The Portland, Maine City Council is considering proposed changes to its TIF Policy because of concerns over the number and size of two recent TIF Agreements – a $31 Million incentive for a sports complex and a $2.9 Million incentive to renovate a cold storage building for use by a law firm.

Maine law provides that a maximum of 75% of property tax increment can be pledged to a Developer for up to 30 years for eligible redevelopment costs including land acquisition, demolition, site work, equipment acquisition, professional services, infrastructure improvements, public safety improvements and job training.  In addition to the State statutory requirements, current Portland TIF policy requires a TIF project to include a minimum $2 Million investment, to retain existing jobs, and to create long term employment opportunities in the long term.

The proposed changes to Portland’s TIF Policy include:

• Reducing the percentage of real estate taxes pledged to TIF projects from 75% to 50% except for certain projects that provide extraordinary public benefits;

• Shortening the term of TIF Agreements to 10-15 years from 30 years;

• Prioritizing certain industries such as manufacturing, life sciences and information technology when determining incentives;

• Prioritizing transit oriented development; and

• Focusing on affordable housing projects where at least one-third (1/3) of the housing units in a residential project are affordable to residents at or below 120% of area median income.

Portland’s first TIF District was created in 1994.  Since then, the City has paid more than $18 Million in tax increment to various projects.  Portland currently has 13 active TIF Districts.  Based on current obligations set forth in existing TIF Agreements, the City anticipates that it will pay approximately $65 Million in additional tax increment to the projects in those TIF Districts.

The suggested TIF policy changes were introduced during a Portland City Council Meeting on August 22^nd, 2012.  They will be debated over a series of City Council meetings before being put to a vote.

In 2011, Virginia adopted a new sales tax incentive program to stimulate tourism development.  The Commonwealth of Virginia Tourism Development Financing Program provides tourism-related projects with assistance in amounts up to 20% of total project costs.  Pledged sales taxes are used to repay bank loans or retire bonds issued to bridge a project’s financing gap.

The tourism financing program can only be used for projects located in tourism zones, which can be established by any city, town or county.  Projects in tourism zones are eligible for public assistance, such as reductions in fees and pledges of gross receipt taxes, for up to 20 years.

The Virginia Tourism Development Financing program is unique in that it pledges portions of the State and local sales tax to tourism projects.  In order for a project to be eligible for this sales tax incentive program, a local government must:

• Establish a tourism zone;
• Adopt a tourism development plan;
• Determine whether a proposed project has a funding deficiency; and
• Enter into an agreement with the project developer to develop the tourism facility.

To qualify for this financing program, a developer must prove that at least 80% of a project’s funding is secured from equity and debt financing. Once a project is certified by the State Comptroller, the State may pledge its 1% State sales and use tax generated by the project only if the local government pledges its 1% local sales taxes. The project developer is also required to pay a program access fee to match the amount of State assistance paid to the project.  The pledged assistance plus the program access fees are used to pay principal and interest on the financing secured to close the funding gap.

This financing program is available for a wide range of tourism-related projects. In June 2012, a Hyatt Place Hotel with office and retail space in Fredericksburg became the first project to qualify. This hotel project, the second phase of a residential, retail and office development by the University of Mary Washington Foundation, has a $13 Million budget and is anticipated to contribute approximately $3.27 million in new taxes to the City over the next 10 years. It is anticipated that the Project will receive up to $620,000 in assistance from the State and the City under this program.

To further analyze EAV growth within the 5 terminated TIF Districts, we compared the EAV compound annual growth rates (CAGRs) for each of the Districts to the EAV CAGRs for each District’s Township.

To calculate Township EAV CAGRs, we compiled a list of all PINs in each of the Townships that met the following criteria:

• PINs that were not a part of any TIF District or special service area; and
• PINs that existed both in the TIF District creation year and the termination year (and, if amended, the amendment year).

We then calculated the CAGR for each Township based on the total EAV of all PINs in the beginning year and the final year of each analysis period.

Our methodology could not determine whether some Township PINs were excluded because of parcel division or consolidation. Because the EAV of these PINs may have grown significantly, we determined that excluding these PINs could result in an artificial reduction in Township EAV growth. To eliminate this potential bias, we included the total EAV of these PINs in the final year of each Township’s analysis period (we were unable to determine the initial EAV of these PINs, so we could not include such data in the total Township initial EAV calculation). Because our calculation is ultimately based on the total Township initial EAV and the total Township final EAV plus final EAV of certain excluded PINs, we derived a CAGR for each Township that is actually the upper limit of Township EAV growth.

