Matt Morrill of Winthrop purchased and plans to redevelop the Stevens School in Hallowell. He asked the city to contribute as much as $600,000 to finance street and related infrastructure improvements.

In return, Morrill would give 20 acres of the site to the city as open space and provide access to Howard Hill.

This City Council is poised to borrow the money to give to Morrill. This would be in addition to about $235,000 in Community Development Block Grant funds the city has committed to date.

Borrowing would have to be approved by the voters in Hallowell at a special election in April — $600,000 for 20 years would cost taxpayers as much $800,000.

Many in Hallowell are supportive on the proposed Stevens redevelopment. Some like the idea of possible future property tax revenue. Others like the idea of having more public open space.

At the same time there appears to be a growing sentiment concerned with the city’s plan to invest public tax money directly in Stevens. There are various significant financial risks in the project.

These risks include:

1. That the cost of construction might exceed the eventual value of the buildings;

2. That the individual redevelopment projects, particularly the affordable and low-income housing, would cost so much to build as to be unaffordable; and,

3. That there will be insufficient market demand for the project’s proposed uses (luxury condos, affordable housing, low-income housing, senior housing, etc.).

Additionally, it is not clear whether Morrill has the financial capacity to complete the redevelopment project. Morrill has not released any information about his personal or corporate financial situation. No bank has partnered with Morrill to help finance the project. A bank would finance a redevelopment project only after it conducted a project analysis and underwriting (risk assessment) process. The city lacks the information necessary to do a professional bank-like financial analysis and risk assessment.

It is possible that the Stevens School project might be wildly successful. Nonetheless, the risks are substantial and of a type and significance that are well beyond any sort of risk the city and its taxpayers have undertaken previously.

Are there alternative ways for the city to support the Stevens project? Can the financial risks to the city be reduced? Yes.

There are less risky alternatives to Morrill’s proposal that the city borrow to invest $600,000. These include:

1. Be satisfied with the support the city has provided to date. It expedited its zoning review and approval process and made available approximately $235,000 in CDBG money that Morrill already has invested in street improvements;

2. Make a loan. Lend the $600,000 to Morrill with the expectation that it will be paid back over time. This is the role a bank would typically play in a project like this.

3. Promote the direct involvement of a bank. Use Downtown Tax Increment Finance revenues to subsidize a bank loan to complete the street improvements. This is called a “Credit Enhancement Agreement,” a well-tested mechanism municipalities use to support development projects.

4. Provide financial incentives for project completion in the form of a loan or grant. Specify the amount of the city’s participation and tie the funding to the completion of specific elements of the redevelopment plan. or example, upon the sale or completion of a specific project, give Morrill $100,000 and so on. These funds could come from city TIF funds. This reduces the city’s risk while providing an added incentive to Morrill to complete the redevelopment project sooner. The faster this goes, the smaller the risk.

5. In any instance where the city puts up money for Stevens, take a security interest or even an equity interest in the portion of the land Morrill intends to use for an expansion of his Overlook project, a high-end housing development.

6. Some combination and or variation on these mechanisms.

Ask the City Council to consider and analyze the alternatives listed above before voting out a bond proposal for Stevens. Ask them to broaden their perspective to include options in addition to the developer’s current proposal. One or more of these alternatives has the potential to reduce the city’s financial risk while providing support and incentives to expedite redevelopment.

Ask the City Council to report the results to the citizens before committing to 20 years of principal and interest payments.

Ken Young lives in Hallowell and is a former city councilor and school board member.

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