Payday at the mill: How financiers used a Maine investment program they devised to wring millions of dollars in risk-free returns at taxpayer expense

[Slimprofits]

http://www.pressherald.com/2015/04/1...y-at-the-mill/

BY WHIT RICHARDSON STAFF WRITER
Posted April 19
Updated April 23


First of two parts

Sometime this year, the state of Maine will cut two checks worth a total of $2.8 million and mail them to out-of-state investors. Next year, it will send two more checks, worth $3.2 million, to the same recipients. It will repeat that process for the next three years until roughly $16 million of taxpayer money has been withdrawn from Maine’s General Fund.

This payout of taxpayer dollars through 2019 will make whole a commitment the state made in December 2012 to encourage what was – on paper – touted as a $40 million investment in the resurgence of the Great Northern Paper mill in East Millinocket.

But the resurgence failed. A year after the investment was received, the mill’s owner, private equity firm Cate Street Capital of Portsmouth, New Hampshire, shuttered the mill and laid off more than 200 people. Great Northern filed for bankruptcy a few months later with more than $20 million in unpaid bills owed to local businesses, leaving many to wonder what happened to that $40 million investment that was supposed to save the mill.

The reality is most of that $40 million was a mirage.

Great Northern was the first to take advantage of a relatively new, and complex, state program called the Maine New Markets Capital Investment program, which provides tax credits to investors who back businesses in low-income communities. Tax credits can be used to reduce the amount of Maine income tax they owe. The tax credits are worth 39 percent of the total investment, so the investors in Great Northern received approximately $16 million in tax credits from the deal, which they could redeem over seven years.

But the program, which faced little debate when the Legislature created it in 2011, lacks accountability. After spending five months examining the Great Northern deal, including documents obtained through a Freedom of Access Act request, the Maine Sunday Telegram found that:

• By using a device known as a one-day loan, the deal’s brokers artificially inflated the value of the investment in order to return the largest amount of Maine taxpayer dollars to the investors.

• The investment was $40 million only on paper. Most of the investment was an illusion, in which one Cate Street subsidiary used roughly $31.8 million of the investment to buy the mill’s paper machines and equipment from another Cate Street subsidiary, after which that $31.8 million was returned to the original lenders the same day.

• That means taxpayers will provide $16 million to the investors while Cate Street received only $8.2 million, most of which it used to reduce existing debt.

• The out-of-state financial firms that acted as middlemen in the deal, pocketing roughly $2 million in origination and brokerage fees, were the same ones that hired the lawyers and lobbyists who helped create Maine’s program.

• Two of those financial firms made a combined $16,000 in campaign contributions to the original sponsors of the bill.

• None of the money was invested in the mill, despite the intent of the program.

• Legislators and other decision makers in Augusta didn’t understand the complexities of the program when they approved it in 2011.

cont... http://www.pressherald.com/2015/04/1...y-at-the-mill/

part II: http://www.pressherald.com/2015/04/2...axpayers-dime/

related:

http://www.pressherald.com/interacti...contributions/
http://www.pressherald.com/2015/04/2...ng-tax-breaks/
http://www.pressherald.com/2015/04/2...nder-scrutiny/

[dcarrigg]

Re: Payday at the mill: How financiers used a Maine investment program they devised to wring millions of dollars in risk-free returns at taxpayer expe

Whit Richardson should win a prize for this. It gave me chills and flashbacks to a time when we used to have local investigative journalism that was worth a damn. Amazing story. Absolutely amazing. Thanks for bringing it to my attention!

[BK]

Re: Payday at the mill- the rise of non-profit (politically connected) banks

My favorite topic because it brings attention a trend in the explosion of non-profit politically connected banks called CDFIs or Community Development Finance Institutions. These CDFIs are banks that have the ability to dole out New Market Tax Credits from the US Treasury and now state "Tax Credits'.

Many of the large Banks have started CDFI groups in order to capture this lucrative trade.

Lets take a quick look at Coastal Enterprises, Inc, a CDFI, and how it helped Great Northern.

First thing to understand is the CDFI business is very profitable for the hacks who run these Banks.

http://www.ceimaine.org/wp-content/u...Excellence.pdf

Lots of tax credits and investment money is being mis-allocated thanks to the boom in CDFis and New Market Tax Credits.

