Site view of first floor retail and 58 apartments on upper floors of the proposed Capitol Heights Center on the site of the former Kmart on Western Avenue. A second apartment building has now been proposed. (Courtesy of City of Augusta)

Augusta city councilors approved a tax break worth up to $16 million over the next 30 years for a developer who plans to build a hotel and apartment buildings on the former site of the Kmart plaza on Western Avenue.

The developer has also announced plans for a second 60-unit apartment building, more than doubling the planned number of apartment units from 58 to 118, to be built in a planned second phase of the $50 million-$60 million project.

The new tax increment financing, or TIF, tax break more than doubles the tax revenues the developer of the project is projected to see, compared to the previous tax break approved by the city in January from $4.2 million to $9.9. million.

Under the new proposal, the amount of tax revenues that could be returned to the developer is capped at $16 million. That is meant to protect the city from providing a windfall to the developer should the development succeed and generate more tax revenues than initial projections foresee.

While the proposal has drawn criticism, city councilors said constituents they’ve heard from support the project, even with the larger tax break, because the mixed-use development is exactly what they want at the site, bringing retail, a restaurant, and some green space within easy walking distance to the state Capitol complex.

The addition of plans for the second apartment building, which would be built parallel to Western Avenue, and bring more housing that is of great need in Augusta, is another plus, said At-Large Councilor Stephanie Sienkiewicz. Without the tax break, she said, the project won’t go forward, and the city would see no increased tax revenue from the property.

“The updated proposal is very exciting, to see more housing going in,” Sienkiewicz said. “I think this speaks to the developers hearing what Augusta residents are saying, about wanting dense development there, wanting walkable communities, where they can live, get their retail, go out to eat, walk over to the Capitol complex, and things like that. The project continues to grow toward that desire in the neighborhood, so thank you for bringing it forward.”

Councilors approved the new deal in a unanimous 7-0 vote Thursday.

Developers are planning to transform the leveled lot where the former Kmart used to be on Western Avenue in Augusta, seen here earlier this month. (Anna Chadwick/Staff Photographer)

Project developers, led by George Campbell, brought the request for a larger tax break after struggling to get financing. A major obstacle, they’ve said, is Maine assessing rules, under which the property would likely only be assessed at around $20 million when complete, while costing up to $60 million to build.

Keith Luke, the city’s economic development director, said it’s hard for such large projects to be assessed at a realistic amount because there are no “comps,” or comparable properties, in Augusta or elsewhere in central Maine for tax assessors to base their assessments on.

Luke said once the project is built and its true value is reflected in its assessment, it could help other, similar large housing projects secure financing and spur more development.

Longtime local businessman Roger Pomerleau, a partner in the Marketplace at Augusta which also received a TIF tax break from the city to help create the shopping center off Civic Center Drive in the 1990s, said getting financing for a new scale of development in central Maine can be difficult when lenders are asked to loan funds to projects that are groundbreaking and new.

“The Marketplace at Augusta is kind of parallel to this,” Pomerleau said.

In 1992, the retail center was a major project and there weren’t many other projects to compare it to, he said.

“I’m here to testify that it’s very real, and the needs are real and I can see where tax increment financing would make a difference in that project as a first major catalytic project,” Pomerleau said. “I think it will leverage potentially hundreds of millions of (dollars worth of) projects up and down Western Avenue. I’m just here as a witness that it can happen, it has happened in the past, and I think these things come along once every generation or two, so I think you’re making the right move. It’s really going to pay dividends in the long run for years to come.”

Luke said the addition of the cap protects the city against unintentionally providing a windfall to the developer, if and when the taxable new value of the project grows. Once the project generates $16 million in new taxes returned to the developer, all additional new tax proceeds would go to the city, even if it reaches that level within the 30-year lifespan of the TIF.

“This project will transform a long-vacant and underutilized property into a vibrant mixed-use development,” Luke said. “Updated plans now include up to 118 market-rate apartments, a hotel, and first-floor retail space. Total investment is projected to be between $50 million and $60 million, making it one of the largest private investment projects Augusta has seen in years. If approved, it will secure a transformative investment, help meet Augusta’s housing needs, and send a strong message of confidence in our local economy.”

Luke said the addition of a second apartment building won’t necessarily make getting financing any harder.

He said the adding of 60 units of housing can improve feasibility by spreading out fixed costs, strengthening projected cash flow, and increasing taxable value.