Last fall, the Maine Real Estate & Development Association (MEREDA) provided members of the City of Portland’s Housing and Community Development Committee with recommended changes to the City’s Tax Increment Financing (TIF) Policy. Promoting sustainable economic development in the City of Portland is an incredibly important goal, the success of which will improve the lives of all Portland taxpayers. Tax Increment Financing is a powerful economic development tool at the City’s disposal and MEREDA felt that because we represent the business development community, we have important insights into what will help to promote economic development. In addition, it may have an impact on the way other municipalities view the use of TIFs.
Last month, the City Council approved the TIF policy by unanimous vote and MEREDA’s input and recommended changes were largely incorporated throughout the policy document. I speak for the members of MEREDA when I say how proud we are to be an integral part of this positive change for the City of Portland. New strategies for encouraging development will broaden and deepen the tax base and lessen individual tax burdens, benefiting the City of Portland in numerous ways:
1. Tax shift benefit
Assume the City could generate $25 million in new tax revenues over the next 20 years. Under current formulas for state school funding, state revenue sharing subsidies, and county taxes, $10 million of that $25 million will be lost from the City. This point is worth highlighting: $.40 out of every $1.00 in new tax revenue leaves the City. With the TIF policy, the city will establish TIF districts in areas of targeted new development and invest in development-related infrastructure and programs. This will allow the City to avoid the $10 million in lost tax revenue and at the same time invest in its public infrastructure.
2. Grow tax base
TIF districts encourage new development, redevelopment and grow the tax base for the future. Portland has dilapidated buildings, stagnant parking lots and other underutilized areas in its downtown. If implemented properly, this TIF policy will encourage development of fallow land and repurposing of vacant buildings which will increase overall tax revenue and the number of people and jobs in the City, the lifeblood of a thriving and economically diverse community. This type of sustainable economy will defend us better against local and global economic recessions and help minimize the increases on residential taxes and subsequent budget constraints for our schools and general municipal services.
3. Public infrastructure is public
Before this approval, the city expected developers to pay for City improvements in the area of their proposed developments – make overdue street repairs and upgrades, sidewalk improvements, sewer line and utility upgrades, etc. (the super-added infrastructure cost of developing property in Portland has been described as “exorbitant” by more than one City Councilor). Predictably, many developers pursuing projects in Portland, have requested assistance through the TIF program. A more principled approach is to have the City go back to fixing its own streets, in a manner which encourages development that will, through taxes, pay for infrastructure upgrades and much more. Such a structure will likely result in fewer requests for credit enhancement agreements on individual projects and help avoid the sharp increases in costs that come with deferred maintenance.
Developers will be more interested in working in the Portland market as the City starts to use TIF districts proactively to address infrastructure needs and create a rational, predictable environment to develop new buildings. If a developer knows that the City will take care of their side of the deal – the public infrastructure – we should see additional new development proposals in the near future.
As President of the Maine Real Estate & Development Association (MEREDA), I speak for many of our members who are excited to collaborate with City officials in supporting an environment whereby the City of Portland takes a proactive role in defining where they want growth to occur and they encourage that growth through area-wide TIF districts. MEREDA is pleased the City has chosen to address this policy and we look forward to assisting in the implementation process.
Drew Sigfridson, SIOR | Principal/Designated Broker
CBRE | The Boulos Company | Brokerage Services / President of MEREDA