The following is a summary of the CAGRs for each TIF District and Township (when more than one TIF District is located in a Township, the same Township may have different CAGRs because of different analysis periods):

When we compared the TIF District EAV CAGR with the Township EAV CAGR for each analysis period, the average TIF District EAV growth was approximately 17% while the average township EAV growth was approximately 9% – and 5 out of 8 TIF District EAV growth rates exceeded the Township EAV growth rates.  The largest difference between TIF District EAV growth and Township EAV growth was between the Chinatown Basin TIF District and Central Township – between 1986 and 1999, TIF District EAV growth was 39.13% and Township EAV growth was 7.49%.

It is also notable that when a TIF District was amended, EAV growth before amendment was consistently higher than both EAV growth after amendment and corresponding Township EAV growth.  On the other hand, TIF District EAV growth after amendment was generally lower than or only slightly greater than Township EAV growth over the same period.

Our observations are based on our analysis of these 5 terminated TIF Districts only.  As more TIF Districts in the City terminate, additional TIF District data may be useful in assessing the ability of TIF Districts to stimulate economic growth.

To examine the growth of the 5 TIF Districts included in our analysis, we calculated the compound annual growth rate (CAGR) for each TIF District’s EAV based on the total base EAV of each TIF District and the TIF District’s total EAV in the year before the termination year (the most recent annual EAV data available).

Because the Central Loop, Chatham Ridge and Chinatown Basin TIF Districts were amended during their terms to include additional parcels, two CAGRs were calculated for each of these districts to eliminate any artificial increase in EAV due to the new parcels.

The following chart shows the beginning EAV, final EAV and CAGR for each TIF District’s analysis period:

In addition to calculating the CAGR for each TIF District, we also derived each TIF District’s year-over-year EAV growth to look for growth patterns among the TIF Districts. Based on this year-over-year analysis, the Central Loop, Chatham Ridge and Chinatown Basin TIF Districts experienced steady growth during their terms.  The Ryan/Garfield TIF District experienced rapid growth in the first few years and the final few years of its term. Growth in the West Ridge-Peterson TIF District was concentrated in the final few years.

The following TIF Districts terminated at or close to the end of their statutorily imposed terms and were included in our analysis:

Central Loop TIF District

In 1984, Chicago designated the Central Loop TIF District, the first TIF District in the City.  When it was designated, it was intended to redevelop the northern part of Chicago’s Central Loop.  At the time of its designation, it encompassed declining commercial buildings in an area that was considered unattractive and unoccupied outside of normal business hours.  Retail sales were stagnant or declining and multiple entertainment venues were deteriorating.  In 1997, the District was expanded to encompass an additional 139 acres for redevelopment, including a much larger part of the Chicago Loop.  Central Loop TIF projects included the development and redevelopment of commercial buildings, cultural facilities, hotels, residential buildings, public resources and transit facilities.  This District terminated in 2008.

Chatham Ridge TIF District

The City originally designated the Chatham Ridge TIF District in the Chatham neighborhood in 1986 to encourage new commercial and residential opportunities.  The District terminated in 2010.  The original district, located approximately 12 miles south of the Chicago Loop, was expanded to include an additional 23 acres in 2001 to further improve commercial and educational opportunities in the area.  Major projects in the Chatham Ridge TIF District included rehabilitating and expanding a high school, constructing a commercial center and developing low and moderate income housing opportunities.

Chinatown Basin TIF District

The 30-acre Chinatown Basin TIF District was designated by the City in 1986 to encourage residential and commercial development on former railroad property in the City’s Chinatown area, approximately 2.5 miles south of the Chicago Loop.  The TIF District was expanded in 2002 to encourage additional residential, commercial and infrastructure development and redevelopment and expired in 2010.  Major projects include a two-story shopping mall containing restaurants, retail and other commercial businesses, and surrounding residential development, including both affordable and senior housing.

Ryan Garfield TIF District

The Ryan Garfield TIF District was established in 1986 and was terminated in 2009.  It was established to encourage the development of a shopping center in one of the City’s poorest neighborhoods.  Located approximately 8 miles south of the Chicago Loop, the property that comprised this TIF District had been vacant for more than 10 years.  The City hoped that the creation of a TIF District would encourage the development of a shopping center and improved infrastructure, which would also create job opportunities in the area, particularly for nearby residents.  A community shopping center was ultimately constructed, providing both shopping and employment opportunities to an under-served neighborhood.

West Ridge-Peterson TIF District

The 6-acre West Ridge-Peterson TIF District was designated in 1986 to incentivize commercial redevelopment of property located approximately 9 miles northwest of the Chicago Loop.  An existing vacant big-box store was demolished and a new Target store was constructed in the final years of the District’s term, which ended in 2010.