GARDINER — The city has given final approval to a tax break for a natural gas pipeline project, but there’s a catch.

Tax increment financing districts will be created in areas of the city where the pipeline would extend only on the condition that Kennebec Valley Gas Co. build a distribution line to the city’s struggling business park. The arrangement, approved by city councilors Wednesday, is unique among the communities that either have approved or are considering approval because the deal aims to attract more business to the Libby Hill business park.

Mark Isaacson, a principal of the gas company, confirmed that his company would build a distribution line to the business park and downtown area, while it’s possible the line could also be extended to Gardiner’s high school and middle school and properties along U.S. Route 201 if those properties convert to natural gas.

“Meaning, we’ll do it if we get enough customers along that route,” Isaacson said.

The city-owned business park, first built in 2000 and a second phase added in 2008, has five tenants, including EJ Prescott, Inc. and Pine State Trading Co.’s beverage division. The 260-acre park still has 12 lots available in the second phase of its expansion and it needs to attract new tenants to pay the park’s mounting debt.

City officials hope the appeal of natural gas as a cheaper energy source will give the park a shot in the arm. Natural gas can potentially lower the energy costs for companies in the park, which is located at the junction of Interstate 295 and Interstate 95, he said.

The business park fund had a deficit of $425,533 at the start of this year, according to City Manager Scott Morelli.

“If we do not sell another lot at Libby Hill between now and June 30, the deficit will grow to $699,766,” Morelli said. “Right now, it eats in to our undesignated fund balance. Fund balance is the accumulation of any budget surpluses we have after each fiscal year. Right now we are at about $1.2 million in fund balance.”

Morelli said officials don’t want to use up all of city’s fund balance to cover the deficit, because that would be financially irresponsible and put the city’s books in a precarious position.

Selling lots in the park is the solution, he said.

“Aside from that, cuts to spending or tax increases are also ways to help cover the deficit and that is likely what we will be looking at (next year),” he said.

Last year, the council hired an economic development director to dedicate significant time to the business park, Morelli said.

“It’s why we also beefed up our market and travel budget so that the director could better promote our great community to potential businesses,” he said.

Portland-based Kennebec Valley Gas Co. has requested tax breaks from the 12 communities in central Maine affected by the proposed 56-mile pipeline, which could be completed in 2013. The gas company estimates that the Gardiner portion of the project will cost about $8.5 million.

Under Gardiner’s approved tax break, the pipeline’s value would be sheltered for 30 years, generating $4.9 million in new tax revenue to Gardiner. The city would reimburse the gas company 80 percent of its property tax payments for 10 years, and 60 percent for five years, totaling about $1.9 million in reimbursed taxes.

Even though city councilors unanimously approved the tax break on Wednesday, the agreement will likely need to be amended in the next few months to reflect changes made to the route of the pipeline.

“We will have to amend this document in the near future as the route of the pipe and some of the numbers in the document have changed based on the city and KV Gas working on a way to get gas to Libby Hill,” Morelli said.

Mechele Cooper — 621-5663

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