T-Mobile considered the Waterville area for a 700-person call center because it saw a quality work force that was underemployed and underpaid. The wireless company chose central Maine over Billings, Mont., and Springfield, Mo., because of incentives the state offered, including Pine Tree Zone benefits.

Less than a year old, the Pine Tree Zone package of tax incentives aimed at business development in economically lagging parts of Maine is being credited with creating between 2,200 and 2,400 jobs, including the T-Mobile project.

State officials say the program has prompted businesses already located in Maine to expand operations in Pine Tree Zones and have proved valuable in the last stages of trying to lure new companies to the state.

And while some observers caution that it's too early to pronounce the program a success and that enterprise zones don't always work, there are numerous anecdotal signs that the zones are helping to attract and retain jobs.

"I'd say they're very helpful. I don't want to mislead people that it's the ultimate panacea - it isn't," said L. Joseph Wischerath, executive vice president of Maine & Co., a group charged with attracting business to the state. "But when push comes to shove, Pine Tree Zones are very helpful, particularly when you're in the finals. With T-Mobile, I would say they were quite important."

For small companies looking to grow in Maine, the breaks that come with a Pine Tree Zone designation aren't monumental, but they help when combined with other state incentives.

"It's every marginal benefit that's going to add up, that's going to help us succeed," said Walter Butler, owner of Hiram-based New England Castings, which plans to apply for PTZ designation. "For us, it's a significant issue. It'll help me to make a decision to expand my operations here, as opposed to elsewhere."

Wischerath said there are many factors that go into whether a company will even consider moving into a state. The first factor is generally whether there is an adequate work force with the required skills at a low enough cost. A close second is if the area has adequate real estate, whether there are the right kinds of buildings in terms of size and layout. Last of the hurdles is infrastructure, said Wischerath, which would include telecommunications, roads and airports.

"If you pass the hurdle requirements and you can get into the short list of locations, that's where many more of the costs come into consideration," he said.

Gary Yates is an Atlanta-based senior consultant with The Staubach Co., the site selection firm T-Mobile used to determine where its call center would go. When the list of sites came down to three - Maine, Montana and Missouri - the firm did an in-depth cost comparison.

Labor costs were comparable, he said, but factors included real estate costs and taxes. The start- up of a new facility is expensive, Yates explained, and companies look for ways to offset upfront costs.

"Really, the incentives are there to level the playing field - that's how most states use their incentives," he said.

Many states have incentive programs, said Yates, but they're not all equal. Some have programs that require so many lawyers to hammer out a deal that even applying for the incentives is cost-prohibitive, Yates said. Pine Tree Zones stacked up well against other incentive programs, he said.

Jack Cashman, Maine's commissioner of economic development, said that T-Mobile was strongly attracted to the state's work force. The telecommunications firm got favorable reports from another big call-center operator, the credit-card company MBNA, he said.

While the Pine Tree Zones were only a part of the equation, they were critical in clinching the deal.

"The bottom line is if you don't have a competitive package, you don't attract these kinds of businesses," said Cashman. "The Pine Tree Zones are competitive nationally."

Keith Scott, a vice president of Dallas-based Staubach, said the strength of the Pine Tree Zones was the employment tax rebate component. The program cuts 80 percent of net new employee state income tax withholding for 10 years.

"It's very creative; it's a powerful program," said Scott. "These incentives play a big part for (T-Mobile); they're able to reinvest those capital dollars that are budgeted to make it a better facility."

Scott said the income-tax holiday (100 percent state corporate income tax credit for five years; 50 percent credit for the next five) is "very extensive."

In attracting businesses to Maine, said Cashman, the first tool is the Maine work force. The second is the lifestyle. Then, he said, come incentive packages.

PENT-UP DEMAND

There are eight Pine Tree Zones around the state, and more than 30 companies have been granted PTZ designations. Cashman said more than 100 companies have asked the state about getting the designation.

The job growth over the first 12 months reflects pent-up demand by existing businesses that were considering expansion; the incentives made the move feasible. Cashman said he expects the pace to slow over the next few years.

Massachusetts-based Walpole Woodworkers has had a presence in Maine since the early 1940s, having opened operations here to access the cedar forests. Today it has a mill in Chester, molding operations in Mattawamkeag and manufacturing facilities in Detroit and Pittsfield, employing about 100.

The company employs between 400 and 500 total. The company is set to grow, said owner Louis Maglio. Walpole has invested more than $1 million in new coating equipment in Pittsfield, in a Pine Tree Zone. The company will move its current staining operations from Massachusetts to Maine, he said, hiring at least 40 more people over the next 18 months.

