HALLOWELL — The effect of Hallowell’s tax increment financing sheltering error is still unknown ahead of a Monday meeting where City Manager Nate Rudy plans to present information to the City Council’s Finance Committee.

Earlier this month, City Councilor Maureen Aucoin, a member of the committee who also has been the city’s assessor’s agent and interim city manager, revealed that property in two TIF districts — one for the Woodlands Senior Living of Hallowell and one for a Summit Natural Gas pipeline — was not assessed as if it were in a TIF district.

By Aucoin’s estimate, a total of $208,765 in property and personal property taxes was put into the city’s general fund in fiscal years 2017, 2018 and 2019, based on $10.7 million in cumulative captured property value. That tax money should have been sheltered for downtown projects, but instead was placed in the general fund; the Kennebec Journal found $78,952 — or 37.8 percent — of the $208,765 was used for city expenditure, while $119,826 — 57.4 percent — went to school district funding and $9,987 — 4.8 percent — went to Kennebec County administration.

“The property was assessed and reported to (the) state in the total valuation,” Aucoin said. “It was treated like any other property not in a TIF district. … The city just didn’t capture the value (in a TIF).”

Rudy said he was not aware of the issue until this February and told the Kennebec Journal he was in the process of fact-finding on April 16. He said he did not have the benefit of a briefing about all of the city’s TIFs and the error seemed “like something all of us have been missing,” but he was “certainly not interested in laying blame.” Aucoin said Rudy acts as the chief financial officer for the city and oversaw the placement of funds into accounts.

Nate Rudy

Rudy said Friday he was “still gathering information about the Woodlands TIF and other items mentioned in” Tuesday’s Kennebec Journal report.

TIF agreements allow municipalities to forgo property taxes generated by new development within certain districts, as long as sheltered money is used for certain things. Though the municipality loses tax revenue, it also sees a benefit: Money sheltered through a TIF agreement doesn’t count toward a municipality’s overall property tax value during the TIF’s timeline. Lower taxable value means more state revenue sharing.

The implications of the error could have a longer-term effect, because the city’s total tax valuation and property value assessment are used in formulas to determine state revenue sharing and school subsidies. What effect it will have on state revenue sharing and school subsidy remains unclear, however, because some state formulas use figures from past fiscal years, and some numbers from fiscal years 2018 and 2019 have not been used in calculations.

Nichole Philbrick, municipal services tax section manager at Maine Revenue Services, told the Kennebec Journal last week that the state’s figure of valuation uses the municipality’s property assessment and a sales ratio study to determine the state calculations.

State Treasurer Henry Beck told the Kennebec Journal earlier that the figure is provided by the revenue service before it is used in any formulas by other departments.

David Heidrich, spokesperson for the state Department of Administrative and Financial Services, which oversees Maine Revenue Services, said Friday officials from that agency declined to meet with the Kennebec Journal to discuss the effect the errors might have on the city’s state valuation.

Aucoin’s estimates were corroborated by the city’s assessing agent, Rob Duplisea, she said. Duplisea did not respond to multiple requests for comment.

It does not appear the errors showed up on annual audits by certified public accountant Keel Hood. James Wadman, an Ellsworth certified public accountant who audits 60 municipalities, said the error could have been caught by Hood, but there is a learning curve to auditing municipalities with TIFs, and the curve is steeper if figures are missed in the first year.

“That’s very hard to say what the circumstances are behind it,” he said. “If it didn’t get caught in year one, I can see how it (was missed again).”

Wadman said errors in TIFs could be difficult for auditors to catch depending on how the TIFs are documented. He said the amount of money is large enough to notice, but he was reluctant to place any blame on a fellow auditor.

“It’s a pretty substantial figure,” Wadman said. “I would say it possibly could have been caught, but I wouldn’t want to throw an auditor under the bus.

“Keel Hood has been around for a long time and does very good work,” he added. “I wouldn’t want to say one way or the other.”

Hood was not available for comment last week.

Last month, the City Council OK’d $2,500 in funding to hire Augusta consultant Raegan Larochelle to rewrite the TIF documents.

Peter Prescott, who has a TIF for his development at the Bank of Maine Ice Vault, said he has not had any problems with his TIF to date.

The Finance Committee is scheduled to meet at 6 p.m. Monday at City Hall, where it will hear from Rudy.

 


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