AUGUSTA — City councilors unanimously approved a tax break Thursday to help a local firm redevelop the MaineGeneral Medical Center hospital building which is about to be left nearly empty when a new regional hospital opens later this year.

Without the tax-increment financing deal, officials fear the hospital would become a vacant white elephant looming over the neighborhood. With the TIF deal, and by putting in $23 million in private investment over the next several years, developer Augusta East Redevelopment Corp. hopes to bring new uses and new tenants to the building, which officials said eventually could provide as many as 1,000 jobs at the property, which sits across the Kennebec River from the city’s downtown.

The proposal received no opposition at a public hearing Thursday and extensive praise from city councilors, who said providing the tax break now will result in future tax revenue on what, without the developer stepping forward, could remain a vacant building.

“The fear I had when MaineGeneral announced they were going to have a new building was the present hospital would be abandoned or torn down,” Councilor Patrick Paradis said. “Everything leading up to this winter has indicated nothing would happen with that site. The only solution I see is this TIF and working with this developer to make this building come alive again, and put it on the tax rolls. At the end (of the agreement term), we’ll recoup all our taxes. If not for this project, this hospital would become an empty shell and look like the former Augusta Tissue mill, and be a vacant lot in five years.”

Augusta East Redevelopment Corp., a subsidiary of local company Mattson Development, recently purchased the East Chestnut Street building for $2.5 million from MaineGeneral, which is consolidating its core operations at a regional hospital under construction in north Augusta. The company is owned by Freeport resident Kevin Mattson and his partners.

Mattson’s development company is seeking initially to get back 100 percent of the property taxes it would pay, to help defray the cost of converting the large building into new leaseable space.

It would get all of its property taxes back until 74 percent of the developable space is occupied by tenants. As tenants are found to occupy space, the developer would get correspondingly less tax revenue returned to it by the city over the life of the proposed 20-year agreement, shrinking to 50 percent of taxes returned once 95 percent of the developable space in the building is occupied.

The parking lot areas of the hospital property would be in a different part of the TIF district, with only 50 percent of the property taxes on those parcels being returned to the developer over the 20 years of the agreement.

After the agreement ends in 20 years, the developer would be required to pay its full share of property taxes on the entire property.

If investment and development progresses as the developer estimates, at the end of the 20-year period the property would be worth $27.6 million, and its annual property tax bill, in year 21, the first year the bill would be paid in full, would be nearly $490,000. Over the 20-year period, if development had taken place at the same pace without a TIF, the developer would have paid nearly $4.5 million more in property taxes. However, officials said without the TIF, the hospital building never would be redeveloped, and that new taxable value would not be created.

“We bought the MaineGeneral hospital when no one else would,” said William Dowling, chief operating officer of Mattson Development and a former Augusta mayor. “We think we can make something happen there. It’s not corporate welfare; it’s all going back into the redevelopment. But not for us, I think you’d have a vacant building.”

Dowling noted that Mattson Development bought the former Digital Equipment plant in Augusta, a project which also received a TIF deal, and turned the vacant building into class A office space where some 1,200 people work, within 10 years.

He said he’s had some “tire kickers” inquiring about space in the hospital building already, including one client he thinks might lease about 3,000 square feet of the former nurses’ quarters area.

Matt Nazar, city development director, said MaineGeneral tried to auction off the building, but got no takers for the site. He said that means the property could have remained vacant for some time, had Augusta East not come forward to purchase the property.

As a nonprofit organization, MaineGeneral did not pay property taxes on the property.

The developer, in TIF documents filed with the city, estimates that it will take six years from when the hospital vacates the facility to reach 100 percent occupancy. MaineGeneral Medical Center will pay rent to Mattson to remain in the building until the opening of its new $312 million, 192-bed hospital near Interstate 95, off Old Belgrade Road.

The regional hospital is designed to combine inpatient functions of its Augusta site as well as its hospital at the Thayer campus in Waterville. The new hospital, to be called the Alfond Center for Health, is scheduled to open in November.

However, the soon-to-be-former hospital building at 6 East Chestnut will start with at least one tenant, since MaineGeneral has agreed to lease 52,000 square feet of space in the building even after the new hospital opens, for 15 years. That would leave about 200,000 square feet of developable space in the seven-story, 317,000-square-foot building.

Some of the property borders the Kennebec River and the campus of the former Augusta Mental Health Institute. The hospital has been on East Chestnut Street for more than a century.

TIFs allow municipalities to shelter property taxes generated by new development within designated districts. Sheltering funds through a TIF means they would not be added to the city’s total property valuation for state tax calculation purposes. That can benefit a municipality because, as a municipality’s total property valuation increases, its state-provided revenue — such as aid for education and revenue sharing — decreases, and its county tax liability increases. But new value sheltered in a TIF doesn’t count toward a municipality’s property tax value.

Over the 20 years of the hospital building TIF agreement, the city will be avoiding nearly $4.8 million in such tax shifts, compared to what it would pay if the same development took place unsheltered by a TIF.

Dowling said in addition to commercial space, the firm also would consider developing some of the building as housing.

Keith Edwards — 621-5647
kedwards@centralmaine.com