GARDINER — An aggressive tax incentive policy that city planners and business owners hope spurs more downtown development was approved by the City Council at its meeting Wednesday night.

The policy sets the percentage of new tax revenue developers can expect to get back from the city by renovating second and third floors, installing elevators or opening a hotel, developments that city officials say would not likely happen without the incentives.

Councilors signed off on the policy with minimal discussion on Wednesday despite some expressing concern at a November meeting about the tax incentives being higher than rates previously given by the city.

The policy will be marketed with other downtown business incentives in a program developed by Gardiner Main Street in collaboration with the city, the Gardiner Board of Trade and the Bank of Maine that aims to attract a targeted mix of businesses that would complement each other and existing businesses.

The program, which is expected to be launched next May, will provide forms of funding to lower the cost for businesses looking to open locations or expand downtown. It will allow businesses to apply for incentives including forgivable loans for fixed capital, micro-grants for operating money and six months of free rent.

Members of the organizations behind the program, including Patrick Wright, executive director at Gardiner Main Street, spoke at the meeting in support of it. He said attracting a hotel would be a “game changer for the business community.”

Clare Marron, owner of a downtown art and craft gallery and a Gardiner Main Street board member, said visitors to her downtown store have asked if there are places to stay in Gardiner. A hotel, she said, would keep those people in the city.

The incentives for adding commercial residential units on second and third floors would also help people get moving on renovating the downtown buildings, Marron said.

“The more we can get people in the upper floors, the more business we’ll be seeing in our downtown,” she said.

Nate Rudy, the city’s economic and community development director, said in an interview Tuesday that at least half of the downtown buildings, most of which were built in the late 19th century or earlier, have unused or underutilized second and third floors.

The credit enhancement policy approved on Wednesday states developers can expect to get back 100 percent of new taxes for hotels and 75 to 100 percent for elevator construction, depending on the number of buildings served. The development of second- and third-floor residential units or second-floor office space would receive 33 percent to 50 percent of the additional tax revenue back. The rest of the new revenue would be captured by the city’s downtown tax-increment financing district for use in economic development activities.

Any proposal would still have to be approved by City Council.

Tax-increment financing, or TIFs, allow municipalities to freeze the value of properties on the tax rolls and give part of the tax revenue that would have been earned from future construction back to developers through these credit enhancement agreements. The new revenue is sheltered from assessments for school and county taxes, meaning the city would pay less than it would if the value wasn’t sheltered.

The taxes from the value before the improvements, as in what’s paid to the city already, still would go to the city’s general fund. After the credit enhancement agreements expire — in the this case, between 10 to 19 years from their starts — tax revenue from entire value of the properties would go to the city’s general fund.

Paul Koenig — 207-621-5663[email protected]Twitter: @paul_koenig

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