Extending Bath Iron Works Tax Deal Would Ignore State Consultant’s Review

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As some Maine lawmakers and defense contractor General Dynamics see it, the state needs to continue its Shipbuilding Facility Credit, due to expire this year, if it wants to maintain the competitiveness of subsidiary Bath Iron Works and a crucial part of the state’s economy.

But, if Maine were to keep the multi million-dollar-a-year program going without first making substantial revisions to what some call an obvious sweetheart deal, it would be going against the advice of the very consulting firm it hired to evaluate its tax incentive programs.

In its January 2016 comprehensive evaluation on behalf of the Maine Department of Economic & Community Development, Investment Consulting Associates recommends the following course of action be taken on the tax credit, which was tailored in 1997 to specifically benefit the Bath shipyard:

“Eliminate Program or significantly alter it so that it applies to a broad selection of Maine’s shipbuilding community.”

Page 68 of the report goes on to point out that the credit “only applies to very large shipbuilding facilities with more than 5,000 employees…[that] make more than [a] $200,000,000 investment.”

The 2016 recommendations are consistent with suggestions previously made by the consulting firm, which provides analysis biennially to the state.

In a 2014 report, analysts suggested state officials eliminate the shipbuilding facility credit, and modify their economic development strategy to focus more on helping a wider range of businesses.

“[P]rovide a series of programs that are available more broadly and which may be utilized by companies who are looking to start up, grow, or locate in Maine, regardless of industry or technology sector,” the report advised.

The state has previously thanked Investment Consulting Associates for the “depth and complexity” of its findings, which have been presented to the governor and legislature. The consulting firm reaches its conclusions through analyzing data, reports, and interviews with policy makers, business officials, and administrators.

The original Bath Iron Works tax deal, worth $60-million, was signed into law under then Gov. Angus King as part of a nearly $200-million subsidy package from the state of Maine and the city of Bath, designed to help finance a shipyard “modernization” General Dynamics said would help keep its operations viable for decades to come.

Bath Iron Works, which designs and builds Arleigh Burke-class guided missile destroyers and other ships for the U.S. Navy and commercial clients, now says it needs the credit continued, because it has “never operated in a more competitive environment for new ships” than it does today, according to a November 2017 press release quoted in the Bangor Daily News.

General Dynamics is among the nation’s largest defense contractors, with divisions that build battle tanks, nuclear submarines, and Gulfstream aircraft, and provide information and technology services to government and corporate clients.

Its most recent annual report shows the Falls Church, Va.-based company was valued at $52.6-billion at the end of 2016.

That same year, the company’s CEO, Phebe N. Novakovic, and four highest paid executives—John P. Casey, Mark C. Roualet, S. Daniel Johnson, and Jason W. Aiken—pulled in a combined $47.8-million in take home pay, according to data provided by the UMass Lowell Center for Industrial Competitiveness.

Maine state Rep. Jennifer DeChant (D-Bath) has submitted legislation on a new tax deal for Bath Iron Works. When asked by email about the recommendations laid out by Investment Consulting Associates, DeChant did not respond directly.

“The bill will have an LD [searchable identification number] shortly so it will be easier for you to follow directly,” she wrote.

In November, DeChant told The Times Record of Brunswick that potential modifications to the original deal had “yet to be determined.”

Under the existing shipbuilding tax credit, Bath Iron Works has effectively been allowed to annually keep up to $3-million in income taxes withheld from employees that would otherwise go to the state tax assessor.

Similar programs have been implemented in a number of states, including Connecticut, Kentucky, Georgia, Colorado, and Ohio, leading some economic development analysts to dub the approach “paying taxes to the boss.”

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