Portland voters’ decision Tuesday to block the sale of Congress Square Plaza reinforces the city’s image as a risky place for investment because anti-development activists have so much power, say leaders in Portland’s business community.

The problem isn’t City Hall, they say, but residents who use the court system and the referendum process to block projects that have city approval.

They point not just to Tuesday’s referendum, but to recent lawsuits that aim to overturn city approvals of the $150 million “midtown” development in the Bayside neighborhood and the rezoning of the historic Williston-West Church in the West End to allow office space in the building. The lawsuits have put both projects on hold.

Portland residents’ willingness to sue or seek referendums to overturn city decisions increases risks for developers and makes them more cautious about investing in the city, said Drew Sigfridson, a commercial real estate broker in Portland who is president of the Maine Real Estate & Development Association.

“What kind of message does this send to people who are looking to invest in the city of Portland?” he asked. “You can play by the rules and go through all the permitting processes you want, but ultimately the planning process might not matter if a few people don’t like your project.”

The cumulative effect of the stalled projects could have a lingering negative effect on the city’s investment climate, said Chris O’Neill, a lobbyist for the Portland Community Chamber.

“Portland is an inclusive, activist community. That is good,” he said. “But it comes with some peril.”

Tuesday’s vote blocked an agreement between the city and the owner of the Westin Portland Harborview hotel, Rockbridge Capital, which spent $50 million on renovating the former Eastland Park Hotel.

The deal called for Rockbridge Capital to buy part of Congress Square Plaza for more than $500,000 and build a one-story event center. Rockbridge Capital also agreed to spend nearly $100,000 to improve sidewalks and form a plan to reconfigure a new, smaller park.

Bree LaCasse of Protect Portland Parks, which led the successful referendum campaign, said election results shouldn’t scare away developers because the issue on the ballot was only about how to sell public parks.

“The only message that has been sent to developers is that if they are looking to purchase open spaces, it’s not simply a matter of contacting a few city councilors,” she said.

With Tuesday’s vote, city-owned park land can’t be sold without the approval of at least eight of the City Council’s nine members, or by a majority of voters in a citywide referendum.

The idea that such restrictions would cause developers to hesitate before investing in the city is ridiculous because Portland is in the middle of its biggest development boom since the Great Fire of 1866, said Peter Monroe, a landscape architect who co-founded Keep Portland Livable. The group was formed to oppose the midtown project, which would include four, 165-foot-tall towers along Somerset Street.

Monroe, who spoke publicly in favor of the proposal on Tuesday’s ballot, said residents have to check the power of the City Council, which he described as the most development-friendly council the city has ever had.

“The problem is, they are too pro-development,” he said of the council. “They agree to anything a developer proposes, and they think that their will is the final say. … Thank goodness we have the citizen initiative and we have the courts that provide the checks and balances to a runaway branch of government.”

Officials with the Westin Portland Harborview and Rockbridge Capital could not be reached for comment Wednesday.

Nathan Smith, a former city councilor who is working as an attorney for Rockbridge Capital, said Portland’s economy goes through “fits and starts,” and it’s important that projects get built when times are good because they boost the economy and increase the city’s tax base.

He said lawsuits, even those without merit, can kill a project simply by delaying it until the economy sours. That’s what happened to a proposed Stop & Shop supermarket at Morrills Corner, he said.

That project was killed during the recession in 2009, seven years after it was first proposed. Two lawsuits had been filed after the project won city approval.

“These good times are a window of opportunity,” Smith said. “You need to get stuff built that should be built.”

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