The developer of 58 Fore St. filed a tax increment financing, or TIF, application with the city of Portland. A TIF is a tax break offered to encourage major construction and rehabilitation projects in a municipality. Brianna Soukup/Staff Photographer Buy this Photo

Portland leaders expressed caution and skepticism last week as they began digging into the details of an unusual and complex proposal that could divert more than $280 million in future tax revenue to pay for improvements on the city’s eastern waterfront.

Portland Foreside Co. is asking the city to create a new business and tax district that includes 10 acres of land it is redeveloping at 58 Fore St. The proposal includes a request for a 20-year property tax break worth an estimated $127.8 million to help finance the redevelopment of the former Portland Co. railroad factory.

Another $153 million in tax revenue over 30 years would be used by the city for waterfront-area investments, rather than being added to the city’s budget for schools and municipal services.

City officials have stressed that they have only just begun to review the application and have not yet taken a position on whether to move forward with the proposal. They took the unusual step of making the application public before entering into private negotiations to alert the public.

“I put it on the agenda, and my point in doing that is getting it out in the public,” said City Councilor Justin Costa, who leads the Economic Development Committee, which reviewed the proposal last week.  

Councilors are expected to delve deeper into the details and begin negotiations in the coming months. The Economic Development Committee would be tasked with negotiating the details and issuing a recommendation to the full council, which would have final say.

This is really complex and complicated,” Mayor Kate Snyder said. “It’s the kind of thing we really ought to take our time with.”

Costa suggested that it could take awhile for councilors to fully understand how all of the moving parts work together and what risks and benefits it presents to the city.

“All three of those parts of the proposal are interacting and are intertwined with one another, but it may take us some time to unwind the three of them,” Costa said, later adding that there is no similar arrangement in the city. “We would have to think carefully about the financing structure because this is a precedent.”

THE PROPOSAL

Portland Foreside Co. is asking the city to designate 58 Fore St. as a business improvement district, much like Portland Downtown. A nonprofit group and a board of directors would be formed to oversee activities and projects within the district. And the group would be allowed to charge an additional property tax assessment to fund its activities.

The developers call their project the “Portland Market District,” and they say that, if fully built, it would roughly equal the size of the entire Old Port.

Bounded to the north by Fore Street and to the west by a planned extension of Thames Street, it would include 638 units of rental and resident-owned housing, 132 hotel rooms, nearly 60,000 square feet of retail space, a new marina and nearly 124,000 square feet of office space.

Work is already underway on the first phase of the project, a redevelopment of the former Portland Co. property off Fore Street that will start with a new office building for the insurance company Sun Life U.S. and its subsidiary Fullscope RMS. The current phase will also include a market hall, event space, housing, structured parking and more restaurant and retail space.

Casey Prentice, a managing partner of Portland Foreside Co., presented the proposed partnership to the City Council last week but did not respond to interview requests.

Although the 10-acre site is controlled by one owner, Prentice told councilors last week that the developers were proposing this new district and nonprofit in anticipation of properties changing hands in the future. The new district would allow for better coordination of investments and management of the properties going forward, Prentice said.

“We’re functionally filling the role of a municipality in many ways,” Prentice said, citing the need to provide snow removal, road maintenance, trash and recycling collection and other services on the privately owned site. 

The company is also asking the city to create a broader 70-acre tax increment financing district along the eastern waterfront, which would divert property taxes from all new development into special accounts to fund public improvements in that area. Sixty of those acres, including the Maine State Pier and waterfront land to its east, are controlled by the city.

And finally, the company is seeking a credit enhancement agreement that would refund 65 percent of property taxes paid on the 10-acre redeveloped area back to the developer.

The proposal also asks the city to borrow money on the company’s behalf.

The total amount of borrowing is not yet clear, though Prentice previously said as much as $70 million is needed to build publicly accessible infrastructure on the property, including roadways, sidewalks and utilities. The company would repay that debt using the reimbursed property taxes and additional tax assessments on property owners at 58 Fore St.

Greg Mitchell, the city’s economic development director, said the city would simply be “a conduit” to issuing the debt on behalf of the developer and bears no risk in the transaction. He said the developer would bear the sole responsibility of repaying the debt.

Mitchell also reminded councilors that they would be tasked with approving any special tax assessments within the district on an annual basis, just like they do with Portland Downtown.

“Every year, representatives of this nonprofit will be before you requesting funding to support their financial needs,” Mitchell said. “The developer and nonprofit bear the responsibility to pay back that debt service.”

Mitchell said in an interview Friday the debt partnership would be different from one the city had with Federated Cos. for the stalled Midtown project. As part of that project, the city borrowed $8.2 million in federal funds to help finance the construction of a parking garage.

However, Federated hasn’t moved forward with the garage and has sued the city in federal court over the stalled development.

To date, the city has paid $571,200 in interest on the loans, according to the city’s finance director. And the loans cannot be used by a different developer because of an existing contract.

They’re very different approaches,” Mitchell said. 

