Payday at the Mill
April 20, 2015 7:01 AM   Subscribe

A tax incentive in Maine is being used to funnel money from tax dollars directly into corporate pockets.
"At the end of the day, the paper machines changed hands on paper; the lenders that loaned the $31.8 million got their money back; Enhanced and the other broker, Stonehenge Community Development of Baton Rouge, Louisiana, pocketed $2 million in fees; and the equity investors – the people or funds that put up the $8.2 million that was not repaid as one-day loans – were promised $16 million in Maine tax credits, which are redeemable over seven years.

In other words, Maine’s taxpayers provided the equity investors, who faced little risk, with a $7.8 million profit. And despite the fact that the mill closed and went bankrupt, there’s no way for the state to wriggle out of its commitment to pay the investors the $16 million."
posted by idiopath (26 comments total) 17 users marked this as a favorite
 
Sounds like a version of death spiral funding.

It's almost like the markets are rigged.
posted by Mezentian at 7:11 AM on April 20, 2015 [2 favorites]


I got as far as the phrase "the mill’s owner, private equity firm" and figured I knew the general outline based on that alone.
posted by adamrice at 7:19 AM on April 20, 2015 [14 favorites]


Sounds like a version of death spiral funding.


the reader gets the idea from these sort of stories that these "deals" are somehow the product of the higher knowledge of "sophisticated" investors, when they are all basically versions of the nightclub scam in 'Goodfellas': take control of property, leverage at inflated values, burn it down. but it's bread and butter for the world of "private equity." you 'd think after the great recession someone would get it that we have created a culture of organized crime in the financial world. that culture is just now percolating down to smaller and smaller deals.
posted by ennui.bz at 7:21 AM on April 20, 2015 [19 favorites]


> there’s no way for the state to wriggle out of its commitment

I don't buy that, given the obvious level of fraud depicted in the article.
posted by lupus_yonderboy at 7:22 AM on April 20, 2015 [1 favorite]


It's almost like the markets are rigged.

Given that they wrote the legislation that they then used to get the money it isn't 'rigged' so much as it is just naked out there cash transfer. It's as if the fox designed and built the hen house.

(I'm still waiting for the discovery that Mayor Daley is somehow a shareholder in the shell corporation he sold Chicago parking to.)
posted by srboisvert at 7:22 AM on April 20, 2015 [2 favorites]


It's almost like the markets are rigged.

It's almost like capital owns the government. Same as it ever was...
posted by Mental Wimp at 7:23 AM on April 20, 2015 [3 favorites]


Didn't Robert Reich do an excellent video about how Mitt Romney's company did this regularly? The only new wrinkle in this story seems to be that it's happening with tax dollars this time.
posted by xingcat at 7:32 AM on April 20, 2015 [1 favorite]


The only new wrinkle in this story seems to be that it's happening with tax dollars this time.

Spoiler: Somehow, it's always happening with your tax dollars.
posted by Mezentian at 7:34 AM on April 20, 2015 [10 favorites]


It's almost like the markets are rigged.

As described, none of the dollars involved came anywhere near a market, rigged or otherwise. This is graft, plain and simple.

(Actually, I take that back: the market involved here is the one for state legislators. And there are some bargain basement prices going on in that one. It continually amazes me how goddamn cheap it is to buy a politician.)
posted by PMdixon at 7:57 AM on April 20, 2015 [7 favorites]


I'd like to take a moment to reiterate my call for the death penalty to be extended to corruption. A murderer kills a man, but a corrupt politician kills society.
posted by Pope Guilty at 8:03 AM on April 20, 2015


> death penalty to be extended to corruption

I don't know if you are joking but that is a terrible idea. The death penalty should be abolished entirely. It's continued existence is a symptom of corruption, not a solution to it.
posted by Poldo at 8:17 AM on April 20, 2015 [2 favorites]


I'm certainly no fan of it, and would prefer its utter abolition, but as long as we're going to be executing people, the powerful need to be subject to it, too. You only get the death penalty if your crimes are petty compared to what business and political leaders make their stock in trade.
posted by Pope Guilty at 8:22 AM on April 20, 2015


This is a great expose, but almost every state has some sort of refundable tax credit for investors (which basically means the state is giving investors free money). My state, Minnesota, has the Angel Investor Tax Credit which provides a 25% state match to any "angel investment"... That means you can start a "tech startup," invest $1 million in capital, close the company, sell the assets for $1 million, and get $250k free from the state.
posted by miyabo at 8:41 AM on April 20, 2015 [2 favorites]


Just in case anyone else reading this shared my specific initial confusion - eventually the article explains that the Maine New Markets Tax Credit program is a state tax credit based on the federal NMTC program, with some key differences including the fact that in the state program the credits are refundable, which is not the case for the federal program. Meaning that the entity taking the tax credit does not have to actually have tax liability, which is kind of nuts. Some kind of leverage structure is a pretty common thing with federal NMTC deals, I think, but the refundability and of course the shell game of artificially inflating the size of the investment make this one different. My hazy understanding of the federal NMTC program is that the funds have to be continuously invested in a qualified business or the tax credits get recaptured, so I'm not sure how a one-day loan (or bankruptcy for that matter) wouldn't trigger recapture.

