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Big Money, Redistributed Wealth and Legal Opacity Make For Happy Bed Fellows!



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Section 2 of the Home Rule Amendment ( Construction of Buildings for Industrial Use), was added to the constitution as section 8-A of Article IX in 1962

Home Rule Section 2.  Construction of buildings for industrial use.  For the purposes of fostering, encouraging and assisting the physical location, settlement and resettlement of industrial and manufacturing enterprises within the physical boundaries of any municipality, the registered voters of that municipality may, by majority vote, authorize the issuance of notes or bonds in the name of the municipality for the purpose of purchasing land and interests therein or constructing buildings for industrial use, to be leased or sold by the municipality to any responsible industrial firm or corporation.

It was relocated under the 1973 codification. According to Marshall J Tinkle :


This provision was added to the constitution as section 8A of Article IX in 1962 ( Amend.LXXXVII ) and was relocated under the 1973 codification. Its original placement highlighted the intent to restrict the scope of Article IX, section 8, which mandates that all taxes be apportioned and assesed equally. If general obligation bonds were used so that a particular industry got back tax revenue in the form of aid, this could be equivalent to an unequal tax rate and hence in derrogation of section 8. The Maine Constitution: A Reference manual  ( emphasis mine)

Article IX Section 8  Taxation.
  All taxes upon real and personal estate, assessed by authority of this State, shall be apportioned and assessed equally according to the just value thereof.

Tinkle goes on to say that a second reason was that  previous legislation authorizing municipalities to issue bonds for private industrialization was declared unconstitutional because it was not for a public use.


 "As noted in the literature, the amendment ( Home Rule , Section 2 ) makes it clear that general obligations may now be used to assist private industry for certain purposes" .....this section applies only to general obligations of municipalities and not to forms of financing that do not create municipal debt or liability"Marshall J Tinkle:The Maine Constitution: A Reference manual 
( emphasis mine)

In Article IX ( General Provisions) Section 14 , the constitution restricts the legislature's ability to incur dept.1848

The Legislature shall not create any debt or debts, liability or liabilities, on behalf of the State, which shall singly, or in the aggregate, with previous debts and liabilities hereafter incurred at any one time, exceed $2,000,000.
note: 1848-limit at $300,00.00 1913 limit increased to 2 million 
In 1983, four years after the legislature chartered the Maine Development Foundation, the Justices of the Court, in another inexplicable opinion,  altered the plain spoken meaning of the constitution by reductivly redefining the meaning of the words " any debt or debts, liability or liabilities," :


In Common Cause v. State (455 A.2d 1, 27-29 [ME 1983]) The Law Court held that the credit clause was intended to proscribe suretyship or loan guaranty arrangements, rather than to affect the ability of the state itself to contract debt. Therefore, if the state issues bonds to cover its direct obligations, and not to further surety relationships with a private business, it does not constitute a loan of state credit within this clause"
Quoted from
Marshall J Tinkle in The Maine Constitution, A reference manual:

The constitution uses the word "liability". The Justices added limitations to  any debt or debts, liability or liabilities, which do not exist within the constitution  If it was the constitutional intent to establish dept limitations only in regards to "surety relationships" or "loan guaranty arrangements", then those words should have been clearly stated in the Amendment when it was presented for a public vote. (note added Sept 6 2013 According to Marshall J Tinkle's , The Maine Constitution, A Reference Manual, pg 144, there was Amendment LXVII  in 1950, permitting state to issue bonds for any legitimate purpose- I haven't located court document above -the link goes to a law review article, which looks interesting to read, but as of this writing , I haven't. I can only assume at this point, the phase "credit clause" is intended to reference Amendment LXVII. I haven't located the  Amendment on this list as of yet - however,the above paragraph, still holds true if the amendment merely states that bonds are unrestricted by a cap- bonds being subject to a public vote. Dec 13 2015 : I still have not been able to locate teh amendmentThere are no Amendments for 1950 located on Ballotomedias list. There is this Amendment for 1951,but I do not  )

In 2013 the recently passed  "LD743 An Act to Extend And Improve The Seed Capital Tax Credit " the official fiscal note puts the amount of wealth that will be transferred from the taxpayer to private capitalists at $2,200,000.00. This exceeds the constitutional limit for any debt or debts, liability or liabilities.

