HALLOWELL — The city’s tax increment financing policy is likely to change, as staff look for answers to questions raised by a councilor about misplaced TIF funds.

To start the process, Hallowell hired Augusta consultant Raegan LaRochelle to rewrite the city’s policy, approving $2,500 in March to pay for the work.

The first step came Wednesday, when LaRochelle briefed the city’s TIF Policy Committee — an “on-call” group made up of Chairperson Frank O’Hara, Ken Young, Joel Davis and Hanneke McQuiod — as well as Councilor Maureen Aucoin, Mayor Mark Walker and City Manager Nate Rudy about TIF regulation. Councilor George Lapointe, who is the chairperson for the Finance Committee, joined by phone call.

LaRochelle did not advocate either way for scrapping the city’s policy or revising it, but O’Hara hinted at a total overhaul being presented to the City Council in September or October. According to the city’s website, the city’s TIF policy — which is separate from, and allows the city to undertake, the city’s three TIF agreements — was last amended in July 2011.

Walker said after the meeting that he thought the meeting was “excellent,” and he agreed with O’Hara’s wish to “tear up” the old TIF policy.

“I wish more of the council could have been there to get some good fundamentals on TIF policy,” he said.

Rudy said he thought the meeting was “well-attended.”

“I thought the meeting was informative and was at the perfect level of content for everyone to get on the same page about the importance of municipal financing to stimulate new real estate and business investment,” he said in an email. “LaRochelle did a great job of explaining points that were both universal to all TIF districts and specific to Hallowell.”

The same group plans to meet again at 6 p.m. June 4.

During the March discussion about the TIF policy, Aucoin alluded to TIF funding errors and then disclosed her concerns in greater detail in April. It was then she said more than $10 million of property value in local TIF districts was not sheltered for the past three years, causing more than $200,000 in tax revenue to be erroneously put into the city’s general fund.

There was no discussion about those reported errors Wednesday, as it is not part of the committee’s purview. O’Hara said his committee only focuses on the city ordinance side of the TIF.

O’Hara, who has served on the committee since it began 2011, said after the meeting that he did not have any major takeaways from the discussion but the meeting was a valuable starting point for change.

“It was just grounding everyone in the same vocabulary and expertise,” he said.

Rudy told the Kennebec Journal last week that he was still searching for answers, and it will “take the time that it takes.” He echoed the same point on Wednesday.

“As we discussed earlier this week, I continue to work on the TIF issue and clarifying the City’s options and obligations,” he said.

The Finance Committee will meet May 20, May 30 and June 3 to discuss the error, according to Rudy.

 

WHAT IS A TIF?

LaRochelle — who said a TIF was the state’s “most flexible tool” to stimulate private sector development — said normal TIF districts can cover up to 2% of a municipality’s acreage for a single district, and up to 5% in total acreage for all districts. All districts combined may not exceed 5% of the municipality’s total taxable value.

At least 25% of the district’s value must be blighted, in need of rehabilitation or conservation, or suitable for commercial or arts use, according to LaRochelle’s presentation.

In every district, the municipality must create a development plan that is approved by the local government and the state Department of Economic and Community Development.

The district creates revenue by removing increased assessed value from the property’s original assessed value. The property owner pays their taxes in full, but only the original assessed value’s taxed value enters the general fund. The increased assessed value gets “captured” and goes to projects denoted in the development plan, or back to the developer as a credit enhancement to aid in more development at the property.

A city could choose to capture any amount of the increase assessed value, up to 100%.

Because the new development would cause real estate values to increase in a municipality, the state would ignore the increased assessed value when calculating the state’s valuation of the municipality. A lower state valuation means county taxes decrease, and state subsidies and revenue sharing increase.

LaRochelle said if a property not in a TIF district had a $5 million increase in value, it could lead to a municipality losing out on $1.7 million in sheltered funds — the funds would enter the general fund — over a 30-year period through school subsidy, revenue sharing and rising county taxes. Those estimates were based on a constant mil rate and “modest” 0.5% appreciation in property value.

According to City Treasurer Dawna Myrick, 60.7% of Hallowell’s general fund money went to the school district in fiscal year 2019, while 34.1% went to the city and 5.2% went to county administration.

A downtown TIF district is not subject to the same limitations by size or acreage, according to LaRochelle. Further, a downtown TIF allows the use of those funds for some types of public buildings but requires a downtown redevelopment plan.

Hallowell’s 190-acre downtown TIF district includes Stevens Commons, a stretch of Second Street south to Litchfield Road and north to Lincoln Street, the entirety of Water Street and the path of the Maine Central Railroad.

Downtown TIF funding could be used for projects that include, but are not limited to, infrastructural improvements at Stevens Commons, renovating the Second Street Fire Station, parking, promoting and marketing the city, Kennebec River Rail Trail enhancements, street lighting, public restrooms, improvements to business gateways and downtown wifi.

There are currently three TIF districts in Hallowell: the downtown district, a district for Woodlands Senior Living and a district for the Camden National Ice Vault.

Ice Vault owner Peter Prescott received a TIF in 2011 with a credit enhancement that returns all property taxes for 10 years. Aucoin said Prescott could renegotiate the TIF to extend 20 more years and direct some of its captured value into the downtown TIF — much like the Woodlands TIF district did when amended in 2014. That change, which took effect in fiscal year 2017, is the origin of errors Aucoin asserted last month.

After Aucoin asked if the DECD would regularly review TIFs, LaRochelle said the department did not have the capacity to review each individual district and relies on self-regulating and self-reporting by municipalities.

Rudy said in March developers are confused by the city’s TIF policy, which on one occasion required the city to pay lawyer fees to resolve. He said he wants to “streamline” the TIF language to the point where the document is “a marketing tool for developers.”

“Because we don’t have an economic development employee … having that document stand on its own as a liaison … with the development community has a lot of value,” he said.

LaRochelle told committee members to think of their priorities ahead of the next meeting when the group will start discussing changes to the city’s policy and comparing it to other municipalities.

“I think it would be important for you to look around the city and think about what you would like to see in terms of development,” he said. “From very specific buildings that may have been abandoned, … maybe your gateways in Hallowell, what kind of job situation … would be important (and) where would you like to center the development?”

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