ELLSWORTH — Ellsworth was the only municipality in Hancock County selected as one of Maine’s 32 Opportunity Zones by Governor Paul LePage, according to an announcement made Monday by the Governor’s office.
The federal Opportunity Zone program targets capital gains, which are profits from the sale of stock or other assets.
There’s a lot of money at stake: economists have put estimates of profits sitting on balance sheets waiting to be invested at $2.3 trillion. Normally, that money would be taxed within normal brackets, up to 23.8 percent for corporations (including 3.8 percent surtax).
Under the program, which was tucked into the federal tax overhaul, certain investments in the designated zones are eligible for significant tax breaks. The provision is intended to bring development to low-income areas, although some economists are skeptical of its proposed effectiveness.
The Governor, who had sole discretion over the selection, chose areas “based primarily on identified investment opportunities where such investments would likely be met with success,” according to a press release.
The Maine Department of Economic and Community Development (DECD) recommended a list of communities to the Governor after soliciting public comment from municipalities, individuals and businesses.
The city of Ellsworth submitted a pitch and also was included in a list of recommended areas submitted to the DECD by the nonprofits Eastern Maine Development Corp. and the Maine Center for Economic Policy.
“I thank the Eastern Maine Development Corporation for nominating us, the DECD for recommending us and Governor LePage for selecting us,” said City Manager David Cole.
“It’s one more tool in the toolbox in terms of promoting business investment in our community.”
To take advantage of the tax breaks, investors or businesses with unrealized capital gains would roll the money into an Opportunity Fund, which could then be used to invest in real estate or businesses in Opportunity Zones.
The longer a business owner or developer holds on to an asset in a zone, the less he or she will pay in taxes. Those who hang on for seven years will pay 85 percent of what they would have paid on proceeds from investments in the designated zones, while those who keep their assets for over 10 years will pay no capital gains taxes at all.
“There are communities across Maine with vacant industrial sites and an available workforce. This program could be the catalyst to really move the needle in areas of our state that need it the most,” said DECD Commissioner George Gervais in a February press release.
Several areas in Penobscot County were selected, including Bangor, Brewer and Millinocket. Belfast was also chosen.
Critics say the data behind the federal designation is out of date, not reflecting communities that may have since recovered from the recession and where developers already have incentive to invest.
For instance, several areas in South Portland and Portland were chosen, while Bucksport, which lost its largest employer in 2014 (the Verso paper mill), was not eligible under the rules, which are based on federal census data published between 2011 and 2015.
James Myall, a policy analyst at the nonprofit Maine Center for Economic Policy, told The American in an interview in April that he believes the more effective way to encourage development would be loans to Maine-based businesses.
“The research shows that many more jobs are created by new businesses starting out rather than enticing manufacturers,” said Myall, adding that out-of-state businesses “often pick up and leave when a better opportunity comes along.”
Myall said he is worried these funds could be used to subsidized projects already in the pipeline, particularly in the area of real estate development.
Results of similar programs, such as Maine’s Pine Tree Development Zones and the Obama-era Empowerment Zones, have been mixed, Myall said.
“There’s not a lot of evidence to show that companies or individuals invest because of these programs,” Myall added.
Cole said he was aware of the discussions around the effectiveness of tax incentive programs, but that the designation was “recognition of growth” in the area, and that he hoped it would attract small- and medium-sized biotech and life sciences companies in particular.
“You’ll get the debates over do tax incentives work or are they needed,” said Cole, “but when you’re out there competing with other states that have incentives it’s just part of the landscape.”