By Nate Jones

Staff Writer 

During a Saturday meeting, the South Portland City Council voted unanimously in favor of extending a National Semiconductor tax increment financing (TIF) district scheduled to expire in three years. The extension could benefit the city by close to $11 million unless deemed a “minimum receiver” municipality by the state, in which case the city would only benefit by roughly $3 million over the 13-year lifespan of the TIF.

The council unanimously approved another 13-year extension of a similar TIF district agreement with Fairchild Semiconductor on March 24, potentially adding close to $7 million to the general fund over the lifetime of the agreement.

South Portland Finance Director Rob Coombs said revenues generated by TIF districts help the city fund various capital improvement projects such as South Portland’s combined sewer outflow project, the recently completed Jetport Plaza Road and the ongoing widening of Western Avenue. Taxes collected from TIF districts are sheltered from the city’s tax evaluation by the state as long as they are used for such projects, he said. 

City Manager James Gailey said he has compiled a list of future capital improvement projects totaling nearly $50 million. 

“We’ll be able to find a use for [TIF funds],” he said.

Mayor Jim Soule said he believed “creative use” of TIF revenues could provide funding in many areas, including the salary of the recently created assistant manager / economic developer position.

“[TIF funds] can provide for an important and necessary position,” he said. 

In both the Fairchild and National Semiconductor TIFs, a portion of all taxable value of the properties’ revenue is returned to the companies per a credit enhancement agreement.

“Generally when people hear about TIFs, they think they’re bad because the city is returning tax money to companies,” Coombs said.

According to estimates in a report prepared by the law firm Bernstein Shur, National Semiconductor could receive nearly $4.5 million from the TIF during the next three years. The report also states, per the council’s March 24 decision, Fairchild Semiconductor could receive slightly more than $1 million from the TIF until the credit enhancement agreement expires in 2011.

The council’s March 24 decision to extend the Fairchild Semiconductor TIF for the maximum 13 years will continue to allow the city to shelter more than $7 million in TIF revenues and nearly $18 million in property value from the state’s tax evaluation according to the report. 

While the decision to extend the TIF was what Coombs called a “no-brainer,” the council also voted to amend language in a credit enhancement agreement which could have eliminated Fairchild’s right to receive portions of TIF revenues. Without the amendment, the city could have possibly captured an additional $1.6 million due to the State’s Business Equipment Tax Exemption (BETE) program.

Unlike TIF districts, which allow municipalities to directly shelter taxes from companies such as National and Fairchild Semiconductor, the BETE program does not require companies to pay taxes on business equipment at all.

The new program requires the state pay municipalities the equivalent of taxes they would have received from developers on a 10 percent depreciating scale; this year the city would receive 100 percent tax reimbursement from the state, next year 90 percent, and after five years the program “bottoms out” at 56 percent, Coombs said. 

“That’s if the state has the money to give,” Councilor Claude Morgan said at a March 17 workshop concerning the TIF extensions.

Since the BETE program eliminates taxes otherwise placed in a TIF fund, Fairchild Semiconductor would not be able to provide the city with the $10 million tax investment required to be eligible for the credit enhancement agreement, Coombs said.

“It zeros out Fairchild’s ability to receive reimbursement for the next three years,” Gailey said.

Soule and councilors Maxine Beecher, James Hughes and Tom Blake unanimously agreed to remove language from the Fairchild credit enhancement agreement requiring TIF investments be “taxable” in addition to extending the TIF. The decision will allow Fairchild Semiconductor to continue to receive their $1.6 million portion of TIF revenues which could have otherwise been available to the city for capital improvement projects.