On preview: I guess the argument for refundability at the state level is that you're trying to attract out of state capital from investors who wouldn't necessarily be expected to have tax liability in your state. But in that case, why are you using a tax credit to attract them?
posted by yarrow at 8:47 AM on April 20, 2015 [2 favorites]


But in that case, why are you using a tax credit to attract them?

Because this is America and instead of just having fiscal policy we'd much rather do stupid Rube Goldberg style tricks with taxes.
posted by PMdixon at 8:58 AM on April 20, 2015 [8 favorites]


"In the end, here’s what really happened: Two Louisiana financial firms arrived in Maine with a plan to create such a program, hired lawyers and lobbyists to get it passed in Augusta, then put together the Great Northern deal using one-day loans that made an $8 million loan look like a $40 million loan."
Come on Maine, do you have no adults in charge? Where was Governor LePage for all of this? You're just going to blame all these rotten out-of-staters that showed up and started writing their own bills? Oh dear, the poor legislators just didn't know any better--they've been so busy will all these other bills, and you know, that investment program is so hard to understand.
posted by gueneverey at 9:02 AM on April 20, 2015 [1 favorite]


LePage is a tea party darling, and has done more to damage Maine than this program. It's too bad that this wasn't more of a campaign issue last November. But if his unjustified beating up on Kaci Hickox didn't lose him the election, nothing would.
posted by scolbath at 9:08 AM on April 20, 2015 [1 favorite]


This is my surprised face...?
posted by Windopaene at 9:27 AM on April 20, 2015


Oh I know, LePage is awful. I couldn't believe it when CTRL+F LePage had zero results. Not that knee-jerk finger pointing is good for in-depth reporting, but did nobody even ask the governor's office for comment?
posted by gueneverey at 9:39 AM on April 20, 2015


A friend of mine lives in Millinocket. He grew up in the waning days of the plant, left, lost his job in the tech implosion, moved back, and now is going to college and getting degrees in engineering and writing (an hour commute each way for him). He was a reporter in the town, and even won an award for his writing about the collapses as the result of the mill closing.

I sent him this article.

His response to me after this cannot be printed here as it violates MetaFilter's liberal language policies. The nicest thing he had to say was that when LePage gets to Hell, there's an increasing large number of wrought-iron spikes to go up the man's digestive tract backwards.

This situation is why politicians like cops who kill and get away with it. That way, when the people who are righteously angry come with the torches and the pitchforks and the nooses, the politicans can sit back and know they are safe due to their protectors.
posted by mephron at 10:46 AM on April 20, 2015 [3 favorites]


Come on Maine, do you have no adults in charge? Where was Governor LePage for all of this? You're just going to blame all these rotten out-of-staters that showed up and started writing their own bills? Oh dear, the poor legislators just didn't know any better--they've been so busy will all these other bills, and you know, that investment program is so hard to understand.

This is one of the downsides of term limits. It seriously limits the development and accumulation of institutional smarts. Essentially every legislator is a junior legislator because they don't get enough experience to become good at what they are doing.

It's a tough issue because you don't want to get corrupt dinosaurs like the Illinois state legislature who have had 25+ years of bullshit budgeting but then you end up with newbie legislatures who get obvious scams pulled on them by experienced con artists. States politics seems to be about deciding who and how you are screwed rather than whether you are screwed.
posted by srboisvert at 11:45 AM on April 20, 2015


How is this not fraud?
posted by foobaz at 11:46 AM on April 20, 2015 [2 favorites]


The one good thing about this is that this is good reporting.
posted by theora55 at 1:47 PM on April 20, 2015 [1 favorite]


This is one of the downsides of term limits. It seriously limits the development and accumulation of institutional smarts. Essentially every legislator is a junior legislator because they don't get enough experience to become good at what they are doing.

Well, I'm against term limits, but it isn't quite this bad -- term limits apply only to one chamber, and aren't for a lifetime. After your time in the House is up, you can switch to the Senate, and then you can switch back to the House, etc., for as long as you can get elected.
posted by JanetLand at 2:56 PM on April 20, 2015


srboisvert: "Given that they wrote the legislation that they then used to get the money it isn't 'rigged' so much as it is just naked out there cash transfer. It's as if the fox designed and built the hen house."

Or, as I put it on a bumpersticker shortly after the crash -- "American Capitalism: Crackheads ruling the Crackhouse"
posted by symbioid at 4:24 PM on April 20, 2015


I'd like to take a moment to reiterate my call for the death penalty to be extended to corruption.

I first misread this as "...extended to corporations." I think that would be a great idea. If Goldman Sachs were to forfeit its existence and all its wealth transferred to the people for large enough crimes, it would change the calculus of legal-line-treading decisions and make the out-and-out fraud a thing of the past.
posted by Mental Wimp at 10:11 AM on April 21, 2015 [2 favorites]


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