TIF District Enables Tax Refunds for Downtown Developers

 

By Lura Jackson

 

After years of developing interest and organizational efforts, the City of Calais has succeeded in establishing a Tax Increment Financing (TIF) district. Creating the district has been hailed by some in city administration as a pivotal component to building economic growth in the city, but not everyone is aware of what the district is or how it may apply to them. The Calais Advertiser met with City Manager Jim Porter to provide clarification on the TIF district and to gain insight on how it is already being utilized. 

The TIF district extends from Calais Avenue down to Union Street and up North Street to the old middle school, and also includes some of the land across the street from the former Down East Pizza building. All buildings and lots within the district are eligible for entering into a “credit enhancement agreement”, Porter explained. If such an agreement is created, then the owner of a building or lot within the TIF district can make improvements to their building or lot without having to pay an increase in taxes. The value of all properties within the TIF District have been frozen dating back to April 1st, 2016.

As an example, the owner of a building located in downtown Calais on Main Street that was valued at $65,000 in April of 2016 could make extensive improvements to that building, making it suddenly valued at $500,000. If the owner entered into a credit enhancement agreement with the city that hypothetically granted a refund of 90 percent of taxes for ten years, then the owner would effectively be paying taxes only on the original $65,000 and 10 percent of the taxes on the new valuation. After the ten-year term expires, the owner becomes responsible for the full taxes of the new valuation. Porter emphasized that the entire amount of taxes on the new valuation would be paid but that under such an agreement the owner would receive 90 percent of the taxes back. 

“If anybody’s going to make an investment in a downtown building, they’re not going to have their taxes increase because of the improvement,” summarized Porter. “The taxes will be frozen at the level they’re at now.” 

As another example, if someone purchased an empty lot within the TIF district and built a structure, and entered into a similar credit enhancement agreement, they would only have to pay taxes on the value of the lot and 10 percent of the value of their new structure. 

The 10 percent of taxes that are paid in such an agreement would go into the city’s TIF fund, which is intended to be spent on economic development and improvements to infrastructure in the downtown area. Porter said that it is difficult to estimate how much will be captured by the TIF district, but an approximation would be between $200,000 and $300,000 over the 30-year life of the TIF district. 

Since the TIF district was created and the values of all properties in it were frozen dating back to April of 2016, the city has effectively prevented any increase to county tax or state valuation within the district. “County taxes won’t go up and school subsidy won’t go down,” said Porter. 

The city also has the option of increasing the percentage of taxes captured by the TIF, as every agreement it enters into is individually tailored. Porter said that if there was a project that was going to be built in the district regardless – such as a pipeline or a tower – and that having reduced taxes provided no incentive to the developer, then the city could opt to allot 100 percent of taxes from the project into the TIF fund. 

The city has entered into a pre-agreement with Dollar Tree that will enable them to receive a tax refund on a portion of the value of the building itself. Porter explained that the developer ran into some issues with the construction site that increased the cost beyond what was expected, and the project was in danger of being cancelled. A TIF agreement was offered to ensure the completion of the project, which was accepted. Other potential projects are now in the works. 

“The idea is to spur investment and give incentive to invest in the downtown,” said Porter. If you would like to know more about entering into a credit enhancement agreement, contact the City Hall at 454-2521.