Playing Doctor
7 Emergency Cures for Maine's Economic Ills
By Jeff Clark
By just about every measure, in just about every survey both inside and outside the state, Maine lands at or near the bottom of the pack when it comes to the state's attractiveness to new business or expansion of existing businesses.Com plaining about Maine's business climate is a statewide sport that knows no season.With that in mind, we've asked some experts on the Maine economy for their thoughts about the state's seven worst business afflictions and have proposed some possible cures for the problems that ail us.
1 Tax Trauma
Diagnosis: The first thing a business that is expanding or relocating does is weed out the places it doesn't want to go. "The most common filter is if you are higher than twenty-fifth in the United States in taxes, you're eliminated," says Matt Jacobson, president and CEO of Maine & Company, a privately funded agency that works to bring new jobs to Maine. Maine has one of the highest tax burdens as a percentage of per capita income in the United States. "We're seeing just 2 or 3 percent of the available opportunities because of our tax burden," Jacobson points out.
Everyone agrees that tax reform is needed, but no one agrees on how to do it or whose sacred cow should be slaughtered along the way. "Eliminating the Business Equipment Tax was huge," notes Charles L. "Wick" Johnson III, president and owner of Kennebec Tool and Die in Augusta and chair of the University of Maine System board of trustees. "It's important to anyone in a capital-intensive business like ours because new investment means jobs."
"The problem is that we only look at tax reform piece by piece, and each piece has its own special interest group to attack any change," explains Laurie Lachance, former Maine state economist and now president of the Maine Development Foundation. "We have to look at the complete picture, so the various interests can say, 'Okay, I may lose this, but I'll gain that.' " Among the many pieces on any tax reform table would be revising the highly regressive state income tax, broadening the sales tax, and revising or even eliminating various business taxes.
"There are three ways to cut taxes," Lachance adds. "First, you can cut programs and expenditures. That requires tough choices. K-12 education and health and human services make up two-thirds of the state budget, for example. If you want to make significant reductions, you have to swallow hard in those areas. Second, you can deliver services in a more efficient manner -- consolidate services, upgrade regional systems, find less expensive ways of doing things. And third, you increase income. That's an extremely important piece of the puzzle. We have to invest in education, research and development, telecommunications infrastructure, and the basic public services companies want -- good schools, safe highways. If we slash taxes without investing in those things, we're just cutting off our nose to spite our face."
Johnson adds that Mainers shouldn't be shy about taxing tourists more, as the recent and much-heralded Brookings Institution report suggests. "People come here because they perceive a value in being here," he offers, "and we feel guilty for charging them for it. Maine doesn't apologize for taxing Maine residents. Why do we apologize for taxing tourists?"
Our Prescription: Congress eliminated much of the infighting over closing military installations by creating independent base-closure commissions that compile all-or-nothing lists, insulating individual representatives and senators from special-interest pressures. The Maine legislature should create, by law, an independent commission based on the federal model, led by someone outside the political arena, and charged with drawing up comprehensive tax reform legislation that would face a straight up-or-down vote without amendments -- preferably backed by a commitment from both parties to leave the measure unchanged for at least two years after implementation.
2 Circulatory Problems
Diagnosis: It may be the best-kept transportation secret in Maine -- Houlton has an airport, a good one, and every year at least a hundred private corporate jets stop there to refuel before making the transatlantic jump to Europe. Matt Jacobson is working with the city to make it five hundred. Along the way he wants to persuade the corporate executives inside the aircraft to get out, look around, and perhaps visit the Smith & Wesson factory next door, which happens to be the most efficient operation S&W has.Us ing transportation infrastructure to show off the state's selling points can improve Maine's business, he says.
Right now, those assets are vastly underutilized. "When it comes to moving people to the big markets -- Montreal, Boston, New York -- we're awful, absolutely awful," insists Jacobson. "How about running one of those little passenger jets -- six, eight passengers -- three times a day from Presque Isle to Bangor to Auburn to those big markets? That connects us to where the money is."
That dead end extends to Maine's highways as well. "Our roads and bridges are in desperate need of investment," declares Lachance. Unfortunately, rising energy prices and budget deficits forced the Maine Department of Transportation to postpone or cancel $130 million in road projects in the past two years.
