of lawmakers Thursday that his department doesn’t have the time or staff to collect data required to measure the effectiveness of the business incentive programs it administers.
George Gervais, commissioner of the Department of Economic and Community Development, also disputed that his agency is responsible for compelling businesses to comply with third-party audits of the 17 tax-incentive programs it administers. The exact costs of the department’s programs aren’t available, but overall the state spent $300 million in public funds on its 59 tax-incentive programs in the last fiscal year.
Gervais testified before the Government Oversight Committee in response to questions about the purpose and effectiveness of the tax programs his department uses to attract and keep businesses in Maine. The review is part of a follow-up to recommendations in a 2006 evaluation of programs by the Office of Program Evaluation and Government Accountability, the watchdog agency that the committee oversees.
Nine years later, OPEGA has found that many of the recommendations from its evaluation haven’t been implemented by the economic development department.
The committee has been grappling with ways to assess the effectiveness of the programs and to determine whether they yield benefits that justify the expense. The panel’s attempts mirror similar evaluation efforts in other states, which often compete with one another to lure and retain businesses.
OPEGA Director Beth Ashcroft said in May that the DECD, which oversees 17 of the tax incentive programs, has not provided performance information that will allow legislators to understand and make decisions. Furthermore, the department “has not initiated any efforts … toward achieving standardized reporting to provide transparency and accountability.”
Gervais blamed the lack of accountability on the Legislature, saying it stemmed from lawmakers’ inaction. He also noted that DECD has undergone staff reductions and budget cuts that make it harder for the agency to collect the data needed to evaluate programs. Ultimately, he questioned whether the agency could, or should, regulate the incentive programs while promoting them to interested businesses.
“I don’t feel DECD should be a regulatory agency,” he said.
Gervais appeared to agree with OPEGA that evaluating its programs should be done by a third party free of political influence. However, he balked at the suggestion that DECD programs could be combined with a periodic OPEGA evaluation of the state’s suite of tax break programs.
Gervais, in written comments to the committee, said it was “premature” to combine the reviews. He later told the panel that some of the programs DECD administers are interconnected and he questioned reviewing them individually, as some committee members have proposed.
Several committee members were skeptical of his explanation, as well as his suggestion that it’s the Legislature’s role to implement changes at DECD or craft budgets to increase the staff within his office.
At one point Ashcroft asked Gervais whether it was the Legislature’s responsibility to implement the recommendations from the 2006 OPEGA report in order to improve DECD’s programs.
“I think that’s part of what’s gone wrong here,” she said. “There hasn’t been a follow-through on what needs to be done and an opportunity to get the report questions answered.”
Gervais didn’t directly answer the question.
“It’s a good observation,” he replied.
Sen. Roger Katz, R-Augusta, co-chairman of the oversight committee, questioned why the state should continue to evaluate business incentive programs under two separate systems, one through OPEGA and the other through DECD, which is saying that it doesn’t have the necessary resources or the full cooperation of businesses utilizing the programs to respond to audits.
“Why would we use two systems? We can’t afford it,” Katz said. “We’re getting programs evaluated under different criteria by you and different criteria by OPEGA. Why should people be happy with that system?”
Sen. Chris Johnson, D-Somerville, took issue with Gervais’ suggestion that the Legislature should craft the department’s budget and suggest staff increases to implement the 2006 recommendations.
“I don’t think the Legislature should be looking at your department, saying, ‘Well, I guess we need to create another one or two positions to meet this objective,” said Sen. Chris Johnson, D-Somerville. “I think that’s your job to say what staff you need or other functions to fulfill that expectation.”
Johnson also said that if businesses weren’t willing to participate in program audits, then the state shouldn’t provide them tax benefits.
“The 2006 report hasn’t been our focus. It has not been, to use the term, our playbook,” replied Gervais, adding that his department has met most of the recommendations “within resources.” He said that forcing businesses to cooperate with audits should fall to Maine Revenue Services.
“Any action should be done by Maine Revenue Services because it conflicts with our role,” he said. “Our role is to help businesses. We can’t be pounding them over the head on other issues at the same time. But I agree that we need the data.”
Rep. Anne-Marie Mastraccio, D-Sanford, said the public also will question the need for the programs if the state can’t justify them.
“It seems incumbent on them (businesses) to provide information if they want to receive the benefit,” she said.
She added, “We’re just asking for your input and your help. I think this is too much money to just … throw up our hands and say it’s too much work and there’s no way to do it.”
After the meeting, Katz said that it was clear that DECD may not have the staff to review its programs. He supports folding the review of all of the state’s programs under the wing of OPEGA, but said the nonpartisan agency would likely need more staff to accommodate the added workload.
“This thing has to have public trust and it has to have the trust of the business community in Maine,” he said. “OPEGA has that. Its integrity is unquestioned.”
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