August 22, 2012

Portland's new rules would reduce business tax breaks

A City Council committee will begin review of a proposal that would be less generous for developers.

By Randy Billings rbillings@mainetoday.com
Staff Writer

PORTLAND — A City Council committee will begin considering a proposal Wednesday to change the way Portland awards tax breaks to developers to spur development in blighted areas or create jobs.

The proposed policy for tax increment financing would set a cap of 50 percent on the amount of tax revenue that could be returned to developers, and shorten the deals to 10 to 15 years, instead of the current 30 years.

The city would also aim to cluster the tax breaks in "priority areas" that would be determined later, and require the city's staff to report annually to the City Council on the status of existing agreements.

In a typical TIF agreement, a percentage of property-tax revenue from new development is returned to the developer to offset the cost of the project or for some agreed-upon purpose.

Critics say the agreements have evolved into giveaways to companies that don't face financial hardships or would develop their projects regardless of tax incentives.

In Portland, some agreements return tax revenue to developers to pay down the debt on their projects or to pay for required public improvements, leading some to criticize the program as a form of corporate welfare.

"There's a lot of small businesses that make up a large part of our economy who are not getting this kind of subsidy. So where do you draw the line?," said Councilor Cheryl Leeman, a member of the council's Housing and Community Development Committee.

The committee is expected to meet several times to form a policy to forward to the council.

The review is an effort to develop rational, objective and quantifiable criteria for TIF agreements, said Mayor Michael Brennan.

"That doesn't mean there shouldn't be flexibility based on individual projects," he said. "There should be a framework that both councilors and developers or business people ... that they understand the overall framework about what the city is trying to accomplish with a TIF."

Since the first TIF was approved in 1994, the city has returned more than $18 million in tax revenue to developers. Under its existing agreements, the city will return an estimated $65 million to developers over the next 30 years.

By comparison, Portland property owners pay about $140 million in taxes every year.

The two biggest TIF agreements are a $10 million-plus deal with Unum and a $3.9 million agreement with Nichols-Portland, an automobile parts manufacturer on outer Congress Street.

The policy review was prompted by the number and size of recent tax breaks, including a 30-year, $31 million TIF agreement for the Thompson's Point Development Co. and a $2.9 million TIF to renovate the Cumberland Cold Storage building on the waterfront for the city's largest law firm, Pierce Atwood.

This year, the city has awarded two additional tax breaks: nearly $650,000 for a market-rate apartment complex on India Street known as Bay House and $650,000 for the second phase of Opechee Construction's Hampton Inn project.

Two more TIF requests are pending, but the city is not releasing any details about them.

The proposed policy would:

• Limit the percentage of new tax revenue that can be given back to a developer to 50 percent, down from 75 percent.

• Set a 10- to 15-year limit on TIF agreements. State law allows TIFs to last 30 years.

• Prioritize certain industries and initiatives, such as life sciences, marine, information technology and manufacturing.

• Prioritize affordable housing.

• Require developers to hire local contractors and comply with the city's Green Building Code.

• Eliminate a $250 application fee and a requirement that developers reimburse the city for legal and out-of-pocket expenses, since it was never enforced.

(Continued on page 2)

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