Fiscal Note for the Maine Seed Capital Tax Credit
"Amending the Maine Seed Capital Tax Credit Program as proposed in this legislation would reduce General Fund revenue by approximately $455,000 in FY 2013-14, $1,300,000 in FY 2014-15 and $2,200,000 in FY 2015-16. Municipal Revenue Sharing would experience a slight reduction as well. Additional administrative costs incurred by Maine Revenue Services can be absorbed with in existing budgeted resources." 
The hind-site of the Lepage budget proposal of 2015, which proposed to do away with municipal revenue sharing sheds a new strategic light on the fiscal note for the Expanded and Improved Seed Capital Tax Credit of 2013 passed with unanimous support by our Maine legislature. The bill did not receive Governor LePages signature because he said it was not "impactful enough" , a statement enlightened upon by reading LePages failed 2014 An Act To Improve Maine's Ability To Attract Major Private Investments which sought to expand PTZ styled corporate benefits to big businesses employing 1500 or more. The Expanded and Improved Seed Capital Tax Credit includes some limitations which would prevent it from being used for the big business for which the LePage's  "Jobs Bill" proposed to extend Pine Tree Zone styled corporate welfare.

The original Seed Capital Tax Credit was passed by the legislature in 1987, just six short years after the Justices ruled that suretyships are the one type of dept or liability that the constitution intended to prohibit.


SURETY, contracts. A person who binds himself for the payment of a sum of money or for the performance of something else, for another, who is already bound for the same. A surety differs from a guarantor, and the latter cannot be sued until after a suit against the principal. 10 Watts, 258. http://legal-dictionary.thefreedictionary.com/suretyships


Did the legislature forget its oath of office- or did they realize that under strict legal interpretation the Seed Capital Tax Credit is not a surety relationship as according to the following legal definition , If a Person undertakes as a surety when he knows the obligation, of the principal is void, he becomes a principal:

   2. The person undertaken for must be liable as well as the person giving the promise, for otherwise the promise would be a principal and not a collateral agreement, and the prommissor would be liable in the first instance; for example, a married woman would not be liable upon her contract, and the person who should become surety for her that she would perform it would be responsible as a principal and not as a surety. Pitm. on P. & S. 13; Burge on Sur. 6; Poth. Ob. n. 306. If a Person undertakes as a surety when he knows the obligation, of the principal is void, he becomes a principal: 2 Id. Raym. 1066; 1 Burr. 373.

This 1977 law provides a blanket tax exemption to investment companies investing in Maine small businesses. The Seed Capital Tax Credit extended to investors in Maine small businesses is a "refundable tax credit" meaning that if no taxes are owed the taxpayer is obligated to deliver a cash payment to the investor  in the designated amount (up to 60% of the investment made)
The Person in the Seed Capital Tax Credit Program is the Maine State taxpayer who have been made the holders of the obligation by their own legal representatives. Since the legislature are representatives of the people, they are representing the Person who holds surety responsibility but the legislature should know that the obligation of the percentage of the principal promised by the taxpayer as a refund on taxes owed by the investor is void. And so the Seed Capital Tax Credit becomes not a surety ship but an agreement with a principal - the Maine taxpayer- in which the agreement is that the Person owing the principal to the investor takes on a debt in which there is nothing material offered in return. The only thing offered is rhetoric about creating jobs, but as the 2012 research done by Pine Tree Watch Dog concluded, it has never been established that tax incentive programs create jobs which would not otherwise have been created :


Tax break deals studied … and studied, but questions remain unresolved
 The Expanded and Improved Seed Capital Tax Credit of 2013 is sold in the media to the public as a "tax credit" giving the appearance that the refund due to the investor is deducted from money owed to the public by the investor, when in fact this 1977 law and/or the Pine Tree Zone tax incentives have already assured the investor that he will not owe taxes. This assures to the investor that the public is the principal obligated to pay a debt to the investor. 1977 was the same year that The Maine Development Foundation (Corporation) was chartered 



NOTICE :I am not a lawyer and am writing only my layman's opinion . Below are sources of my investigation of what the "Seed Capital Tax Credit" really means . You decide !


