A proposal to redevelop Augusta Plaza on Western Avenue in Augusta, shown Oct. 18, into a hotel, housing, retail and offices took a step forward this week as city councilors discussed a proposed $4.2 million tax break for the project. Joe Phelan/Kennebec Journal

AUGUSTA — City councilors are poised to give a tax break to a $48.5 million proposal to develop the run-down former Kmart plaza site off Western Avenue into a hotel, apartments, retail and more.

The $4.2 million tax break, developers say, will make it possible to build a 120-room hotel, 50-unit apartment building and two buildings for retail at the site, which also would be landscaped with greenery, a fountain and a walking path down to the state Capitol complex.

Developer and Augusta resident George Campbell said it may be possible for someone to build apartments or a hotel on the cheap at the crumbling site without a tax break from the city. However, he said, it would not be possible to build what he envisions as a high-end development worthy of a site so close to the state Capitol that would make the community proud.

“My theme is simple — we only want to work with developers that want to bring the kind of project that the capital city deserves,” said Campbell, a former state transportation commissioner, mayor of Portland, and president of The Boulos Co., who now works as a consultant with McClure Engineering and in his own consulting business. “And Kmart is not that quality project. This can be, and we’re excited about it.

“We can’t bring this project, as envisioned, forward without some help from the tax increment financing. We could put some apartments in there, maybe stick a hotel in there, but I don’t think that’s the kind of project we want to live with. That you want to live with. Or I, as an Augusta citizen, want to live with for the next generation.”

Councilors did not vote on the proposal Thursday, but could as soon as their next business meeting Dec. 19. Several of them expressed support for granting a tax break to help the project, similar to one they recently approved for another proposed major development project, to redevelop the historic downtown Olde Federal Building into a boutique hotel.

“This is going to be a staple for our community for the next generation and probably multiple generations after that and I am so excited for this project,” said At-Large Councilor Courtney Gary-Allen.

A proposed tax increment financing agreement would return 75% of the new property tax revenues generated by the project back to the developer for 20 years, with the city retaining the other 25%. The TIF agreement would actually extend for 30 years, but in the final 10 years the city would receive all of the tax proceeds, according to Keith Luke, Augusta’s economic development director.

Over the 30-year period of the TIF, based on estimated tax revenues, $4.2 million would be returned to the developer, with the city retaining $3.7 million.

TIFs allow municipalities to shelter property taxes generated by new development within designated districts. Sheltering money through a TIF means it would not be added to the city’s total property valuation for state tax calculation purposes.

Without that, as a municipality’s total property valuation increases, its state-provided revenue — such as aid for education and revenue sharing — decreases, and its county tax liability increases. Since new value sheltered in a TIF does not count toward a municipality’s property tax value, its state aid funding is not cut until the TIF expires.

Augusta Plaza on Western Avenue in Augusta is shown Oct. 15. One Augusta developer proposes building a hotel, apartments and retail buildings at the site. Joe Phelan/Kennebec Journal

Luke said even during the TIF period when the city would only retain 25% of the increased tax proceeds, the project is expected to pay the city at least twice as much in property taxes as the dilapidated property pays the city now.

The project also needs two proposed zoning changes to allow it to be taller than buildings are now allowed in that zone, up to 85 feet versus 42 feet, and to exceed the city’s floor area ratio requirements to allow for more density of development on the nearly 8-acre property. The Planning Board has recommended both those changes and councilors could also vote on those at their next meeting.

In addition to Campbell, the project has some other local and state heavy-hitters involved. They include David Bernhardt, also a former Maine transportation commissioner who’ll serve as an engineer on the project; Joe LaJoie of Lajoie Brothers construction in Augusta; former state Rep. Raegan LaRochelle, who worked on the TIF proposal; and former Augusta city manager and current state Rep. William Bridgeo, D-Augusta, whom Campbell said is a friend of his who “got me in the middle of this.”

Luke said the involvement of LaJoie is fortunate because he’s a local contractor who hires local workers.

Campbell said his role is that of a facilitator, and the team is talking to two different developers about taking on the project. Chris Clement, of McClure Engineering, said they’re also talking to a couple of different hotel companies about locating at the site.

Bernhardt said one thing they hope to add is a walking path to go from the backside of the project site down a steep embankment to Capitol Street below, where the state Capitol and offices are located, so people doing business with the state could stay at the hotel and easily walk to the Capitol and state offices.