Proposal would end retail tax breaks

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AUBURN – A bill submitted by a local legislator is calling for the elimination of new tax breaks earmarked for restaurants and stores – the kind that brought Kohl’s and Ruby Tuesday to town.

“When it comes to retail development, I think we should just let the free market rule,” said Rep. Deborah Simpson of Auburn. “Retailers will locate where there are customers. TIFs are not a wise use of our limited resources. We have to be smarter about how we allocate that money.”

The bill, L.D. 208, has been submitted to the taxation committee, but is not yet scheduled for a public hearing. If approved, it would prohibit municipalities from extending benefits of tax increment financing for the main purpose of establishing or expanding retail businesses starting Oct. 1, 2007, and further prohibits the commissioner of the state Department of Economic and Community Development from approving a TIF designed to benefit retail development.

Simpson said she was moved to write the bill after her time on the taxation committee where she saw towns competing with neighboring towns for development and using TIF deals as leverage.

“It’s a waste of money,” she said. “We should be using that money to attract small businesses with better paying jobs that contribute to the local economy more than a Best Buy or a chain restaurant.”

Local developer George Schott, the man behind the Kohl’s and Mount Auburn Plaza developments, doesn’t agree. He said retailers contribute sales and property taxes to town and state coffers, and many pay good wages. He pointed to a study the city of Auburn undertook last fall that credited $12 million in new property valuations that were added to the city tax rolls from retail development.

“All my TIFs are performance based,” he said. “I have to generate X amount before I get a cent.”

His agreements work like this: First he has to attract $5 million in new taxable property, which he’s done. Then he can begin recouping some of his upfront development costs on a tiered system. For example, if he brings in a new store with an assessed valuation of $1 million, the new property would generate $21,000 in property taxes, based on a mill rate of 21. Of the $21,000, 30 percent ($6,300) would be returned to Schott and the remaining $14,700 would be put into a fund to pay off the city’s bond for traffic upgrades until the debt is retired. After that the tax money goes into the city’s general fund.

If he attracts $11 million in new property, the rate would go up to 35 percent, and if it exceeds $15 million, he would get 40 percent. The arrangement continues until $1.75 million of Schott’s original investment is recouped, or 15 years pass.

Jim Nimon, director of the state Office of Business Development, said that’s the problem with TIFs – they’re complicated.

Many people hear TIFs and think the state or city is cutting checks directly to retailers to get them to locate locally. But that’s not what happens. Developers use TIFs to bring down the upfront costs of investment, letting them build a mall or project and then lease it at rates that are attractive and competitive for tenants.

“The question always is: If we didn’t have the TIF, would we have the investment?” he said. “That’s always the hurdle. Will a TIF be the stimulation to get a developer to jump in?”

He said retail TIFs are a tiny portion of the TIFs granted statewide; of the 268 active TIF districts, only eight were granted primarily for retail development.

But in some cases – such as the Haigis Parkway development in Scarborough that landed Cabela’s – they’re essential.

It was for Schott. He said he never could have landed Kohl’s for the old Wal-Mart site without a TIF to offset his costs.

“I think they work,” he said.

Perhaps for him, Simpson said, but the state’s not in a position to grant TIFs to every developer or to every business.

“We’re not talking about the big picture, to do the best for the people of Maine,” she said. “We can’t help every business, so what’s appropriate with our limited tax dollars?”

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