The city is facing a revenue shortfall because downtown growth isn’t meeting the city’s projections.

City Administrator Jerre Bryant said the downtown tax increment financing (TIF) district is running a deficit because development downtown hasn’t occurred at the rate the city projected. “The TIF was built around things happening very quickly,” Bryant said.

The city created the TIF district to encourage growth downtown by paying for improvements to the downtown infrastructure. Those projects were to be paid by tax revenues from new downtown growth, which would go into the TIF. However, that growth has been slower than the city projected.

The downtown TIF was created to pay for the municipal parking garage as well as redundant power and Internet service for areas of downtown. Bryant said the city had also originally planned to use some downtown TIF money to pay for the reconstruction of William Clarke Drive, but the city has put that project on hold to seek state funding. Because the project has been delayed, Bryant said the city never borrowed the money.

While the projects have been successful in bringing some growth to the downtown, growth has not proceeded at the anticipated rate. As a result, the revenues have been smaller than anticipated.

Revenues from the downtown TIF have been far smaller than projected, Bryant said. In 2003 and 2004, revenues from the TIF were $104,000. For 2005, the TIF was projected to generate $181,000 in revenue.

Bryant said this year the TIF would realize slightly over $106,000 in revenue. The picture does not get much better for 2006. While the TIF was projected to generate slightly over $318,000 in revenue, the city is now projecting an estimated $110,000.

Over the past three years, the TIF has accumulated a deficit of over $400,000. Mayor Bruce Chuluda has proposed that the city make up that shortfall by using money realized from the sale of the old police station in Cumberland Mills.

While this payment would take care of the existing deficit, the downtown TIF continues to generate a shortfall on an annual basis, and that deficit must be paid with taxpayer dollars, said Bryant.

At this point, Bryant said there is roughly a $300,000 shortfall between TIF revenues and debt service payments, which must be paid out of the city’s general fund. Bryant said that the $300,000 would cost the taxpayer 25 cents on the tax rate this year. Bryant added that as the city continues to pay down the bonds, that deficit would eventually decline over the 20-year life of the TIF.

“This is not a spending increase; it’s a revenue loss,” Bryant said. “Payment of the debt was always in the city budget. It was supposed to be covered by revenues from the TIF. There was supposed to be a corresponding revenue to cover the cost. It hasn’t materialized.”

Bryant said developing Saccarappa Park remains a key component in the downtown growth, and also to help make up for the revenue shortfall in the downtown TIF. “From an economic standpoint, Saccarappa Park absolutely needs to be marketed to help pay the shortfall,” he said.

On Monday night, the City Council voted unanimously to approve a request for proposals for the park. The RFP is due to be sent out to developers on May 1, and the city anticipates announcing the results of the process on Aug. 1. The request asks for proposals for developing 60 percent of the land, leaving 40 percent as open space.

Economic and Community Development Director Erik Carson said he feels that besides increasing revenues for the downtown TIF, redeveloping the park would help spur further development downtown. “It’s important because it sends a signal that the downtown remains open for business and development,” Carson said.

Bryant said a new building assessed at $5 million would bring $112,000 in new revenue to the TIF. “That goes a long way to closing this gap,” he said.

By preserving some of the park as open space, Carson said he believed the city could have the best of both worlds, increased revenue to help out the downtown TIF while still having a small park downtown.

“I think it can be a real crown jewel,” Carson said. “Because you’ve got a mixed use component there along with open space.”

Unlike the city’s other TIF districts, which were created to encourage growth by returning a portion of property tax paid by developers, the downtown TIF was created specifically to pay for improvements in the downtown.

“The reason the downtown TIF is so different than anything we’ve ever done is that it was done to fund public projects,” Bryant said. “The other TIFs were done as incentives for growth where the money was shared. There’s no expense incurred. It’s just a sharing of new revenues. The problem with this TIF is that it puts all the expenses up front.”

While the parking garage was the major cost covered by the downtown TIF, Bryant said the redundant power and Internet was put in place to attract businesses to the area. “The city was looking to be highly attractive to new and emerging technologies,” Bryant said. “It was bringing a 21st century infrastructure to an older downtown.”

Bryant said the redundant power and Internet service was a big factor in bringing Disability RMS to Westbrook.

Bryant said the downtown growth projections were based on the assumption that there would be a major development on Saccarappa Park.

Carson agreed the failure to develop Saccarappa Park was a big factor in why growth failed to meet projections. “Part of the hole that has been created was the fact that the city did not sell the parcel it anticipated selling,” Carson said.

Bryant said that originally the city did not specifically eye Saccarappa Park for development; it was simply looking for an appropriate location for a major office facility. As the search went on, Bryant said the park emerged as a highly desirable location for downtown development.

He also said that Time Warner Cable had expressed an interest in purchasing or leasing the Mechanic Street fire station to house a major switching station. “They were talking about millions of dollars of equipment being brought into that facility,” he said.

Bryant said the projections were based on the redevelopment of the Maine Rubber building at the end of Main Street. He said the city has been working with the owners of that building, but no redevelopment plans have emerged. “They’ve had a number of potential redevelopment projects, but nothing has panned out,” he said.

When those projects failed to materialize, Bryant said it was difficult for growth to meet the projections. “The major catch up takes place when you have one or two major projects in the downtown,” he said. “Until there is a major project, the city will have to pay the debt from the general fund.”

Carson said the city continues to work with developers to bring growth to the downtown, but while there are some smaller projects in the works, he once again stressed the importance of Saccarappa Park in helping spur downtown growth.

“That parcel is important because of what it represents,” Carson said. “I think we can have the best of both worlds with development and open space.”

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