LD1 -A Transference of the Power of Taxation?

(recently passed Maine Legislation, posted with links on The Augusta Insider)
This is a continuation of an examination of LD1, started in my recent article So
cializing the Risk and Privatising the Gain. LD 1 provides for the use of unres
tricted taxpayer funding by the Small Enterprise Growth Fund, and grants it admi
nstrative power over the newly chartered mutual funds investment corporation, si
mply called “The Fund of Funds” in the legislation. Whichcreated it. Ld 1 pass
ed unanimously by both the House and the Senate and signed into law by Governor
Baldacci.
The Maine Chamber of Commerce describes LD1 as “An Act To Stimulate Capital Inve
stment for Innovative Businesses in Maine”. LD1 is marketed by the Small Enterpr
ise Growth Fund with the following words “This program creates incentives for 20
Million Dollars in the Public Employee Retirement System that have already been
targeted for equity investments to be placed in funds that are seeking to inves
t in innovative Maine businesses.”
I am not a legal expert but such expertise is not required to have general knowl
edge that when it comes to the law, it is the letter of the law that counts and
not external promises or descriptions. When one reads LD1, one will find that Se
ction 6. Investment goals & guidelines, begins with the words “The purpose of t
he fund is to invest in a series of high-quality venture capital funds managed t
o produce a favorable aggregate return among diversified investments, to secure
repayment of the amounts borrowed and to minimize the risk of tax credit redempt
ion. Consistent with these investment goals, the board shall give preference to
fund managers whose strategies include:
A. Maintaining at least a periodic presence in the State;
B. Actively prospecting for investments in the State;
C. Creating or retaining jobs in the State; and
D. Bringing to fruition the ideas, technologies and intellectual property produ
ced by citizens and institutions of the State. “
The language is vague and suggestive, avoiding specificity and allowing great la
titude in interpretaion and application. In the phrase “Maintaing at least a per
iodic presense in the state”, the terms “periodic” and “presense” are left und
efined, while the use of the words “at least” permits the “presense” in Maine to
be a mere token. The non-existent paramaters for retaining jobs in the state ca
n be satisfied by the beurocratic jobs withn the SEGF. As for “bringing to fruit
ion the ideas produced by Maine citizens”, there are no specifics about where an
d how these ideas will be brought to fruition. Since the current government mana
gement of Maine’s economy is invested in technological development and since LD1
Is very arguably a charter for a mutual funds corporation, the language of th
is bill all too easily enables ideas to be developed in Maine and brought to fur
ition in countries with low labor costs and minimal environmental restrictions,
which produce that “quality” investment in the context of the proft motivation o
f mutual funds
The bill defines “lender” in such terms as would be otherwise be signified by th
e term “investor”. The preferred “lender” is The Maine Public Employees Manageme
nt Fund, which, at first glance, has stricter investing requirments than are wri
tten in LD1. If the Maine Public Employees Management Fund declines to invest, “
the Fund of Funds” can seek other investors.
In section 9, Audits and Reports, LD1 is suddenly written in very specific terms
. Section 9 deals with the relationship between the director of “The Fund of Fun
ds” and the SEGF . Section 9 leaves nothing to interpretation when it specific
ly defines the length of time that constitutes a period, showing clearly that th
e writers of this law know how and when to be specific.
One instance in which LD1 is very specific is in Section 7, Investment Restricti
ons, where the exact words are “The fund may not invest directly in individual b
usinesses but only in venture capital funds…” And yet in promoting this bill it
is specifically described as a bill to create funds for “innovative” Maine busi
nesses. Other than a requirement to invest 30,000.00 annually in the Maine Paten
t Fund, there is no specific wording in this bill that requires more than a toke
n investment in businesses located in Maine.
The SEGF promotes this government chartered mutual fund as a means to take the b
urden off the Maine taxpayer, when in fact it takes the burden of failure off th
e SEGF and the individual or institutional investors in ” the Fund of Funds” and
places it on the Maine Taxpayer in the form of a “tax credit”, which has no spe
cific relationship to “tax payer”. The “tax credit” is guaranteed by a certifica
te, for which the letter of the law provides no specific requirements or caps, l
eaving it solely to the discretion of the SEGF. The tax credit will be used to c
over any shortfalls that the Fund of Funds runs up against and is said to be leg
ally binding according to Article One, Section 11 of the Maine State Constitutio
n.
I have to question whether the certificates can be legally binding on the Maine
state taxpayer because LD1 states “The board (The SEGF) may raise capital for th
e fund by offering as security certificates issued by the board.”
The SEGF does not have a government website, which suggest that it is a private
corporation which has been enabled by our legislature to advance it’s causes usi
ng taxpayer dollars to it’s advantage. Section 9 of the Maine State Constitution
- Power of taxation, states “ The Legislature shall never, in any manner, suspen
d or surrender the power of taxation.” A private corporation cannot make binding
agreements for the Maine State taxpayer. By obligating the taxpayer to cover sh
ortfalls within the SEGF with “tax credits”, it is implied that taxes will have
to be raised as a means of financing the “tax credits”- as needed.
The language of LD1 is very murky about identifying the authority that is grante
d power to define the terms of the “certificates” backed up by “tax-credits”. It
is the job of the legislature to establish the terms of contract, but in the ca
se of LD1 these terms are left undefined- or worse deferred to the SEGF in the f
ollowing:
“1. Credit allowed. A lender to the Maine Fund of Funds as defined in Title 1
0, section 396, subsection 5 is allowed a refundable credit against the taxes im
posed by this Part in an amount certified by the Small Enterprise Growth Board a
s established under Title 10, section 384 as equal to the shortfall in scheduled
payments on debt incurred to provide capital to the Maine Fund of Funds.”
In the above direct quote from LD1, it is all too revealing that the “tax credit
” is suddenly described as merely a “credit” , as though the authors of the bill
have intentionally ommitted the word ”tax” which is used repeatedly throughout
the legislation, perhaps because they are required to be fully aware that it is
constitutionally prohibited to transfer the power of taxation.
If the authority to define the terms of agreement remains with the legislature,
then the legislature has granted itself the authority to negotiate business cont
racts, which belongs to the executive branch of government. The Maine State Cons
titution, Article IV, Section 14 states “Corporations shall be formed under gene
ral laws, and shall not be created by special Acts of the Legislature…” Our legi
slature seems to believe that it can get around the Maine State Constitution thr
ough carefully parsed language and that a corporation by another name is not a c
orporation.
Artcle IV, Section 18 of the Maine State Constitution outlines the process by wh
ich the people of Maine can veto bills passed by the legislature. There is a 90-
day window of opportunity after the close of the legislative session. In LD1. th
e taxpayer carries the risk but not does not share in the gain. I have created a
Facebook page, “Maine Citizens Against Government Chartered Corporations” to fi
nd out if there is enough support among the Maine people to warrant initiating a
People’s Veto.
An additional effect of mobilizing a People’s Veto is that it would force govern
ment-chartered corporations as an election campaign issue. We know that all incu
mbents are supporting government chartered investment corporations but thus far,
to my knowledge, none of the other candidates for state positions have spoken o
ut on this issue, offering no guarantee that electing a non-incumbent would have
any effect on moving back toward a constitutional separation between the state
and the capitalistic corporation.
I hope that there will emerge an open dialogue about what the actual letter of
the law legitimizes and that the citizens of Maine will become more actively inv
olved in reading the bills being passed by our legislature rather than accepting
the promotional words about said bills at face value, without further examinati
on or debate. The Maine State constitution needs to be included in that debate.

Sincerely
Susan Mackenzie Andersen
East Boothbay, Maine