Auburn's intermodal facility was built by a partnership of the St. Lawrence & Atlantic Railroad, the city, and the state as a combined rail, air, and road center. It was a major factor in Wal-Mart's decision to locate a distribution center nearby, and Jacobson hopes other large retailers, such as T.J. Maxx and Reebok, will move their distribution centers from expensive sites around Boston to the state-of-the-art transportation center.
"If you're standing in that facility today, you're also standing in Shanghai and Singapore," says Jacobson. "If I could fix one thing about Maine, it's this notion of being connected. Our future is no longer connected to natural resources, it's being connected to the rest of the world. It's moving people, goods, and data to Montreal and Beijing."
Our Prescription: Fish or cut bait on the East-West Highway and the I-95 extension to the St. John Valley, expand passenger rail service to Bangor, set up Jacobson's mini-jet service, and institute a multi-year plan to catch up with needed transportation infrastructure repairs and renovations.
3 Skilled Labor Deficiency
Diagnosis: "The fact that Associated General Contractors of Maine has had to spend hundreds of thousands of dollars on television ads to show youngsters that it's cool to work in the construction industry shows that a want ad in the newspaper isn't working anymore," says Charles Lawton, an economist with Planning Decisions, Inc., in South Portland. Maine's economy is being damaged by a shortage of skilled workers in several areas, from construction to health care to computers.
The state's schools are scrambling to meet specific needs. For example, Kennebec Valley Community College in Fairfield has tailored several of its programs specifically toward the health-care field, one of the fastest-growing industries in Maine. Husson College in Bangor has recently announced plans to create a school of pharmacy. The Hutchinson Center in Belfast, a branch of the University of Maine, recently established a new nursing program in cooperation with Waldo County General Hospital and the University of Maine at Augusta.
Enrollment in Maine's community colleges has increased 48 percent, to 11,100 students, in the four years since the state created them out of the former vocational-technical college system.
But Lachance cautions that the community college system "is priced much higher than it needs to be. There's not enough infrastructure, and people are waiting to get in. We've strangled the system. If we gave it the appropriate resources, it would go a long way toward resolving our needs."
Our Prescription: Maine's higher education system and private businesses should work together to create advertising campaigns and training programs to draw more students into growing career fields. The legislature should increase funding for post-high school education well above the rate of inflation and support bond issues for capital improvements conditioned on substantial reductions in administrative and overhead expenses.
4 Stunted Telecommunications
Growth
Diagnosis: Maine used to be considered pretty good at moving data. "For much of the 1990s we were known as being on the cutting edge of telecommunication," Lachance recalls. "We put in Internet access in all our schools and libraries. We spread it to areas that wouldn't have it otherwise. We instituted the laptop program in the schools."
But the expansion has stalled, especially in the critical area of high-speed Internet access. "The cost of going from the [networking] node on Main Street in Skowhegan to everyone's house out in Somerset County is prohibitive," she notes. "At some point we have to realize we've got to get this to everybody. Internet infrastructure is absolutely vital for Maine's future."
"Jackson Laboratory [in Bar Harbor] is having trouble getting enough bandwidth," notes Jacobson. "That should not be happening. Moving data into and out of Maine in the best way possible is a government infrastructure project. And cell phone coverage is awful in many places. Cell phones are not luxuries; they're productivity tools."
Governor John Baldacci has had some success in persuading cell phone companies to build new towers and improve their coverage with his Connect Maine program. Some communities, such as Union, have required their cable television provider to wire the entire town, rather than just the high-density areas, so that all residents will have access to broadband service. Brunswick has wireless Internet coverage for its entire downtown. But so far such efforts are local and spotty.
Our Prescription: Make installation of broadband Internet service a state government priority, financed, if necessary, with a fee on Internet service and encouraged with tax incentives and penalties for private providers who don't expand their coverage regions. Expand the laptop program to high schools. Continue to push cell phone companies to improve their coverage with new towers and technologies that are designed so as not to be blights on the landscape.
5 Health-Care Headaches
Diagnosis: Health care and health insurance costs affect every aspect of the state's business climate. By most measures, Mainers pay some of the highest health-insurance premiums in the country and has the highest percentage of its population on Medicaid. Health-care costs routinely clock double-digit annual increases. "Certainly a lot of businesses complain about health costs," notes Lawton. "To the extent that we're stuck within the existing system, where rates are high because of mandated coverage, there's not much that can be done."
