Kev White on the TIF
Revised on 11/17/03

Do you folks know about the TIF? It's really boring, but interesting. This document is intended to give you more information about what a TIF is theoretically supposed to be used for, so that one can gain a deeper understanding of the mechanism, and develop some opinions regarding its usage.

The town wants to create a Tax Increment Financing District to get out of having to contribute a larger percentage to SAD 75. It's perfectly legal, and in this capacity, it is good for the town. But there are other things to know.

Before granting the
TIF district, the state mandates that the money be spent only in certain ways ... and there are only a number of categories that qualify...most are geared toward providing financing for infrastructure and further development.

This is the purpose of a TIF: From the Maine Department of Economic and Community Development...Read below:

"Municipalities can use Tax Increment Financing as an economic development incentive within their community. The program enables a municipality to designate a
TIF District in which new or expanding businesses can receive financial support from the new property tax revenues generated by their investment project. The municipality may choose to fund a portion of the project improvements or to return a percentage of the new tax revenues to the company to offset its costs of development."

A
TIF is a tax incentive that must be spent on infrastructure/development items.

The
TIF basically says this: We (the town) want your business and the jobs it will bring. If you (the business) promise to locate your business here, what we (the town) will do is pay for all the development costs or give you tax breaks (we'll give the money back). How we (the town) will finance this is through the creation of a Tax Incremental Financing District. We (the town) will apply to the state and ask them (the state) to relieve us (the town) of having to pay/collect additional tax revenue on the value that you (the business) bring to the site by your locating here. We (the town) will ask the state to freeze the value of the property (the depot) to what it was prior to you (the business) coming to town. We (the town) promise to spend all this savings we get by paying for developing the site, or we will give the revenue back to you (the company) in a tax break. That way, we (the town) can finance you (the business) by being sheltered from having to pay the additional amount of taxation on the property because of its increased value.

So the TIF is supposed to be a tool by which a town would lure a prospective industry to its location and bring jobs to its residents. The catch is that any money derived from the
TIF must be used for infrastructure for future development for the town and/or site development/preparation costs for the prospective industry.

Note: Infrastructure for more future development.

See? The issue is still really "what do you want your town to look like when it grows up?"

At it’s core: the
TIF is a give back to the corporation from the community...as defined by the Maine Department of Economic and Community Development.

For a deeper understanding of some of the ways that a TIF can be misused by companies: Here's what a study entitled "Maine's Development Dilemma" from the University of Maine reports:

Recent data show that Maine's tax expenditures to corporations through such programs as the BETR program (the Business Property Tax Reimbursement Program), JTIC (Jobs and Investment Tax Credit), the Research Expense Tax Credit, and TIFs (Tax Increment Financing programs) have been growing at an incredible rate. ***Such tax subsidies or incentives are in reality a form of expenditures, which drain away scarce resources from other urgent needs in
Maine.***
It bears repeating: Such tax subsidies or incentives are in reality a form of expenditures, which drain away scarce resources from other urgent needs in Maine.

There is no such thing as a free lunch. Yet, admittedly, Harpswell isn’t the immediate loser here. Maine is….but the state may adjust other town subsidies to offset the cost of the project too…it’s been done before.

 Here's more from the same report:

To compound the problem, many of the largest corporations now receiving state tax breaks through the BETR program are getting additional tax breaks on the same investments from municipal Tax Increment Financing (
TIF) agreements, through a practice known as "double dipping." Currently at least 21 firms qualify for both BETR and TIF tax refunds on their business machinery and equipment investments. ***The Maine Citizen Leadership Fund estimates that together these companies could collect $186 million in "double dip" money over the lifetime of their TIF agreements.***Although it is difficult to determine the exact amount of public resources channeled to corporations through these municipal tax incentive programs, the number of TIFs has increased dramatically over the past decade, from 37 in 1993 to at least 155 in 2000, and they will undoubtedly continue to grow in number. In addition, recent state data indicate that while the amount of municipal TIF dollars going toward infrastructure has been increasing slowly since 1995, the TIF dollars returned directly to corporations has increased far more rapidly; from $1.8 million in 1995 to 18.7 million in 1998 – an increase of 1,039 percent in only five years.

