Tax Increment Financing: What is it?
Tax Increment Financing, or TIF, is a finance tool used by municipalities to leverage property taxes on new developments in a specified district to allocate to designated project areas. Any portion of the new taxes generated in the area may be used to finance the project(s) for a term up to 30 years. All assessed real property values captured in a TIF District are added to the general tax rolls at the end of the TIF term.
The Maine Department of Economic & Community Development (DECD) has a helpful resource page for more information on Municipal Tax Increment Financing. Learn more about this program, which is used in municipalities across the state.
For an overview with visuals, view the slides from a presentation titled “DemysTIFying Tax Increment Financing 101”, by Shana Cook Mueller, Esq. of Bernstein Shur. This was presented in a Finance Committee meeting on August 25, 2021 (Watch the presentation).
State Statute Title 30-A M.R.S.A. §5227, Tax increment financing
Benefits of TIF Districts
The establishment of a TIF is intended to be financially beneficial for the Town as well as an asset to enhance the community’s economic development and quality of life for residents. TIFs also create benefits that are short-term and long-term.
While new development in a municipality leads to an increased assessment value, there are no tax increases in a TIF district from infrastructure development, and the tax revenues in a TIF district are set aside.
Some community benefits that can be met by TIF districts and TIF-funded projects include:
- Job creation
- Job retention
- Capital investment
- Tax base improvement
- Public facilities improvement
- Locally controlled development
TIF funds are designated to specific project areas through the budget process each year (April-June timeframe).
Tax Shift Benefits:
TIFs “shelter” (or shield) the captured assessed value from a municipality’s State valuation. State valuation impacts:
- How much of a State education subsidy the municipality receives
- How much a municipality pays in county taxes
- How much of a portion a municipality receives as subsidy from State revenue sharing
With a designated TIF District, the Town can “shelter” the increase in municipal valuation that development in the District will bring about. This tax shift benefit mitigates the adverse effect that the District’s increased assessed property value would have on the Town’s share of state aid to education (depending upon the application of applicable formulas on the Town), municipal revenue sharing and its county tax assessment (minimizes potential increases).
General Purpose Aid for Education
A statewide education mil rate is applied to the Town’s last three years’ state valuation to arrive at the portion of the “Essential Programs and Services” budget paid for by the Town vs. the State. The higher the state valuation, the more funds that need to be raised locally.
County Taxes Paid by the Town
County taxes are calculated by dividing up the amount the County must raise among member municipalities based on each Town’s percentage share of the County’s state valuation. The higher the Town’s share of the County’s state valuation, the higher the County Tax obligation.
Municipal Revenue Sharing Received by a Municipality
The Revenue Sharing formula is based on population, taxes raised, and state valuation in two subcomponents. The higher the state valuation, the less subsidy is available under the Revenue Sharing formula.
By designating TIF districts, the Town is capitalizing on the tax shift benefits so that the Town will not lose new tax revenue to subsidy losses and increased obligations resulting therefrom. A district’s designation is expected to improve and boost the Town’s economy.
Shana Cook Mueller, Esq. of Bernstein Shur presented the financial opportunities of TIFs to the Scarborough Town Council on October 6, 2021. View the presentation and hear narration on the tax shift benefits/state valuation impacts outlined above.
“Scarborough Council Makes Strategic Use of TIF Tools”, by Karen Martin, Executive Director of Scarborough Economic Development Corporation (SEDCO), February 2022 Leader article
Economic Development TIF Districts in Scarborough
Scarborough uses TIFs as a means of maximizing potential from new growth and development in town. TIF districts are currently established at Haigis Parkway, The Downs (Downtown), and for affordable housing. These economic development opportunities are a way for the Town of Scarborough to fund projects in a fiscally responsible way. The projects are determined by need in the community and sometimes in response to infrastructure needs from the development happening within the TIF district.
DECD TIF District Summary: This document summarizes the three economic development TIF districts and three affordable housing TIF districts in Scarborough. It was compiled by the Town Assessor and last updated on 1/31/2022.
“Financial Opportunity & Tax Increment Financing” Presentation: Town Council Workshop on October 6, 2021
Downtown Omnibus TIF
The Downtown Omnibus Municipal Development and TIF district was established in 2018 in order to help accomplish the goals of Scarborough’s Downtown Redevelopment Plan. The designated area encompasses the municipal campus in the center with Oak Hill to the north and The Downs to the south. It also includes a small section of Route One in front of the municipal campus.
The taxes paid on the increased assessed value in this district will be used for various municipal and other economic development projects. It will run for a 30-year period, starting on July 1, 2019 and ending on June 30, 2050. The Town will retain and utilize the TIF Revenues to fund various infrastructure improvements and other costs.
Potential Projects with Downtown TIF Revenues
Traffic-Related Improvements: Design and construction including but not limited to road, sidewalk, signalization, other utilities and services affected by traffic and road work, streetscape and traffic calming measures in various locations either inside the District or projects located outside the District but made necessary by or directly related to the District Development.
