BATH

As Bath Iron Works pursues new tax breaks, an analysis provided by city
officials shows the defense contractor has received benefits in
excess of what was projected from an existing 1997 tax-increment
financing pact.

The 1997 TIF established two districts that were to produce a total
projected revenue for BIW of $78.5 million and for the city of
approximately $35.1 million on new taxes generated by construction at
the shipyard.

Records show that in 2012, the latest tax year available, the projection
was for BIW to receive $3,305,991. In fact, it received $4,068,787 —
$762,796, or 23 percent, more than projected.
On the city’s side in the same year, expected TIF revenue was
$1,481,614. In reality, the city received $927,386.

Based on TIF figures alone, the city has averaged only 66 percent of
projected TIF revenue while BIW has received, on average, 136 percent
of projected revenue from the deal, a city analysis concluded.

Two “clawback” provisions that weren’t part of the city’s analysis have
brought in more money to Bath’s coffers.

With the “clawbacks” factored in, “by my best calculations, BIW got 14.6
percent more than projections,” city tax assessor Paul Mateosian said,
“and the city received 6.8 percent less than projections” over 15-year
life of the TIF.

Officials said there is nothing in the 1997 pact that allows the city to
renegotiate the TIF, even once it was clear BIW was exceeding its
projections and the city was getting substantially less.

The city lost projected some TIF income because of state rules governing
business equipment tax exemptions — or BETE, Mateosian said.

The state Department of Economic and Community Development, at the
beginning of the TIF period, was rebating 100 percent of BETE funds Bath
was refunding to BIW.

But that percentage has decreased over several years, he said, beginning in
the early 2000s. The city is now receiving only 58 percent of the BETE
funds it was receiving in 1997.

The 1997 TIF was approved in order for BIW to construct its Land Level
Transfer Facility, a state-of-the-art facility that permits work outdoors on a large concrete block and a dry dock, allowing the company
to release newly constructed vessels safely by filling the container and
floating the vessel at river level, rather than using the old slipways.

The dry dock also was built that can be used to work on ships outdoors in
all seasons.

In the new facility, BIW retained 100 percent of the new value. That is,
Bath refunded all property taxes for the new structure. Bath retained
50 percent of the business equipment tax and other personal property
taxes.

On the LLTF, BIW got a refund of more than 45 percent of all its Bath
taxes in the last 15 years of the existing TIF.

If the city had not entered into the TIF agreement in 1997, and BIW had
not done the improvements at the shipyard, Bath would have brought in a
little more than $28 million more than it did in the last 15 years,
according to city figures.

If BIW had done the improvements anyway, and paid full freight, Bath
would have brought in more than $106 million from BIW over the same
period, according to figures provided by the city.

Mateosian said additional figures that aren’t on the city analysis
include two safeguards built into the 1997 TIF agreement that could
restore the funding back toward the original agreement.

The first safeguard, according to Mateosian, is a provision that if the
tax value of the old part of the shipyard drops below $128 million, some
funds would be taken back for the city. That provision was to ensure
that BIW didn’t abandon the older part of the shipyard, which was paying
the full tax share.

Over the last 15 years, that safeguard provision has brought $5,045,250
back to the city, bringing its total to $17,613,986 to date.

There is a second safeguard provision as well, according to the
assessor, which may kick in during the last portion of the TIF, which
expires in 2023.

This provision says that, should BIW begin to receive more than $85
million in refunds, the value of the real property in the TIF would drop
to the 2002 base value, prior to a 2005 revaluation. This could occur as early as 2020, if current trends
hold.

But even using those figures, there is a large variance between BIW’s
return on the TIF and Bath’s expected return.

Mateosian said projections are not exact, and many things, including the 2005 revaluation, took place during the last 15 years to affect tax calculations.

He defended the apparent discrepancy by saying the difference between what was expected to be paid to BIW and what BIW
actually received as “within the TIF ballpark.”

He also says that the numbers are likely to turn around in Bath’s favor
during the remainder of the TIF, if the second safeguard provision kicks
in.

Tax-increment financing has become an increasingly popular way to
finance development using public funds. Municipalities agree to forego
some of the property tax that would be generated, rebating it to
companies in exchange for projects that would create jobs, redevelop
derelict sites or generate future tax funds.

“I don’t know of anyone who believes the improvements at BIW were a bad
idea,” Mateosian said. “Would BIW have built the drydock anyway? No one knows.
Would BIW be here today without the [1997] TIF? I don’t think anyone
knows that, either. But ask anyone in Millinocket or Lubec what they’d
be willing to pay for $30 million of economic development,” he said,
referring to the TIF proposal currently in front of the City Council.

BIW is requesting a new tax-increment financing package it says is
necessary to remain competitive. The company wants to use sheltered
property tax funds to invest $32 million into its Ultra Hall.
The company expects the building will generate $500,000 in tax liability
every year; it wants the city to share that liability for the next 25
years in a 50-50 split — an arrangement much more straightforward than
the 1997 TIF.

A second official public hearing on the proposal is slated for
Wednesday, Nov. 20, at a City Council meeting where the TIF is expected
to be decided.

Meanwhile, a group of Bath citizens is holding a public forum at City
Hall tonight at 6:30 p.m. to discuss the proposed new TIF.
Bath Citizens for Responsible TIF Action said the program is a
moderated forum. Panelists include Orlando Delogu, professor emeritus at
University of Maine School of Law; Joel Johnson, economist from the
Maine Center for Economic Policy; and Benet Pols, Brunswick town
councilor.

Delogu took Bath and the state to court in 1997 to determine whether the
process of taxpayer funding of TIF districts — specifically, the BIW
TIF districts– was constitutional. The state supreme court ruled it
was.

Bath city councilors have been invited to tonight’s forum, but City
Clerk Mary White said not all will attend because if all did, it would
become a public meeting that would require the city to announce it in
print a week in advance. Some state legislators are also expected to
attend.

BIW officials declined the invitation. “We are extremely disappointed
that BIW has refused to attend the forum,” said Lorry Fleming, a Bath
Citizens for Responsible TIF Action representative. “There are pointed
questions that only BIW can answer.”

Some of the “pointed questions” the group wanted to ask were posed at a
Nov. 6 City Council public hearing, when Jon Fitzgerald, lawyer for BIW,
hinted broadly that BIW might not survive without the additional
$250,000 per year tax break from the city — a concern echoed by a number
of BIW employees in attendance.

Jerry Provencher, a member of the citizen’s group, said he was happy
someone was asking questions about BIW’s TIF funding.
“We have long thought there was a real problem when the largest
corporation in the city is getting millions of dollars back in tax
dollars but the schools need a special bond to just keep the doors
open.”

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