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.
Some of the proposed changes are already the city’s practice, said Economic Development Director Greg Mitchell.
“I view the policy as guidelines to be followed,” Mitchell said, “and each TIF request can be reviewed on a case-by-case basis.”
TIFs also shelter new property value from being considered in county taxes and state education and revenue-sharing. When a city adds value, its taxes increase and its subsidies decrease.
The new policy calls for the city to compare the money saved through sheltering with the tax revenue that would not go to the city budget, to determine whether the city would get a good deal, Mitchell said.
“I wanted the policy to be really high-level policy versus putting so much detail in there,” Mitchell said. “This is all up for discussion for the committee.”
Leeman said Tuesday that she thinks the proposed policy is too general and would allow exceptions for projects that “demonstrate extraordinary public benefit,” which is not defined.
“I’m not sure there should be exceptions,” she said.
Leeman said the policy should expressly prohibit TIFs for projects that receive special zoning considerations.
One project got an exemption from a height requirement in exchange for some improvements, then the developer sought a TIF agreement to pay for those improvements.
“The terms have been negotiated and everyone has signed on the dotted line. You can’t come around and ask the city and taxpayers to pay for that,” she said. “What that does is take away from revenues that would have gone into the city coffers.”
Leeman says she hears from longtime Portland businesses that the tax breaks for others puts them at a disadvantage.
While economic development officials say TIFs are one of the few tools at a municipality’s disposal, Leeman said the city must be careful about how that tool is used.
Economic development should be a way to broaden the tax base, increase revenue for the city and provide relief to residential property owners, she said. “If we’re not doing that, there’s something wrong with the policy.”
Councilor David Marshall, who does not serve on the Housing and Community Development Committee, said he has heard from constituents. While some argue that all TIFs are good, most complain that the current policy amounts to corporate welfare, he said.
“At the very least, we need to make sure we’re considering these in a way, and making decisions with these in a way, that gains the trust of the public,” Marshall said. “I don’t think we’re there right now.”
Staff Writer Randy Billings can be contacted at 791-6346 or at: rbillings@mainetoday.com
Twitter: @randybillings
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