Pine Tree firms beginning to reap benefits

Two years after then U.S. Rep. John E. Baldacci set out a seven-point economic package during his run for governor, Maine businesses and communities are starting to chalk up benefits from what once was a campaign promise.

The bundle of state-proffered tax, wage and investment incentives called the Pine Tree Zone program moved forward June 30 with a deadline for communities wanting to apply for Pine Tree Zone status, and with the July 1 roll-out of new program benefits.

Aimed specifically at communities hamstrung by low wages and high unemployment, the program, since April has certified more than 100 communities and 18 businesses statewide as participants. The first concrete benefits won’t land on company books until early next year. They will be paid based on year-end reports of investment, expansion and jobs added by each business.

The zones boost the state’s role as an economic development partner in some of Maine’s most troubled regions. And they are coaxing new development in towns as far flung as Lisbon Falls, Pittsfield and Presque Isle.

The timing could hardly be better. A recovering national economy is enhancing corporate expansion and capital improvement initiatives put on hold during the country’s economic crunch. Maine’s first Pine Tree Zone-certified companies began accruing benefits just as U.S. economic indicators started to perk. For example, the warming economy and Pine Tree incentives, combined with a $400,000 federal Community Development Block Grant applied for by the town of Pittsfield, gave the green light to a $1.2 million expansion of Mass.-based Walpole Woodworkers Inc. at the Pittsfield Industrial Park.

“We’re just waiting for the grant to come through,” said Louis Maglio, president of the 71-year-old fence and outdoor-furniture company. “We have the purchase sales agreement on the building, we have our bank financing lined up and engineers at work on the [design]. We should be fully operational by the first of the year.”

In addition to the Walpole project, Pine Tree Zone incentives have played into decisions to add jobs at the Knight-Celotex fiberboard mill in Lisbon Falls and to expand technology-based services at insurance company Maine Mutual Group in Presque Isle.

An additional 72 businesses so far have expressed interest in the program. Six of those, in addition to the 18 already certified, have filed applications.

The eight designated regions in which communities can create Pine Tree Zones effectively cover the entire state. Each region can present a maximum of 5,000 acres to receive benefits. To qualify, a community must show unemployment above the state average, show below-average wages or have lost more than 5 percent of its population or work force over the last 3 years.

Eligible companies must be in one of nine targeted industry sectors, and must satisfy specific guidelines for growth and-or investment to trigger the actual benefits.

The targeted industries include financial services, manufacturing, advanced technologies for forestry and agriculture, aquaculture and marine technology, biotechnology, composites materials technology, environmental technology, information technology, and precision manufacturing technology.

“You have to prove growth and expansion,” said Elaine Scott, marketing director for economic and community development. “The benefits are based on performance.”

Incentives include a refund of all corporate income and insurance premium taxes for five years, and a 50 percent refund for another five. The program extends a community’s ability to offer tax increment financing. On July 1 it began to exempt construction materials and equipment purchases a company makes related to its Pine Tree Zone operations from all sales and use taxes.

What will that amount to? Matthew McHattan, vice president of marketing with the Maine Mutual Group in Presque Isle says conservative estimates, based on his company’s plans for technology improvements and expansion, range from $75,000 to $95,000 this year.

“For a company like us, at $95 million [in annual revenue], competing against $250 million, $500 million or $1 billion companies, this is a big deal,” McHattan said. “We’re a big company for Maine, but not a big company in the insurance industry overall, and this really gives us a much-needed advantage.”

McHattan said additional benefits could come from the employment tax increment financing incentives included in the Pine Tree Zones. Those benefits kick in once a certified company adds five or more new employees. Withholdings paid by those employees to the state are rebated at the end of the year to the employer. Available at a 30 to 70 percent level in other areas of the state, Pine Tree Zone ETIFs are an automatic 80 percent. The incentive channels a portion of what otherwise would become state tax revenue to help the participating company pay for the creation of those jobs.

“It doesn’t assist the employee, other than the fact that they have jobs they wouldn’t otherwise have,” said Jeff Sosnaud, deputy commissioner of economic and community development. “But it assists the company.”

At the regional level, Pine Tree Zones are being implemented and managed by the network of six economic development agencies funded by the U.S. Economic Development Administration. Eastern Maine Development Corp., for example, administers a huge swathe of four separate Pine Tree Zones, including 47 certified communities spread from Waldo County and Down East up through the Penobscot River Valley.

Northern Maine Development Commission, on the other hand, will manage the 14 communities and any other that might qualify in the Aroostook County Pine Tree Zone. The Pine Tree Zone incentives will layer onto benefits that much of the region hopes to see under its federal empowerment zone status.

NMDC director Bob Clark said the Pine Tree Zone incentives are a welcome addition to the region’s work to crank over its economy. The earmarking of federal community development block grant funds, should be particularly helpful, he said, limiting competition for those funds to Pine Tree Zone designated businesses.

With four out of five states already offering similarly tailored programs, however, Maine is clearly late in getting into the game. But Michael Hickey, president of Hickey & Associates, a Minneapolis, Minn.-based consulting firm that helps an array of Fortune 500 level companies find suitable locations for expansion and relocation worldwide, says the game may be changing in Maine’s favor.

Hickey said many companies traditionally have tended to focus on communities with populations of more than 300,000, because of work force, transportation and other issues. But those tendencies are changing, he said, as new types of companies and jobs expand the prospects for rural areas of the country. At the same time, Hickey said, states such as Maine and Minnesota – long pigeonholed as rural, cold and isolated – have become much more market-savvy.

“The image that worked against Maine in the past doesn’t so much anymore,” he said. “It has done a very good job of marketing itself as a good place to do business, a very good job of being competitive from a cost perspective and a good job in terms of telling companies it’s not just a state full of woods and farm fields.”

Hickey said his company has not located any companies here, although he has placed clients up and down the East Coast.

“But I think Maine is more and more on the radar screen for site selectors,” he said. “Public incentives and demographics are a key part of it.”

Walpole’s Maglio, who expects to relocate to Maine about half of the company’s 90-person manufacturing crew now located in Walpole, said the Pine Tree Zone program played a decisive part in the decision.

“It had a good deal of influence. We had an opportunity to take some of our manufacturing into North Carolina,” he said. “And based on the Pine Tree Zone and some of the other issues, it just nudged us to go to Maine.”