PORTLAND — Some Portland officials want to tighten the rules of a city program that gives tax breaks to developers in order to spur development in blighted areas or create new jobs.
Critics say the tax increment financing, or TIF, projects have evolved into corporate give-aways to companies that either don’t face a financial hardship or would have developed the project with or without the incentive. Backers say they are a powerful economic development tool, and note that if an area isn’t developed, it brings in little to no tax revenue at all.
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“Right now, we just sort of hand out (tax breaks) to projects that ask for them,” City Councilor John Anton said. “There’s no framework for deciding which private business deserves a lower tax rate.”
One of the largest TIFs was approved last year: a $31 million, 30-year property tax break for the $105 million Thompson’s Point mixed- use project, which the developers indicated was needed for the financing package to work. Also last year, a $2.9 million tax break was awarded to the city’s largest law firm, Pierce Atwood, for the firm to move a few blocks to a derelict waterfront building after the firm threatened to move to South Portland.
That sort of use has raised questions among some council members about whether the city needs to limit the kind of project that can apply for, and receive, a tax break under the TIF program. They are also considering a limit to how much property tax money is returned to developers, shortening the 30-year term, and discouraging TIFs on prime real estate.
“When we approve TIFs absent a policy context and the rationale is little more than cheerleading, then we’re sending the message: You get a tax break, you get a tax break — everybody gets a tax break,” said Councilor Kevin Donoghue.
In addition to the two TIF proposals being voted on today by the council, there are two new TIF requests going before the Housing and Community Development Committee Wednesday during an executive session. No details about the two latest proposed TIFs are currently available.
In a typical TIF agreement, a percentage of property tax revenue from new development is returned to the developer to offset the costs of the project or for some agreed-upon purpose.
Portland also has three TIFs that cover entire neighborhoods — Bayside, the waterfront and the Arts District — where a portion of property taxes is set aside by the city to pay for improvements in that neighborhood.
The desire to sharpen TIF requirements was prompted largely by two TIF requests coming before the City Council on Monday, for major projects intended to spur development in the city’s India Street neighborhood.
In both cases, the developer is seeking the tax break to offset the cost of a city requirement.
The Village at Oceangate first sought an exemption to build above the area’s height restriction for its Bay House project, a 94-unit apartment complex on the former site of the Village Cafe just off India Street. The city agreed, on the condition the developer build some public infrastructure, such as contributing $200,000 to the city to extend Hancock Street. The company agreed — and then turned around and requested a $648,000 TIF to pay for those improvements.
The other request, from Opechee Construction Corp., seeks up to $850,000 in tax breaks to cover the cost of meeting a city requirement to relocate an existing Middle Street utility line underground for a residential, office and retail development at the former Jordan’s Meats site at the intersection of Fore, Middle and India streets.
“That is an area where policy should not allow us to grant a tax break,” Donoghue, the city councilor, said of the Bay House request. “Because it renders void a negotiated outcome.” Donoghue voted against the TIF in committee.
As the city considers changes to its TIF policy, the key will be striking the right balance, Mayor Michael Brennan said.
“We need to make sure we are negotiating the best deal for the city, while promoting economic development and making sure there is a public good,” Brennan said.
Currently the city’s basic TIF agreement requires the project to add more than $2 million in new value to the city. Applicants must also outline the extraordinary challenges with a certain site and explain why the city’s participation is needed.
For some critics, any tax break to individual developers is a bad idea.
“Giving away TIFs is just giving away taxpayers’ money,” said Orlando Delogu, a law professor at the University of Southern Maine. The onetime Portland city councilor, who has long been opposed to tax breaks, said he supports the regional TIFs but not ones that return tax money to developers.
“It is so inherently inequitable to the remaining property owners in a community,” Delogu said.
CURRENT TIF PROJECTS
Since the first Portland TIF was approved in 1994, the city has returned more than $18 million in tax revenue to developers. The original value of the TIF properties was $75.4 million, and that has soared to $490 million.
Under the existing agreements, the city will return an estimated $65 million to developers over the next 30 years. By comparison, Portland property owners overall pay about $140 million in taxes every year.
The two biggest active TIFs in Portland are a $10 million-plus TIF to Unum Life Insurance and a $3.9 million TIF (since 1995) to Nichols-Portland, an automobile parts manufacturer on outer Congress Street. Unum is using the tax break, which ends in 2015, to pay for stormwater systems on its property; Nichols’ agreement, which ends in 2014, is used to purchase new equipment to remain competitive in the marketplace.
Only two Portland TIFs have reached the end of their agreement — Shipyard Brewing and Auto Europe, a call center that books overseas car rentals.
The city returned $1.2 million to Auto Europe between 1997-2011, to offset the cost of renovating a historic building, while $700,000 was returned to Shipyard Brewing between 1996-2007, to help clean up the industrial location.