§5216-B. Seed capital investment tax credit.  An investor is entitled to a credit against the tax otherwise due under this Part equal to the amount of the tax credit certificate issued by the Finance Authority of Maine in accordance with Title 10, section 1100-T and as limited by this section. Except with respect to tax credit certificates issued under Title 10, section 1100-T, subsection 2-C, in the case of partnerships, limited liability companies, S corporations, nontaxable trusts and any other entities that are treated as flow-through entities for tax purposes under the Code, the individual partners, members, stockholders, beneficiaries or equity owners of such entities must be treated as the investors under this section and are allowed a credit against the tax otherwise due from them under this Part in proportion to their respective interests in those partnerships, limited liability companies, S corporations, trusts or other flow-through entities. Except as limited or authorized by subsection 3 or 4, 25% of the credit must be taken in the taxable year in which the investment is made and 25% per year must be taken in each of the next 3 taxable years. With respect to tax credit certificates issued under Title 10, section 1100-T, subsection 2-C, the credits are fully refundable and the investor may file a return requesting a refund for an investment for which it has received a tax credit certificate on or after January 1st of the calendar year after the calendar year in which the investment was made.
2013, c. 438, §6 (AMD) .] (emphasis mine)

  Commentary  It appears to me that the two phrases above-a credit against "the tax otherwise due: and "The credits are fully refundable" actually contradict each other with the legal definition of a refundable tax credit meaning "they can reduce your tax liability below zero and allow you to receive a tax refund." but a tax liability below zero is not otherwise due !  This seems as if written to reinforce a delusion perpetuated upon the taxpayers- the delusion being that taxes are otherwise due. Most laypersons do not examine in detail what statutes are actually saying- the phrase "other wise due" is placed at the top of the paragraph and the notice that the tax credit is fully refundable placed at the very bottom of the paragraph!


An Act To Extend and Improve the Maine Seed Capital Tax Credit Program Private venture capital fund. As used in this section, "private venture capital fund" means a professionally managed pool of capital organized for a limited life to make equity or equity-like investments in unrelated private companies using capital derived from multiple limited partners or members at least half of which, measured in dollar commitments, are unaffiliated and unrelated, and includes any venture capital fund licensed by the United States Small Business Administration. The authority may require such information as may be necessary or desirable for determining whether an entity qualifies as a private venture capital fund. An entity that otherwise qualifies as a private venture capital fund may elect not to be treated as a private venture capital fund for purposes of this section with respect to any proposed investment.   (emphasis mine)
Commentary  To my humble layperson's reading the highlighted sentence takes non- transparency and pure gobbledygook to levels never before scaled - How many layers and cross references does one have to unpeel to get to the bottom of why such a statement is written into a statute?


This description of  Principal and Surety states it with further clarity:


The principal is the debtor—the person who is obligated to a creditor. The surety is the accommodation party—a third person who becomes responsible for the payment of the obligation if the principal is unable to pay or perform. The principal remains primarily liable, whereas the surety is secondarily liable. The creditor—the person to whom the obligation is owed—can enforce payment or performance by the principal or by the surety if the principal defaults. The creditor must always first seek payment from the principal before approaching the surety. If the surety must fulfill the obligation, then he can seek recovery from the principal after satisfying the creditor. An example of a principal and surety relationship occurs when a minor purchases a car on credit and has a parent act as a surety to guarantee payment of the car loan The Free Legal Dictionary

The Seed Capital Tax Credit gets paid to the Investor without reservation. The Investor may be making a large profit on his investment but he is still due, in addition to what ever profits he realizes, a refund from the taxpayers. The taxpayers are principals in regards to indebtedness - not in a surety relationship- and the capitalist receiving the Seed Capital Tax Credit is the creditor.

Unfortunately Maine has a long history of activist judges. The people vote an amendment in and the judicial system rewrites it after the fact.


