HALLOWELL — City officials say staff members in Hallowell are well-equipped to handle finances ahead of the fiscal year 2020 budget, despite recent errors with city tax increment financing districts.

Last week, City Manager Nate Rudy circulated a memo saying the city would not face penalty from any state organization over errors made with regard to TIFs. The department that checks the agreements for compliance with state statutes confirmed Hallowell is working to amend errors to its downtown TIF district.

An uncertain period about city finances, which Rudy said Monday is holding up the budgeting process, started in April when City Councilor Maureen Aucoin, a member of the Finance Committee, voiced concerns with the city’s TIF districts.

Aucoin, a former assessor’s agent and interim city manager for the city, asserted that property in one TIF district and portions of the Downtown TIF district — one for the Woodlands Senior Living of Hallowell, a portion of the Summit Natural Gas pipeline and two properties on Winthrop Street — were not assessed correctly.

By Aucoin’s estimate, which she said she came up with after meeting with the city’s current Assessor’s Agent Rob Duplisea, 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.

TIF agreements allow municipalities to forgo increases in property taxes generated by new development within certain districts, as long those taxes are used for specific things. Though the municipality loses property tax revenue, money sheltered through a TIF agreement doesn’t count toward a municipality’s overall valuation. A lower valuation, generally, means more money from state revenue sharing. TIFs can also come with credit enhancements to put property tax money back in the developers’ pocket to help improve the property.

Since April, Rudy said the errors could be traced back to a lack of knowledge transfer between former and current city officials.

Mayor Mark Walker, who is serving his third term as mayor and was a city councilor for four years prior to that, said the city has seen seven city managers since he was first appointed a councilor. He said downtown development ramped up with the appointment of Michael Starn to the position, and the city’s planned transition to Stefan Pakulski was going well.

But Pakulski died suddenly in March 2016, leaving Aucoin, then the city’s code enforcement officer, to assume the role. Walker said this series of events started a phase of uncertainty.

Months later, a search committee conducted interviews with candidates and unanimously recommended appointing Rudy as city manager, according to Walker. With the city facing development projects in Stevens Commons and downtown, Walker said the committee held Rudy’s background — a former Gardiner development director and the former executive director of Waterville Creates! — in high regard.

“He had a good solid background in these issues,” Walker said. “I think (the search committee) was very impressed with some of the credentials (Rudy had).”

Troubles with city finances, he said, stem from the lack of continuity that placed Rudy in a difficult situation. Walker said he had full confidence that city staff would be able to move past the period of turmoil.

“Sometimes Nate gets frustrated (about) getting picked on by the media, Councilor Aucoin and the public,” he said. “That continuity hasn’t been there; it’s been a little bit chaotic in Hallowell.

“I think the way we have now is the best way,” Walker added. “I have 100% confidence (city staff) will get it right.”

Councilor George Lapointe also voiced his support for city staff and said the city has done a good job of correcting errors when they pop up.

Councilor Patrick Wynne said he had confidence in city staff going forward. He noted he doesn’t support the creation of more TIF districts in town because he favors property tax money going toward all city projects, rather than specific ones in specific districts, and did not want to shield local money from the school district.

Aucoin declined to comment on the performance of city staff but said Rudy’s contract expires this year and any performance issues could be reviewed by the council’s Personnel Committee.

Councilor Kara Walker, who chairs the Personnel Committee, declined to comment on the TIF issues before she received information from the Finance Committee. She said her committee meets in executive session to discuss personnel matters. Once an agreement is reached by that committee, the full City Council meets in executive session.

Eventually, a public action is taken outside of executive session to confirm or deny an employee.

Councilors Diano Circo, Michael Frett and Dufour did not respond to multiple requests for comment for this article.

 

CORRECTING THE ERRORS

In a May 16 memo to Rudy, Duplisea referenced a mistake on the original Downtown TIF document. Duplisea said the original document was “in error” because it declared the original assessed value of property in the district was $30,497,600, but “a correct calculation” was $41,097,700. He said the error was not discovered and was signed off on by the city’s Board of Assessors prior to his arrival as the city’s assessor’s agent. He recommended correcting this error immediately.

