Augusta city councilors this week approved a tax break estimated at $4.2 million for a local developer who proposes building a hotel, apartments and retail buildings at the site of a former Kmart on Western Avenue, pictured in October with the Capitol building in the background. Joe Phelan/Kennebec Journal file

AUGUSTA — City councilors on Thursday unanimously approved a tax break for a $48.5 million proposal to build a hotel, apartments and retail buildings at the former Kmart plaza site, expressing hope it will kick-start a rebirth for the much-maligned Western Avenue corridor.

City councilors approved a revised tax increment financing, or TIF, proposal that will return much of the new tax revenue expected to be generated by the project — an estimated $4.2 million — back to developers to help offset the cost.

Councilors previously approved zoning changes to allow the hotel building on the site to be up to 85 feet tall and allow for a more dense development at the site, which is currently the location of a strip mall.

The site is on lower Western Avenue and near the state Capitol. Officials hope a walking path proposed for the rear of the property, which would traverse a steep hill down to Capitol Street, would link the two sites and allow people at the hotel or apartments to have easy access to the state complex.

“I’m thrilled about this project. Particularly, I’m excited to be able to walk from the State House over to a beautiful new development, through the pathway, and really excited to see what this does for the overall development of the Western Avenue area and community,” said At-Large Councilor Courtney Gary-Allen.

The proposal, which has drawn nothing but praise from officials and residents at a series of recent public hearings, follows on the heels of a controversial proposal to build a large self-storage facility on the site, which many area residents said would not be a good use of the high-profile but neglected property.

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City councilors rejected that proposal, with some saying they thought the site would be better developed with housing, which is included as part of the proposal now in the works.

Ward 3 Councilor Mike Michaud said he was “hugely in favor” of the self-storage proposal, but that the new development proposal is a better opportunity and a major improvement from the previous proposal and what’s at the site now.

“I’m certainly glad this one came along,” Michaud said. “At the end of the day I think it’s going to be leaps and bounds better than what was there. We’ve very fortunate Mr. Campbell and his team came forward with this vision. I love more housing. I love a hotel. I love retail.

“It’s going to make that property a very, very vibrant property for many years to come and I’m looking forward, very much, and hoping the bulldozers show up sometime this year and get that project rolling.”

The catalyst for the proposal, which has been dubbed Capitol Heights, has been part-time Augusta resident George Campbell, who proposes to work with other developers to build an approximately 120-room hotel, 50-unit apartment building and two small retail or office spaces, all surrounded by landscaped grounds. Campbell — formerly a state transportation commissioner in both Maine and New Hampshire, mayor of Portland and president of The Boulos Co. who now works as a consultant — has said a tax break is necessary to make the financing work for the project.

The tax increment financing agreement would return 75% of the new property tax revenue 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.

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The terms are similar to a TIF deal the city recently approved for another proposed major development project, to redevelop the historic downtown Olde Federal Building into a boutique hotel.

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. The TIF was structured to allow multiple developers to benefit from its terms, as different developers are expected to be involved in different pieces.

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.

Campbell has an option to purchase the property from longtime owner Richard McGoldrick. He would work with partners to develop the site, and does not intend to own the property once it is developed.

To move forward, the final proposal would go before the Planning Board for site plan review.

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