Here is the whole of Article IX - general Provisions Section 14 (1848-limit at $300,00 1913 limit increased to 2 million 1950, Amendment LXVII permitted state to issue bonds for any legitimate purpose, according to The Maine State Constitution, A Reference Manual, by Marshall J Tinkle )
Authority and procedure for issuance of bonds. The credit of the State shall not be directly or indirectly loaned in any case, except as provided in sections 14-A, 14-B, 14-C and 14-D. The Legislature shall not create any debt or debts, liability or liabilities, on behalf of the State, which shall singly, or in the aggregate, with previous debts and liabilities hereafter incurred at any one time, exceed $2,000,000, except to suppress insurrection, to repel invasion, or for purposes of war, and except for temporary loans to be paid out of money raised by taxation during the fiscal year in which they are made, and except for loans to be repaid within 12 months with federal transportation funds in amounts not to exceed 50% of transportation funds appropriated by the Federal Government in the prior federal fiscal year; and excepting also that whenever 2/3 of both Houses shall deem it necessary, by proper enactment ratified by a majority of the electors voting thereon at a general or special election, the Legislature may authorize the issuance of bonds on behalf of the State at such times and in such amounts and for such purposes as approved by such action; but this shall not be construed to refer to any money that has been, or may be deposited with this State by the Government of the United States, or to any fund which the State shall hold in trust for any Indian tribe. Whenever ratification by the electors is essential to the validity of bonds to be issued on behalf of the State, the question submitted to the electors shall be accompanied by a statement setting forth the total amount of bonds of the State outstanding and unpaid, the total amount of bonds of the State authorized and unissued, and the total amount of bonds of the State contemplated to be issued if the enactment submitted to the electors be ratified. For any bond authorization requiring ratification of the electors pursuant to this section, if any bonds have not been issued within 5 years of the date of ratification, then those bonds may not be issued after that date. Within 2 years after expiration of that 5-year period, the Legislature may extend, by a majority vote, the 5-year period for an additional 5 years or may deauthorize the bonds. If the Legislature fails to take action within those 2 years, the bond issue shall be considered to be deauthorized and no further bonds may be issued. For any bond authorization in existence on November 6, 1984, and for which the 5-year period following ratification has expired, no further bonds may be issued unless the Legislature, by November 6, 1986, reauthorizes those bonds by a majority vote, for an additional 5-year period, failing which all bonds unissued under those authorizations shall be considered to be deauthorized. Temporary loans to be paid out of moneys raised by taxation during any fiscal year shall not exceed in the aggregate during the fiscal year in question an amount greater than 10% of all the moneys appropriated, authorized and allocated by the Legislature from undedicated revenues to the General Fund and dedicated revenues to the Highway Fund for that fiscal year, exclusive of proceeds or expenditures from the sale of bonds, or greater than 1% of the total valuation of the State of Maine, whichever is the lesser.
In 2013 the legislature passed a statute repugnant to this section of the Maine Constitution which removes the requirement that fiscal information accompany the bond questions on the ballot and instructs that said information will be placed "outside the guardrail" which means "outside the voting area".

The representatives of the tax payers have written the taxpayers a bum deal and called it an "improvement" ! In the case of the Seed Capital Tax Credit, the window remains open, at the date of posting (2013), for the taxpayers to void the agreement, but that seems unlikely as the taxpayers are largely in the dark about what is going on and intentionally so as the next section of this post demonstrates:




Intentional Opacity Designed into Maine's "Three Legged Financial Stool"


 

According to  MaineBiz - the three legs of Maine's "financial stool" are

There should actually be at least a fourth leg and fifth legs to the stool which are The Pine Tree Zone (tax exemption package) The University Of  Maine Advanced Manufacturing Center - joined at the hip to MTI, but that's for another post.

Realizing that the key to understanding the relationship between the three legs of the financial stool lies in the records of payments made via the Seed Capital Tax Credit Program, I sent the following Freedom Of Access Request to the head of Financial and Administrative Services.
To: david.heidrich@maine.gov

Subject: FOAA Request - DAFS

Dear Mr Heidrich,

This is an updated version of a Freedom of Access request for records pertaining to the Seed Capital Tax Credit program which sho
  1. Recipients, name, company and address
  2. The amount of the tax credit that the recipient was awarded
  3. The amount of tax credit the recipient was paid
  4. The percentage of the tax credit that the recipients received.
  5. The exact date that the recipient was awarded the tax credit.
  6. The period of time it took to receive the total due the recipient-
  7. And/Or if the recipient did not receive the total promised , then the amount that the recipient received before the time limit expired.
  8. The amount paid on refundable tax credits when no tax was owed and to whom those amounts were paid.

A complete list going back to the origins on the Tax Seed Credit Program is preferred.
A minimum time period inclusive of the last ten years is acceptable.