The state's DirigoChoice program, passed amid much praise and hope in 2003, was designed to provide affordable health-insurance coverage for low-income Mainers and small businesses, as well as help bring health-care costs under control. Its results thus far can charitably be described as mixed.
"We're dealing with access to critical services and the cost to provide those services," Lachance muses. "If we really want to give that to everyone, some really hard decisions have to be made."
Change will require "confronting the fundamental issue of whether we want to keep funding universal coverage with everyone paying the same rate or if we separate out high-risk people into a different insurance pool," Lawton says, citing an oft-proposed solution similar to that used with high-risk drivers for car insurance. A high-risk pool, used in numerous other states, would require some type of subsidy to make it affordable.
Our Prescription: Health-care reform suffers from the tax-reform syndrome -- piecemeal attempts battered by special interests at every turn. The current system is broken, at every level. Pass legislation setting up an independent commission to start over, from the bottom, using best practices already proven in other states that lower costs and increase competition while protecting high-risk and low-income citizens.
6 Housing Sickness
Diagnosis: Visit Mount Desert Island or Damariscotta or York or even Jonesport, and the talk will be about how the folks who work in town can no longer afford to live there. Newcomers and retirees drive up prices, as do land-use regulations that mandate large minimum lot sizes and the expanded services that go with them. "This is really a municipal issue," observes Lawton, and one that can be addressed by revising local regulations (and local planning board biases) in areas such as housing density, mixed-use zoning, and redevelopment and rehabilitation of existing buildings. "Basically you need anything that will encourage redevelopment of downtown areas, traditional villages, old mills, anything that can stop a developer from saying, 'The heck with this. I'll buy a fifty-acre field outside town and put up fifty houses instead.' "
The Brookings Institution report offers similar advice: "Maine should make development easier in traditional towns and cities while doing much more to support and stimulate local and regional planning," the report explains. It suggests championing new statewide building and rehabilitation codes and urging towns to pass zoning ordinances designed to encourage development in traditional centers. It would also increase funding to existing revitalization and redevelopment programs and organizations.
Our Prescription: Change zoning and comprehensive planning documents to encourage denser residential and business development near existing community centers rather than strung out along major highways. Increase density rules to allow true neighborhoods to develop rather than two-acre mini-kingdom lots. Allow mixed uses in downtowns -- more apartments on upper floors along Main Street, building rehabs that combine retail, office, and light industry, etc.
7 Pessimism Syndrome
Diagnosis: Back in 1970, right out of college, Wick Johnson taught school in Bethel, and he recalls a rural delivery mailman named Parker Allen whose advice on every bit of good news was: "When things get good in Maine, that's the time to batten down the hatches." That ingrained pessimism has carried down through the decades, and most recently popped up in the Brookings Institution study. "In sum," the report says, "a state with much promise seems stuck: surprisingly pessimistic about its future, aware that great change is upon it but fearful that it isn't adapting as well as it needs to."
"There's a definite element of keeping everything just the way it is, avoiding change at all cost," notes Lawton. "There's a conflict between the people who say, 'I retired here and don't want anything to change' and the guy who wants to expand his boat-building shop on the waterfront."
"I think we need a twelve-step program for the entire state," declares Jacobson. "We're afraid of thinking big. We've got 202 cruise ships visiting here. Why isn't Maine the world's leader in renovating and rehabbing cruise ships in the off season? Why don't we offer incentives to make that happen? We've got to be willing to step up with the infrastructure.
"There are so many things we could be leaders in. When I'm talking to people in Maine about possibilities, the hardest part for me is getting them out of the potholes and thinking about making choices and seizing opportunities. The towns and cities that get that will do well," he predicts. "Those that want to stay isolated will have plenty of opportunities for that, too."
Our Prescription: It might seem counterintuitive, but history can also be a useful antidote to pessimism. In 1984 and 1985 Virginia Gibson, then an associate professor at the University of Maine, polled some four hundred business executives about the state's business climate. Taxes, utility expenses, and transportation were all cited as major problems, as was government's unhelpful attitude toward business. But the number one complaint at that time was workers' compensation costs, which had risen so high that some industries worried it would ruin them. "Today I would expect that a similar survey would put workers' comp way down the list, because in the years since we've changed some laws and regulations," Gibson says. "That should give us confidence that things can be fixed if we make the decision to fix them."
We recommend Mainers heed her words. It might seem like a New Age cure, but a little positive thinking might be just what the doctor ordered.
