Idexx is in line to receive up to $16 million in long-term business tax breaks after it opens the doors of its new Westbrook headquarters building at the end of the year.

The veterinary health and diagnostic company is so far the only participant in a new state program that extends financial incentives in exchange for constructing buildings and creating jobs.

“We’ve been very happy to partner with the state and City of Westbrook in ways that have been mutually beneficial for us and other companies so that we can expand here and help grow Maine’s economy,” Idexx Corporate Vice President and Chief Human Resources Officer Giovanni Twigge said in an email.

Construction continues on Idexx’s headquarters expansion project in Westbrook as employees leave work in early August. The company could potentially tap a $16 million corporate tax break if it adds 80 new employees a year for 10 years. Brianna Soukup/Staff Photographe

The deal is expected to provide Idexx about $800,000 a year over 20 years in refundable tax credits, but the company has to hire 80 new employees a year for 10 years and hit other benchmarks to get the tax break.

While the state will lose revenue for its General Fund and other accounts from the tax break, economic development experts say the payoff from the economic ripple effect of hundreds of new employees and millions of dollars of new investment is worth it.

So, too, are the benefits of a bigger headquarters for an internationally recognized corporation, which is the only Maine company on the S&P 500 index.

“When you look at it as a whole, there is a huge impact from this type of credit,” said Andrea Smith, director of tax incentive programs at the Maine Department of Economic and Community Development.

The Major Business Headquarters Expansion Tax Credit was created two years ago specifically to benefit Idexx and support the company’s expansion, said Senate President Troy Jackson, D-Allagash. Jackson sponsored the bill creating the benefit, which had the support of Republican leadership. No one testified against the bill.

“Clearly that bill was designed with Idexx in mind, but we did have the door open for any other facility that wanted to take advantage of it,” Jackson said.

At the time, Idexx officials testified that the company’s executives wanted it to expand in Maine. In that context, a tax break could be a deciding factor for its board on whether to take business to another state or country.

The company’s 34-year history of job creation and  expansion in Maine, and the safeguards baked into the tax deal, convinced Jackson it was worthwhile.

A 20-YEAR CREDIT, 10-YEAR BENCHMARK

Idexx employs at least 8,000 worldwide, including 3,000 workers at its Westbrook offices and labs, where it is building the $60 million-$70 million expansion.  The company reported a $481 million operating profit in 2018.

“Some people might say, ‘If they wanted to stay in Maine, why do you have to offer anything?'” Jackson said. “There is a tipping point for many of these businesses; they can’t look away from packages that benefit their shareholders.”

“There’s no doubt about it, Idexx is a company that was in Maine and quite possibly wanted to stay in Maine and had a lot better offers elsewhere,” he said.

Idexx did consider a number of other locations for its expansion, and the tax break was an important factor in its decision to build out its business here, said Twigge, the company’s HR head.

“Maine continues to be an expensive place to do business, and this credit was pivotal in our board’s decision to approve this investment,” he said.

The program works like this: A company that chooses to expand or build its Maine headquarters can take a 20-year refundable corporate tax credit worth 2 percent of the “qualified investment” it has made, up to $16 million. The credit is applied annually.

But only companies with at least 5,000 employees worldwide, that have a quarter of their workforce in Maine and have business locations in at least three states or countries can qualify.

That creates a shallow pool of companies that can take advantage of the financial package. Plus, companies have to meet strenuous benchmarks to get the tax break initially and then keep getting it.

First, a company has to prove it will make a “qualified investment” of at least $35 million in a new facility. Before it can receive any money, the company has to meet employment thresholds by hiring at least 80 new employees a year for 10 years, adding up to 800 new workers in total.

It can continue to receive the tax break for another 10 years, but only if it proves, through an annual report to the state, that those jobs still exist.

The state projects the tax break will cost about $800,000 in General Fund and special revenue in 2021.

State law allows only $100 million in aggregate “qualified investment” under the program. That means there is space for just two companies if each applies for a credit on spending at least $35 million.

SHIPS, POTATOES BENEFICIARIES OF SIMILAR BREAKS 

A report from the Maine Office of Program Evaluation and Government Accountability noted that there were some gray areas of the program. There is no requirement that it creates “high-quality” jobs, the type of headquarters it applies to is loosely defined and there is nothing to encourage companies to use local businesses or encourage the recruitment and training of employees.

Idexx says it is prepared to meet the employment thresholds by recruiting from out of state and growing the Maine labor pool it needs. The company did not directly answer what kind of employees it would hire and at what salary range, but said it was looking for positions across the board.

The tax credit program is unique in Maine. A similarly structured law for shipyards that allows  Bath Iron Works to claim 15 years of tax breaks worth about $45 million was renewed in 2018.

In June, the Legislature approved another measure to give $34 million in breaks to aid the expansions of food manufacturing companies. That bill, designed to help Penobscot McCrum build a new potato processing plant in Washburn, was modeled on the headquarters expansion credit, Jackson said.

A corporate headquarters can create an immediate economic impact from new construction investment and hundreds of new workers spending in local stores, buying homes and paying taxes, said Peter DelGreco, head of Maine and Co., an agency that promotes Maine to major companies.

But there are ancillary benefits to hosting the executive offices of a major international company, DelGreco said.

“When you have an executive team here, you will have a closer connection to community, more local giving and philanthropy,” DelGreco said.

From a cost-benefit angle, the tax break makes sense, especially in Maine, which does not provide companies with a lot of generous financial incentives, he said.

“It’s a pretty restrictive bill,” he said. “It feels like it is going to be aimed at truly significant projects that have the ability to really improve the economy.”

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