The preferred format is an Excel sheet  or other format that can be imported into a searchable data base .

Thank you for taking your time and effort to satisfy this request.

This is the response I received:


Dear Ms. Andersen:


This email is in response to your recent request under the Maine Freedom of Access Act (FOAA) for certain information related to the Seed Capital Tax Credit. I am denying your FOAA request as the information you’ve requested is confidential and not available for public inspection pursuant to Maine Revised Statutes Annotated, Title 36, Section 191.

Sincerely,

David Heidrich, Jr.

Assistant Director of Communications
Department of Administrative and Financial Services
(207) 624-7800

When one thinks about the fact that the tax payers are principals in this debt arrangement, it should be unacceptable that the holders of the debt are not allowed to know the terms of the debt and the dates when the debts occurred ! A private sector legal representative would have a very short career if he/she arranged such a deal for clients

I looked up Maine Revised Statutes Annotated, Title 36, Section 191., which has to do with tax privacy laws. For some reason when I just now tried to find it again, I couldn't and thus no link.

Tax privacy laws are known to the legislatures who designed the Seed Capital Tax Credit Program as a component within the larger context of Maine's inter-linking economic development programs. The secrecy provided by taxpayer privacy laws should be a reason why tax credits which directly transfer taxpayer money to private entities should be unconstitutional. ( in addition to Article IX Section 8  Taxation.  All taxes upon real and personal estate, assessed by authority of this State, shall be apportioned and assessed equally according to the just value thereof. ) As is par for the course in Maine's economic policies, consideration for tax payer interests takes back seat. When the legislature is redistributing the hard earned money of the public the taxpayer should have the right to know what is happening to their money- to ability to see the full trail.

I made the following speculation in a previous post:


A private investment group, electing not to be treated as a private investment group, invests money into the business that is matched by public charity, MTI ( later sections of this bill are clearly tailored to benefit MTI ) . The Investment group then gets a tax credit of 50% of the investment meaning that the investor group makes a profit on 100% of the total investment although the taxpayer is actually covering 50% of the Investment- but the taxpayers contribution is not treated as an investment for which a return on investment is anticipated- but as a tax credit- for which the tax payer gets nothing except the collective benefit of jobs created. This is called 'socializing the risk and privatizing the gain" a new "innovative" tool of the global capitalist who uses political ideologies as a means to his own gain.
NOTE ! according to recent research MTI claims that taxpayer provides only about 14% of its funding

If the qualified matching investment submitted by the entrepreneur includes money derived from a matching grant from Maine's public charity, The Maine Technology Institute, that means the entrepreneur only contributes $2500,000 of a $5,000,000 investment for which he might receive a refund of 3,000,000 ( calculating tax credit at 60%)- Now who wouldn't want that? - answer: someone with a moral conscience

If the investment group happens to be the state chartered Small Enterprise Growth Fund- the taxpayer is already subsidizing this fund to the tune of 10% in a "roll over investment" which functions like a non profit investment in which all profits are reinvested in the fund. So if the same total investment of $5,000,000.00 is used as the starting point- and the SEGF matches that- what then? This is getting too much for me to fathom ! Could the culture of corruption in Augusta really go that deep? If all three "essential legs" are calculated on the same investment amount of $5,000,000.00 that means that the entrepreneur is not putting in a dime but receiving a possible total $3,000,000.00 of redistributed capital in exchange for absolutely nothing- with one exception - that the SEGF "high growth investors" demand an "exit strategy" (selling the business) to insure that they make their high growth profits.
Given that the functioning of the Seed Capital Tax Credit is inaccessible to the public , we can only know what is possible and integrate that which is secret and then factor in human character. The public can't know what is going on and so the tzars who run Maine's economic development policies are free to exploit the public's resources to their hearts delight. We can see what the legislature is doing, if only the public were paying attention. If the investor invests an amount which is doubled by a grant from MTI- which is partly funded by taxpayers, and then receives a refund on the combined total to the tune of up to 60%, via the Seed Capital Tax Credit, that means that the taxpayers are being signed up by their representatives to be indebted to the investor for 120% of the investor's investment. We cannot know if that is occurring, because conveniently, the taxpayers are legally kept completely in the dark regarding essential links in the scheme! The taxpayers need to fire their legal representatives! There ought to be consequences for betraying the oath of office.



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