I wrote about the CDFI and New market real estate boom in Boston almost three years ago.
read here: http://www.itulip.com/forums/showthr...771#post236771

[BK]

Re: Payday at the mill- financial mechanics of New Market Tax Credits

Here is how the New Market Tax Credits work...specifically talks about CEI )- Coastal Enterprise Inc - the organization involved in saving/or not saving the Paper Mill. Meanwhile Ron Phillips CEO is getting $120,000 year from CEI and then lots of more compensation from CEI for profit subsidiaries and Funds.



https://www.google.com/url?sa=t&rct=...EmnqIeBByHHqdA

Building Blocks 2004
Carol Wayman
Introduction
Coastal Enterprises Inc. (CEI) and Bethel New Life were two of 66 organizations awarded $2.5 billion from the first round of New Markets Tax Credits (NMTC) in the Spring of 2003.1 Ron Phillips, President of*CEI and Mary Nelson, President of Bethel New Life were part of the original advocacy group that met with Michael Barr, an official in the Department of Treasury in the Clinton Administration in 1998. At the meeting, Barr proposed expanding a pilot national credit program by proposing a multi-billion dollar tax credit to Congress to encourage private sector investments to support community development financial institutions. “After we left the meeting, “I asked Mary, he did say billions right?” said Phillips. Five years earlier,*Nelson and Phillips had each won $2 million in tax credits through the pilot program to encourage private sector investments in nonprofit community development corporations working in low-income area.[2]
Over a 7 year period NMTC will provide $15 billion for community economic development investments. For example, the NMTC will enable CEI to provide a $30 million below market loan to a paper mill in Northern Maine. This loan from CEI, a community development financial institution (CDFI) and community development corporation (CDC), will help sustain the mill’s operations, preserving 400 jobs for its forestry-dependent community. The NMTC will allow Bethel New Life, a faith-based CDC, to provide equity investments to its franchise tenants to help them obtain bank financing for a commercial retail development in the Garfield neighborhood in West Chicago.
What is NMTC and how does it work?
The NMTC is a federal tax credit designed to encourage investors to provide long-term capital to community economic development activities in distressed areas. The NMTC provides $15 billion of eligible investment credits over seven years to certified community development entities (CDEs), which "trade" those credits for equity from private investors. In return for acquiring an ownership investment in the CDE or an eligible community development activity , the investor is allocated tax credits over a seven-year period equal to 5 percent of his/her equity investment for each of the first three years and 6 percent per year thereafter. The total credits equal 39 percent of the investment.

The NMTC is expected to be the largest new source of subsidy for community development activities in this decade. “Traditional grant money has been increasingly harder to access; the NMTC is a “new door of opportunity” for community development corporations and financial institutions,” observed Anna Ginn formerly of CEI3.

NMTC equity investments and/or loans benefit businesses by enabling them to obtain flexible debt or capital that otherwise may not be available in the marketplace. CDEs have to invest these funds in businesses and business developments in low-income census tracts for seven years and then return the funds to the investors. (Figure 1) The Community Development Financial Institutions Fund (CDFI Fund) manages most components of the NMTC: It certifies CDEs, allocates the credits and monitors compliance with program regulations. In addition, the Internal Revenue Service is involved in defining many of the tax requirements of the program.
...................... see link above for lots of detail......

[gwynedd1]

Re: Payday at the mill- financial mechanics of New Market Tax Credits

Rarely do I ever see an example of the worst kind of bad government coming on its own. There is always a private swindler sponsoring it in the worst cases. That is why I laugh histerically at the my of efficiency of privatization when it comes to government contracting. There is no such thing of what we know as private when it comes to public money.

[don]

Re: Payday at the mill- financial mechanics of New Market Tax Credits

Rarely do I ever see an example of the worst kind of bad government coming on its own. There is always a private swindler sponsoring it in the worst cases. That is why I laugh histerically at the my of efficiency of privatization when it comes to government contracting. There is no such thing of what we know as private when it comes to public money.

Privately looting the public coffers is more often than not the "secret" of great wealth.