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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.
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