The Scarborough Town Council will consider next week amending the terms of a special downtown tax district so the town has more options on using the revenue the district generates.

If approved, the amendment would lower residents’ property taxes. Based on this year’s town budget, Town Accessor Nicholas Cloutier at a Feb. 16 workshop estimated that the owner of a $400,000 home in Scarborough could save as much as $56 in property taxes if the change is approved.

The downtown tax district, known as a tax increment financing district, or TIF, was created in 2018 when The Downs project got underway. It comprises roughly 1,000 acres, spanning the municipal campus, Oak Hill, and The Downs development. The Downs takes up 524 acres of the district.

The developers of The Downs project signed a Credit Enhancement Agreement, or CEA, with the town in 2018. Through the agreement and TIF, The Downs developers see 40% of new tax revenue generated from the development going back to them for a period of 30 years.

“The CEA that was signed in 2018 with them was only possible because of this downtown TIF that was created,” said Scarborough Town Council Chairperson John Cloutier. “What we’re doing now is helping to pay for that 40% by offsetting it with saving some from the state.”

These TIF agreements are often used for affordable housing projects or large developments.

The TIF can be used to shelter value from the state’s evaluation, which dictates state education subsidies, state revenue sharing and county taxes. The new amendment will allow Scarborough to more efficiently shelter the other 60% of the value being generated at The Downs, and town officials expect it to benefit taxpayers.

“One of the ironies of growth and development is, as you build your tax base, there are actually penalties,” said Town Manager Tom Hall. “We get penalized when it comes to some of the funding formulas for education support and revenue sharing and then, in different ways, wind up paying more in county tax.”

As the value of the downtown district grows, taxes will continue to shrink if the town takes advantage of more of the allowed uses.

“The benefit to the taxpayer accrues,” Hall said. “The tax rate ends up being lower because of additional money from the state for revenue sharing and support for the education and less county tax.”

While The Downs does not see any financial benefit from the new amendment, they urged the town to further explore how they could use the TIF to the town’s advantage.

“There’s no direct benefit to them,” Hall said. “But they made the argument at the beginning, and it’s continued, that this development is a financial asset to the town if the TIF district is managed properly. They’re correct in that regard, it appears.”

The town is no longer considered a “minimal receiver” for state aid to education, Hall said, which greatly increases how much funding goes back to the state.

“The state actually takes almost 60% from Scarborough in the form of reducing what they might give back to use for other programs like supporting schools,” said Cloutier. “What the TIF does, what it allows us, is not give that 60% to the state as long as we are willing to spend it on things that the state deems ‘allowable uses’.”

The amendment will expand those “allowable uses.” Some uses the town already takes advantage of are traffic improvement and general economic development, which ranges from consultant fees, transit studies and the salaries and overhead costs for economic development staff.

The town is looking to add a number of uses such as funding public safety equipment and environmental infrastructure within the district, such as wastewater management. However, the biggest addition is the “cost of constructing or improving facilities leased by the town in the district.”

“This really is based on a conversation of a community center and, if that ever comes to fruition, this potentially will be a financial vehicle for us to fund that using TIF revenues,” Hall said. “To my knowledge, no one else in the state has used that part of the statute.”

He’d like that option to be approved as soon as possible.

“It’s one that I’m a little nervous about state law changing,” he said. “Maybe tightening that up or removing it all together.”

The Town Council is expected to vote on the new amendment at a meeting March 2. If passed, the state will then review the amendment to ensure it aligns with current state legislation.

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