General Economic Development:
- Salary and overhead costs associated with an economic development staff including a prorated portion of staff committed to economic development efforts;
- Costs associated with the Scarborough Economic Development Corporation (SEDCO);
- Economic development and planning studies and plans including market analyses of various types including arts development districts, feasibility and engineering studies related to other approved project costs, etc.;
- Consultant costs, legal costs as they relate to tax increment financing and economic development.
The TIF Revenues from this District are not intended to fully fund each of the projects—total project cost estimates may exceed the projected TIF Revenues available from this District. Additionally, these types of projects do not require the Town to utilize TIF Revenues, but they are permissible for the Council to apply TIF Revenues if they are undertaken during the term of the District.
The Downtown District has a 30-year term to capture a percentage of the increased assessed value of properties. In its Downtown Omnibus Development Program established in 2018, the Town outlined the intent to capture 3% of the increased assessed value for its use on project costs outlined above.
Scarborough Downtown Omnibus Municipal Development and Tax Increment Financing District Development Program Application (Originally adopted: November 2018), 37 pages
The Gateway at Scarborough – Haigis Parkway TIF
The Haigis Parkway TIF was designated in 2003 in order to provide public infrastructure in the area of Payne Road and Haigis Parkway and as a financial vehicle to cover debt costs related to a public investment in utilities to the area. The public investment was to incentivize economic development along the parkway. The original term of the District was 20 years and was 365 acres. A 2007 amendment increased the term by five years (25-year term) and the acreage was increased to 375.8 after an assessment from the Town Assessor. A 2022 amendment is extending the term by another five years (30-year term), with a termination date of June 30, 2033.
Projects with Haigis Parkway TIF Revenues
Municipal use: Scarborough Economic Development Corporation (SEDCO) personnel and operating costs; retire debt services incurred to fund public infrastructure improvements; allocate portion for future municipal infrastructure and economic development activities.
Beginning at the start of Fiscal Year 2022-2023, the Town will "capture" 100% of the assessed value above the original assessed value on District property. Real property taxes collected on that captured assessed value will create ''TIF Revenues."
The Gateway at Scarborough - Haigis Parkway Municipal Development & Tax Increment Financing District Application (Originally adopted: April 2003, Amended and restated: December 2006), 42 pages
January 19, 2022 Town Council Meeting (Agenda Packet page 7): Public hearing and action on Council Order amending The Gateway at Scarborough - Haigis Parkway Municipal Development and TIF District and Development Program. The amendment was to extend the term an additional five (5) years to allow full repayment of debt costs and cover Scarborough Economic Development Corporation (SEDCO) expenses, while simultaneously maximizing the tax shift benefits.
The Gateway at Scarborough - Haigis Parkway Municipal Development & Tax Increment Financing District Application (1/19/22 Agenda Packet page 28-79): This application includes historical documents dating back to the 2003 designation of the TIF district and subsequent amendments. It also includes district maps.
December 17, 2021 Memo, Subject: Haigis Parkway TIF - Extension of Term to Maximize Benefit
Business Office Retail (BOR) Zone TIF
The BOR Zone was approved in 2009 for a 2010-2025 term. The TIF is to reimburse the developer for public infrastructure costs associated with redevelopment in the District.
The BOR TIF was the catalyst for the redevelopment of an old production facility for Konica. The TIF was used to offset infrastructure near the site. This site brought the building back to productive use and now houses small and large medical offices. The largest tenant in the building is Coastal Women’s Health. The building has been completely rehabbed and serves as a gateway into Scarborough.
BOR Zone TIF Application (October 2009), 32 pages
Affordable Housing TIF Districts in Scarborough
Avesta Southgate TIF
Established in March 2015, the Avesta Southgate TIF is a 38-unit family rental affordable housing project. The TIF term is 17 years, set to end in March 2033.
Bessey School I TIF
The Bessey School I TIF consists of 54 one-bedroom apartments designated as senior/affordable housing. It is built on land leased from the Town for $1 per year for a 99-year term. The TIF term is 30 years, established in March 2006 and set to end in November 2036.
Bessey Commons II TIF
This TIF consists of 40 one-bedroom apartments designated as senior/affordable housing. It is also built on land leased from the Town for $1 per year for a 99-year term. The TIF term is 30 years, established in March 2019 and set to end in November 2049.
Watch 2022 meetings regarding TIFs to stay up to date on current TIF discussions:
Finance Committee Meetings:
February 1, 2022 (Agenda) - Downtown TIF – Town Capture Rate/Amended Development Program
Town Council Meetings & Workshops:
February 16, 2022 (Agenda) - Public hearing regarding Council Order approving Second Amendment to The Downtown Omnibus Municipal Development and Tax Increment Financing District and Development Program.
March 2, 2022 - The final reading on this Order regarding Council Order approving Second Amendment to The Downtown Omnibus Municipal Development and Tax Increment Financing District and Development Program, will be scheduled for Wednesday, March 2, 2021.