Last-minute relief You didn’t get tax relief, but the timber barons did — a legislative move will give them millions by eliminating capital-gains tax; some legislators now sound regretful BY LANCE TAPLEY

In the confusing last day of the recently ended legislative session, a little-noticed Republican-sponsored tax bill, LD 1305, quietly zipped through the Democratic-controlled Legislature "under the gavel," as they say in the State House — that is, without debate or a roll-call vote.

This action followed weeks of high-pitched, end-of-session argument on a multitude of tax-reform and -relief bills. But LD 1305 was the only significant tax bill — aside from the state budget deal with its $1-a-pack increase in the cigarette tax — that wasn’t killed or put off until the next session. On June 21, Democratic Governor John Baldacci signed it into law.

Its passage is a compliment to the enduring influence and legislative skill of the forest industry. It was one of their lobbying priorities. Its passage also perhaps is a tribute to the inability of the Legislature to look beyond the immediate future. Several key legislators say LD 1305 was passed because state revenue losses from it would not begin for 10 years, though they agree the law is likely to cost the state millions of dollars.

Benignly titled "An Act to Encourage Long-term Holding of Maine Timberland and Sustainable Forest Management," it reduces capital-gains state tax — the 8.5- to 8.93-percent maximum income tax paid on property sales — for forestlands held longer than 10 years. It increases the reduction over 14 years until, after 24 years, no income tax will be paid when the land is sold. (The capital-gains tax rate is the same as the regular income-tax rate.) The measure’s proponents, including the Baldacci administration, say it will help prevent quickie sales of forestlands for development and improve their quality.

The legislation’s critics scoff at this argument.

"It’s giving yet another tax break to the larger corporations," says Democratic State Representative Deborah Hutton of Bowdoinham, who voted against LD 1305 in the Taxation Committee. There will be "pretty dramatic" revenue losses in the long run because of it, she says.

The new law "is actually going to be an incentive to sell" forestlands, believes former Green gubernatorial candidate Jonathan Carter, head of the Forest Ecology Network, an activist group. The capital-gains tax places a penalty on the sale of property, he says. Getting rid of it will encourage "Plum Creek-type activities" because in 10 or 25 years "land will be much more valuable than today." Plum Creek Development Co., one of Maine’s biggest landowners, has proposed a huge, controversial Moosehead Lake-area set of recreational complexes.

Carter mocks the idea that timberland owners need another tax break when they already reap the benefits of the state’s Tree Growth Tax Law, which greatly reduces their property taxes.

A far more establishmentarian politician, Republican State Senator Peter Mills of Somerset County, a possible 2006 gubernatorial candidate, shares some of Carter’s doubts about the new law.

When the Legislature considered the bill, he says, "I had the sense at the time that it was an outright giveaway, [and] nothing was coming back for the public good." He agrees that its cost to the state in the long run could be in the millions and that it likely would greatly benefit companies such as New-Brunswick’s J.D. Irving, another of Maine’s giant forest landowners.

"It kind of reminds you of the BETR program in 1995," he says. The state’s Business Equipment Tax Reimbursement property tax break, instituted 10 years ago, began modestly but now sucks $70 million a year from the treasury and sends the cash to, among others, some large paper companies.

Mills sounds regretful that he didn’t raise an objection as LD 1305 whizzed through the State House. There was no opposition, he says, and "it was pointless to mount any."

Reflectively and sadly, he comments: "We do this all the time."

THE PROPONENTS’ VIEW

At the April 4 hearing before the Taxation Committee, no one spoke as an opponent. The bill was presented by freshman Representative Patrick Flood, a Republican from Winthrop and a former International Paper Co. forestry manager.

The bill’s purpose, he said in his written testimony, is "to encourage people, by a change in our income-tax policy, to maintain their lands for the long haul . . . An advantage of this bill is that it does not cost the state anything for at least 10 years." He did not give any estimate about how much it would cost the state beyond 10 years. (Repeated attempts to contact Representative Flood for this story were unsuccessful.)

Neither did Peter Triandafillou mention the eventual cost in his written testimony. Triandafillou spoke for the Maine Forest Products Council, a major industry lobbying group. He also is an executive of Huber Resources Corporation, which manages 500,000 timberland acres. He argued that the bill, by decreasing the taxes paid when a sale occurred, would add to what he said were the relatively low profits of timber ownership compared to other investments.

Alec Giffen, director of the Maine Forest Service, also testified in favor, although in his written testimony he seemed to have more questions than kudos. Among his questions: "What will capital-gains tax relief for timber or timberland cost the taxpayers of Maine?" But he didn’t try to answer it.

Interviewed recently, Giffen says his intent was to improve the bill by working with the committee to ensure that "sustainable forestry" was required of landowners receiving this tax break, and he feels a committee amendment to the bill accomplished that goal. The bill as enacted requires a forester to certify that the timberland is managed to improve timber productivity and quality and protect wildlife, water, and soil. The bill permits the forester to be a timberland company employee, however, and Giffen admits that "our preference would have been third-party certification, but we couldn’t get there." Allowing a forester to certify his or her own company also disturbs the bill’s critics.

Giffen says his preference would have been to do a study of the issues involved with the bill before it was considered. In fact, his bureau is embarking on such a study, and he believes the new law "can always be re-evaluated."

Speaking neither for nor against the bill at the hearing, Jenn Burns, a Maine Audubon Society lobbyist, sounded like she was against the bill, from the way her testimony reads: "This bill may only fuel [speculative] medium-term timberland investment and not encourage long-term sustainable management. After [the maximum period], the owners can sell out to the highest bidder for development and pay no state tax on the gain on land sales."

She says now that, "the changes improved the bill," but, like Giffen, she believes what is really needed is more study of the issue.

Why didn’t public-interest groups notify legislators more loudly about the implications of LD 1305? The several representatives of such groups contacted, including Jonathan Carter, say they were preoccupied with other issues.