UNIQUE PARTNERSHIP

The partnership proposed by Portland Foreside would be unique to Portland, if not the state, although Mitchell said in the interview Friday that the arrangement is similar to Rock Row in Westbrook.

That project’s developer, Waterstone Properties Group, has not created a business improvement district. But a partnership with Greater Portland Metro allows the developer to access bonds through the Finance Authority of Maine that are typically reserved for nonprofit entities such as municipalities, hospitals and universities.

David Merriman, a professor at the University of Illinois in Chicago who has written about tax increment financing for the Lincoln Institute of Land Policy, said it’s not unusual for a developer that is part of a TIF district to use those proceeds to pay back bonds, although entering into an agreement with a business improvement district was unusual.

“I haven’t seen this exact arrangement elsewhere, but I think it is common to have some kind of backup to assure that even if TIF revenues are insufficient to service TIF-associated bonds there will be sufficient revenue,” Merriman said. “I have not heard of the BID approach, but it does not strike me as more complex than other deals I have heard about.”

If Portland Foreside’s request is approved, it would create a TIF district that would be larger than all of the other districts in the city combined.

WHAT’S A TIF?

Tax increment financing is a way for municipalities to stimulate investment, especially in blighted areas. Critics decry it as corporate welfare that diverts funding from other critical needs, while supporters says it’s one of the only tools a city has to foster economic development.

A city can either capture all of the new tax revenue in a given area to finance a predetermined list of public infrastructure projects, or enter into a credit enhancement agreement that refunds a certain percentage of those tax dollars to a developer to help finance a specific project.

The city has a policy that prioritizes areawide TIFs, but project-specific agreements are allowed as long the applicant complies with the city’s “green” building code, pays construction workers a prevailing wage and demonstrates a financial necessity.

In fiscal year 2019, the city had 16 TIF districts capturing $143.6 million in new property value, including three areawide districts covering the waterfront, downtown and Bayside.

According to the most recent annual report, the city returned over $1.1 million in TIF district tax revenue to private companies and kept over $2.1 million in accounts dedicated to specific infrastructure projects in fiscal year 2019. An additional $29.7 million flowed into the city’s general fund.

The agreement proposed by Portland Foreside would last for 30 years, but the developer would receive property tax rebates for 20 years, while the city would capture tax dollars for the entire period.

Portland Foreside predicts that full build-out of the 10-acre site would add $444 million in new value to the city’s tax rolls, resulting in an additional $12 million a year in new property taxes.

The company would receive 65 percent of the new tax money derived from redevelopment over a 20-year period. It says the agreement would result in a likely reimbursement of $127.8 million in property taxes to the developer and $153.1 million for the city. Those estimates are based on a flat mil rate of $23.31 and the property’s current valuation.

It’s unclear how those projections would be affected by the ongoing revaluation being conducted by the city.

The district would cover the 10-acre site, as well as 60 additional acres of city-owned land from the Maine State Pier east. Both properties are already part of an existing areawide waterfront TIF that expires in 12 years.

Mitchell, the economic development director, said removing those 70 acres and placing them in a new district would extend the life by 18 years. Because TIF district tax revenues are not counted as part of the city’s overall property valuation, that would protect the city from seeing increased county taxes and reductions in state education aid and revenue sharing, he said.

SKEPTICS WEIGH IN

Barbara Vestal, an attorney and former Planning Board member who lives on Fore Street, criticized the proposal in an email to city councilors. She believes the developer is already benefiting from the way the city is calculating allowable building heights and that no more assistance should be provided.

Vestal said the proposal, which would prevent new revenue from going into the general fund, would put the needs of the developer ahead of other city needs like sidewalks, street repair, sewer separation, emergency response systems, school maintenance and school construction.

“Please do not entertain giving away public tax dollars to enable them to produce something that is massively out of scale for the site,” Vestal said. “The taxpayers of Portland should not be asked to (forgo) spending on our very real needs in order to subsidize this bloated project, regardless of how the tax benefit is structured.”

City Councilor Belinda Ray, who represents the eastern waterfront, does not serve on the Economic Development Committee but attended Tuesday’s meeting.

Ray was skeptical about the proposal, which she described as “incestuous” and “circular.”

Ray said she was hesitant to provide more public support for the development, since the city has already spent $2 million to extend Thames Street to the property and sold the developer a 12,000-square-foot city-owned lot for only $400,000.

The city also allowed the developers to tear down a historically significant building in exchange for a public plaza, she noted.

I’m having a hard time feeling this would be a good deal,” Ray said. “It’s really hard for me to reconcile these past statements of obligation with what’s now being requested. That really needs to be out in the center of this discussion.”

Mitchell said details still need to be negotiated, including a list of projects that could be funded through TIF revenues and the management structure of the new nonprofit that would manage the projects financed by city bonds.

But Mitchell said the city could potentially benefit by having some of the bond money to pay for other projects on nearby city land, including the planned $16 million Portland Landing park, a new public pier and upgrades to the Maine State Pier.

“The devil’s in the details and all of those details have not been worked out,” he said. 

This article was updated at 9:30 a.m. Feb. 25 to correct the spelling of David Merriman’s last last name.

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