As stated above, by double dipping, corporations can collect up to 186 million dollars back over the life of the
TIF agreement. That's over half of the total project cost. I think the life of the TIF is ten years. After that, I'm not sure where the tax breaks will come from.

The point is that the people that work for the large corporations are really smart. They spend all of their time doing this stuff and know more about all of it than most common folk do. We just don't have the time to pay attention to that level of detail. The town likes this route based on the fact that it would protect the town from having to add the value of the property into the school district financing. But Conoco Phillips then “double dips” and gets over half its investment cost recouped. That’s a sweet deal for the corporation.

So, what's my problem with that? Viable economic health comes to a community when jobs are created (long term investments in human resources)...that's what the tax incentives are supposed to be used for.

 With a company that doesn’t bring a large number of good paying jobs occupying that space, it crowds out any prospective alternative that would be agreeable to everyone, would bring jobs, and wouldn’t have such a devastating impact on the community’s environment and character.

More from the report:

In the face of economic challenges that continue to face
Maine and other states in a time of globalization and rapid technological change, economic development is widely seen as essential to the well-being of Maine's economy and to an increased quality of life for its citizens. However, the nature of Maine's economy, natural resource base, and geography creates a difficult dilemma for our state. ***This is the paradox we face: while some form of economic development is clearly imperative, the long-term misallocation of scarce economic resources in pursuit of this goal, though well-intended, may cause further harm to the economy and put much of the state's population in jeopardy. In particular, the revenues lost to Maine's public treasury through some largely uncontrolled tax subsidies represents a direct threat to Maine's future well-being, at the expense of more sustainable, long term investments in human resources and infrastructure.***

Does this project bring those jobs?

Nope.


Therefore, one of my questions is: Did the town really need to offer the
TIF/Tax incentive in order to lure Conoco Phillips to the town? Or was it a concession they made because of SAD 75? Was this calculated in the leasing agreement? If so, with so much money being returned to the corporation, it would seem the town should have received more.

 If they did have to provide a give back; Why did they do so? Fairwinds is not bringing jobs. The reason that Conoco Phillips wants to site in Harpswell isn’t for the work force…it’s for its location.

 I’m not sure the give back was necessary to lure them here.

 Read on:

           Background: The Continued Importance of Economic Development in Maine


The last few years have been widely characterized by the media, politicians and many economic analysts as an unprecedented period of sustained economic expansion and prosperity, in both Maine and the U.S., although there are now signs that the economy is beginning to slow down. Despite record low unemployment figures and growth in the numbers of jobs in the country and in this state, however, it is clear that this much-publicized economic prosperity has not benefited everyone equally. Recent figures show that family inequality is increasing in
Maine, and many of the jobs being created are low-wage, without benefits, temporary, and/or part time. A recent report on Maine's economy also points out that job losses in the 1990's have been greatest in higher-paying industries, while new job creation has been primarily in lower-paying industries (less than $20,000 in average annual wages). Many families are only able to make ends meet through a combination of working more hours, having more family members in the labor force, and even working multiple jobs to get by.

So, what's the conclusion?

Here:

Conclusion:

Maine's economic development strategies need to focus on strengthening social and economic
foundations for long-term community and individual well-being, rather than on corporate tax incentives which primarily benefit large corporations, their top executives, and stockholders. A short term focus on tax incentives, such as the state's BETR program, may endanger the state's long term economic and social well-being. Our economic development programs should focus on investments in development capacity, along with enforceable mechanisms to ensure effectiveness and corporate accountability. Finally, as the
Maine Economic Growth Council has suggested, the creation of quality, well-paying jobs should be the cornerstone of our economic development efforts. The ultimate beneficiary of our public investments should be the public —- Maine families and households, Maine workers, and Maine communities.


Personal wealth in Harpswell...the definition of economic well being...is not enhanced by this project. There are not enough permanent jobs with this project. That's what the
TIF is supposed to be used for…to lure jobs for town citizens. 

There are so many things that are wrong with this proposal and there is not a lot of real personal benefit for town citizens. In fact, quite the opposite is possible…certain segments will suffer.

The town should pass on this project and wait for something that everyone can agree on. Use the tax incentives to attract a business that will bring more jobs than it takes away, will be a lower profile and won’t be as ugly, will be comparatively much safer, and is area appropriate so it won't ruin the character of the town.

That’s the best deal for Harpswell.