"All of the growth the company will experience (will be in Maine)," said Maglio. "We're not going to grow our operations in Massachusetts; we're going to downsize our operations."

The work force was the main factor in his exploration of growth in Maine, said Maglio. But concrete business moves, such as buying a 43,000-square-foot building for manufacturing and warehousing, are directly attributable to Maine's incentive packages, he said.

"We did that after and because of the Pine Tree zoning," said Maglio. "We wouldn't have done it this year without that legislation."

For Terry Ingram, president of Falmouth-based Allagash Valve & Controls, the Pine Tree Zone program has had two benefits.

The first is that the early stage benefits of the zones allow a business to save some money and grow to a point where survival is more realistic; they help a company get through the lean times.

The second, he said, is that involvement in the program puts a company on the state's radar screen, opening up opportunities a business might not otherwise have heard about.

Ingram has received Pine Tree Zone designations for its two locations in the Katahdin region, in Medway and Millinocket. The company reconditions and assembles new valve control products. He started the company in his home 2 1/2 years ago; he employs 11 today and aims to hire at least 25 more over the next two years.

After applying for the Pine Tree Zone program, other opportunities began to appear, he said. Just this past week, Allagash received approval for a $250,000 Community Development Block Grant through the state. The company has applied to the Maine Technology Institute for a $450,000 grant in partnership with the University of Maine.

"If the Pine Tree Zones didn't exist, I wouldn't have a clue of the other opportunities that are out there to help my company grow. We'd be running blindly; based on our hard work, we'd be hoping the decisions we make are correct and accurate," said Ingram. "That, in a nutshell, is what the Pine Tree Zone program has done. It's allowed me to expand our business and not worry about the day-to-day dollar. Too many people worry about today and put themselves out of business because they didn't worry about a year, or five years from now."

Ingram has employees throughout New England but plans to make the Katahdin region his manufacturing base. The employees he's hiring there are laid-off mill workers from the former Great Northern Paper. One of the strengths of the Pine Tree Zones is that they promote the use of Maine's underutilized labor markets, said Ingram.

"Southern Maine is missing out on the tremendous work force that's in northern Maine," said Ingram. "The way the Pine Tree Zone (program) is laid out, there's an incentive for me as a business person in southern New England to seriously consider putting offices in that location and maximizing the existing work force that's up there that's unemployed, wants to work, (and has) skill sets that are higher than anywhere in New England."

TOO EARLY TO TELL

Despite these anecdotal signs of success, the whole Pine Tree Zone system should be scrutinized in a year or so to evaluate how it has worked, said Charles Colgan, an economist at the University of Southern Maine's Muskie School of Public Service. It's too early to tell how the zones are working, he said, and American businesses are just now getting back to investing, so a complete picture of their economic development potential would be hard to see right now.

"The actual history of enterprise zones is they either have too little in the way of incentives or they have lots of incentives, but they're so spread out that essentially almost every place winds up being an enterprise zone," he said.

An initial stab at enterprise zones under former Gov. John McKernan saw a few areas designated for incentives, but they didn't offer enough, said Colgan. The Pine Tree Zones seem to offer a lot more, but much of the state is under the designation.

"There's hardly any place except Portland that's not an enterprise zone. They often dissipate the resources that could be offered in distressed areas; nobody wants to admit that their regions aren't distressed," said Colgan. "If you're going to do something about lagging regions, then do something about lagging regions."

One of the classic arguments against enterprise zones is that a state could do more for economic development if it would just lower the entire tax burden by a fraction of a percentage point.

Colgan said, however, that in a nationally competitive economic development market, special incentives aimed at individual companies were more effective in business attraction.

"It's not an efficient way to run the economy, but it's the way the economy actually works," said Colgan.

Cashman said the state was looking to tweak the Pine Tree Zone program, possibly looking at a requirement for employers to participate in a health insurance plan. The idea of lowering the overall tax burden also is being explored, to exist along with the zones rather than to replace them, said Cashman.

"We can't rest on our laurels. It's not the be-all and end-all of what we need to do in this state to be successful," said Cashman. "Certainly, it's the governor's intention to lower the overall tax burden statewide, and make other costs of doing business in the state more competitive, statewide. We can't just sit around up here and wait for Pine Tree Zone applications to come."
"This content originally appeared as a copyrighted article in the PORTLAND PRESS HERALD and is used here with permission."