City Economic Development Director Greg Mitchell said the Shipyard and Auto Europe TIFs helped turn around the Old Port by transforming vacant, unused properties on the edge of the district into vibrant and successful businesses, which in turn makes the area more attractive other developers.
The current $272,000 Baxter Library TIF granted to developers Rex Bell and Robert C.S. Monks helped fund the $2.5 million renovation of the 124-year-old library. Monks is a board member of MaineToday Media.
The building, leased to marketing agency VIA, has revitalized upper Congress Street, Mitchell said.
“At the times of their investments the buildings were in run-down condition and were in areas of the city that were not as vibrant as they are today,” Mitchell said. “TIFs have a defined time frame, it’s a share of the tax revenue, and the investment being made in both the project and the infrastructure can theoretically last a lifetime.”
Shipyard President Fred Forsley said the brewery wouldn’t have opened on Newbury Street without a tax break.
“That wouldn’t have happened without a TIF,” Forsley said. “(The property) was an environmental hazard and had been vacant for 15 years. Before we were given a TIF, people wouldn’t even walk around down there.”
Meanwhile, on outer Congress Street, a TIF was instrumental in convincing Unum to choose Portland as its headquarters, according to David Brenerman, Unum’s vice president of governmental affairs and a former Portland mayor.
Brenerman said Unum might have located elsewhere without the TIF money to upgrade utilities to accommodate the company’s work force of 3,000 people, who were spread throughout several communities.
“The project made sense with the TIF,” said Brenerman.
NO GUARANTEE
Each TIF agreement is unique, and spells out why that particular TIF is needed, the public benefit, and usually includes the projected number of jobs created.
But those figures are not firm commitments for which the developers are held accountable.
“There is a tendency to overpromise,” said Charles Colgan, a professor of pubic policy at USM’s Muskie School, who believes TIFs are a valuable tool for towns to stimulate economic development.
Of all the city’s TIFs, Riverwalk in the Old Port has most clearly fallen short of its original goals.
Riverwalk was supposed to create 33,000 square feet of retail space, 110 densely developed condominium units, a 50-room luxury hotel and 20,000 square feet of office space.
But after five years and $565,000 in returned taxes, developers have only built a 750-space parking garage at the corner of Fore and India streets, which sits largely unused. The planned retail space on the garage’s ground floor is vacant, with dirt floors and unfinished walls.
Yet city officials don’t view the Riverwalk agreement as a failure.
Mitchell says the garage makes the area attractive to development, noting that retailers such as Whole Foods, Walgreens, Bayside Bowl and Federated Cos. have been attracted to Bayside.
“I think it’s just a matter of time,” Mitchell said of the eastern waterfront.
ONE MUNICIPALITY VS. ANOTHER
City officials say in recent years, TIFs have been used to pit communities against each other. Oftentimes, developers seeking TIFs will make public statements about looking at several locations and considering other TIF offers for their project.
While that makes financial sense to a developer, municipal officials say it pits them against one another — a common complaint, according to Geoff Herman, the director of state and federal relations at the Maine Municipal Association.
“The (TIF) program was not necessarily intended to see whether a relatively small retail operation should be set up on one side of the river or an other,” Herman said. “But TIF issues can be drawn into that type of debate.”
That only rewards the community that gives away the most, Delogu says.
“(Companies) whipsaw towns, they whipsaw states, and the big guys whipsaw entire countries,” he said. “You have cities fighting with cities, states fighting with states, countries fighting countries, and the big corporate guy is smiling all the way to the bank.”
That dynamic played itself out when the council was considering the TIF for the Cumberland Cold Storage building.
At the time, Portland’s largest law firm, Pierce Atwood, threatened to take its 175 employees across the river to South Portland if the TIF wasn’t granted. The council approved a deal to return almost $3 million to the developer over 20 years.
Now, a similar threat faces the city.
Auto Europe, at the end of a 15-year TIF agreement that returned $1.2 million to them, is pressing Portland officials to continue the tax break — or the company will move its 240 employees to Biddeford, Westbrook or New Hampshire.
“I love Portland. I love my building. It’s a great view,” said Imad Khalidi, Auto Europe’s chief executive officer. “But I don’t pay my employees with a view. I pay them with money.”
So far, the city has balked at his request.
RULES UNDER REVIEW
In addition to proposals to change the requirements for a TIF, some city councilors say the city should be using the economic incentive in more strategic ways.
For example, Donoghue and Anton say the city should approve more district-wide TIFs rather than deals with specific developers.
Donoghue would also like the city to use its TIF policy to encourage more affordable housing. The city should establish criteria, such as location, for affordable housing, and actively advertise those subsidies to developers.
Donoghue said he hoped the council can have a meaningful discussion about a long-term TIF strategy.
“As long as we don’t have a tax break request staring over our shoulder getting us all excited, I think we’re completely capable of having a rational discussion,” he said. “But in my experience we can quickly get irrational when the music man comes to town.”
Staff Writer Randy Billings can be contacted at 791-6346 or at:
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Twitter: @randybillings
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