Duplisea said Thursday the error in original assessed value did not affect the value captured by the city, as it was calculated using increases in property value.

“That discrepancy is just in the starting point,” he said. “All the calculations were based solely on amounts of increase, and the starting point, no matter what is (or) should have been, did not alter the calculations.”

In the letter, Duplisea also said he found errors “that started in years prior to his arrival” regarding personal property calculations for the Kennebec Ice Arena TIF. He said the city incorrectly captured a total of $3,930.23 over fiscal years 2016-18. He said the error, along with other errors, will be amended going forward.

Kate Foye, spokeswoman for the Department of Economic and Community Development, said Wednesday her department — which reviews TIF applications for statutory requirements — met with Rudy “a month or so ago.” She said the city requested that Maine Revenue Services, which performs TIF audits, review the city’s finance; the revenue service provided the DECD with information from that review.

“Based on that conversation, it was apparent the City really needed to have their financial documents reviewed,” she wrote in a Wednesday email. “There has been continued communication to the City, following the MRS review, that once they had decided on a plan of action that they would need to notify DECD, in writing, of how these errors were going to be corrected.”

Foye said the department is “comfortable knowing the city is working to address the errors.”

“The City has kept DECD informed along the way,” she said. “Once the City has finalized how it will move forward, it is the expectation DECD will be provided the written documentation we have requested.”

When asked about the effect of the errors, Foye said different options to amend the error could have different effects but did not say what the effects could be.

“The City needs to determine what option is best for them,” she wrote. “What the City chooses as their path forward to correct the errors will determine the effect on the City.”

Rudy said a letter outlining the city’s plan for amending the errors has not been written because he is waiting for a sign-off from the City Council. He said he and city staff will work to amend the errors made this budget year.

“We will continue to review the mistakes and omissions we made this year, and I’m hopeful about the progress we’ve made,” he said.

While Rudy said last week that Aucoin’s assertions were correct, his memo said that if the missed value had been captured, it would have actually raised property tax rates. That information came from the memo Duplisea sent to Rudy. The city manager’s memo states the correct value would have reduced general fund revenue by $20,404, which would have increased the property tax rate by 10 cents per $1,000 in property value.

Aucoin said the tax rate could have stayed steady by selecting a lower mil rate or using TIF funds to cover other costs in the fiscal year 2019 budget.

“I don’t believe the mil rate necessarily would have increased,” she said in a Wednesday email. “The mil rate was set at 19.7 (per $1,000 in property value) for fiscal year (2019), but according to our tax rate calculation form could have been set at 19.6 (per $1,000 in property value).”

Rudy’s memo said “the City Council is not obligated to capture the full value of the TIF district.” Therefore, the state statutes governing TIF districts were not violated. Aucoin said she supports capturing the full value within TIF districts.

“Municipalities can elect to not capture full captured assessed value within a TIF district, but Hallowell City Council and Finance Committee never considered that option for FY 18/19,” she said. “In general, that is not an option I would support as fiscally beneficial to Hallowell.”

Lapointe said the city will begin capturing the full value of the TIF district going forward.

The Kennebec Journal reported the implications of the TIF errors could have long-term effects, because the city’s total tax valuation and property value assessment are used in formulas to determine state revenue sharing and school subsidies. Rudy said those effects would be “fairly limited” because some of them can be fixed while the city is crafting their fiscal year 2020 budget. Aucoin said the errors will have some effect on state funding formulas.

“While no direct penalties were incurred, the errors do affect the state funding formula, which in turn results in a significant loss of funds, which could have stayed within our municipality,” she said.

State officials have declined to meet with the Kennebec Journal to discuss the effects of the errors on the state’s funding formula. Maine Department of Administrative and Financial Services — of which the Maine Revenue Service is a bureau — spokesman David Heidrich did not comment before press time.