By Kristy Wagner

Staff Writer

The discussion of a proposed amendment to a Tax Increment Financing district sparked conflict between Kennebunk residents and the Kennebunk Board of Selectmen.

John Costin, a member of the Kennebunk Budget Board, said he was concerned about the amendment that would allow credit enhancements for potential developers of the Route 1 Municipal Development District. Businesses within the tax increment financing district exist along Route 1 and currently pay taxes into the district fund used for maintenance and upkeep of the nonresidential area.

“As I became aware of this proposal I was frankly shocked,” Costin said at the Jan. 10 meeting. “It’s a huge deviation from anything done before. It’s not minor and seems to be moving very quickly.”

A business that exists in a tax increment financing district must pay taxes to the municipality based on the incremental worth of the business. The town uses TIF funds for infrastructure improvements within a district, but credit enhancements would commission TIF monies to aid new developers in financing building improvements and other needs specific to their business to help it function successfully.

Costin prepared 13 reasons why the credit enhancements to the Route 1 TIF district were not “business friendly” to existing businesses in Kennebunk.

Before permitting public comment on the issue, Town Manager Barry Tibbetts outlined the benefits of amending the TIF district and allowing for credit enhancement agreements to properties of the Route 1 district in question.

“In particular this district came out of some various conversations about how to try to get the Garden Street Market filled, how to potentially do something with the Mobil lot and perhaps one of the other buildings in town, the Pythian Building,” Tibbetts said.  “The way that works is the incremental value that would be created from an improvement on those properties could be used for offsetting some of the development cost on that particular property.”

The Pythian Building on Main Street currently houses an art center and the former Garden Street Market remains vacant.

He said credit enhancements negotiations are “not allowed to affect existing valuation of (a TIF district property)” and only “incremental value” could be considered in the agreement with the developer.

Tibbetts said not just any business would qualify for credit enhancements and certain criteria would need to be met by a potential developer of these economically static areas in town, such as the old Garden Street Market, that have had difficulty being revived.

“It’s not that anyone who goes in, let’s say they want to upgrade a building and change it and it results in minor incremental value, that doesn’t mean it would qualify for the credit enhancement,” Tibbetts said.

He said developer improvements to a property would have to be greater than $250,000 in value, create jobs for the community and provide amenities “conducive for the public” among other criteria. “Amenities conducive to the public” might include lodging services, a gas station, a laundry mat; any business that provides a useful and necessary service to the public.

Tibbetts said the main goal of allowing credit enhancements is to ensure there is “value being received back to the public” for the properties invested in by the town. Tibbetts said the proposed credit enhancement agreements are a “different kind of a tool” to help the town “expand” and “bring new business in.”

“(Allowing credit enhancement agreements) has never been done before. It’s a huge turn of events,” Costin said. “It gives the board of selectmen the opportunity to give tax breaks to people developing properties.”

While TIFs are nothing new to residents and businesses, credit enhancement agreements are. A credit enhancement agreement would allocate TIF funds to subsidize new businesses in town.

Costin, a business owner, said to give tax breaks to new businesses would not be very “business friendly” to existing businesses that don’t fit criteria under the proposed amendment.

“One thing unfair is that it forces residents to subsidize business and real estate developers if they are awarded a credit enhancement TIF,” Costin said.

He said credit enhancement “tax breaks” would drain money from the general fund on top of straining taxpayers’ wallets.

Costin furthered his argument by speculating that many prospective developers would inquire about whether or not their business would be eligible to receive funds through the TIF and, if not, those developers would simply choose not to develop in Kennebunk.

Costin said allowing for credit enhancement agreements between developers and the town “puts the board of selectmen in the position of picking winners and losers.”

“If we were to vote on this TIF amendment, once those monies are collected, (deciding which businesses receive TIF funding) is up to only the board of selectmen,” he said. “No one ever gets to have a say again on whether they think a particular project is valuable or not, or whether they think it’s a good expenditure of their tax dollars.”

Bob Georgitis, chairman of the Kennebunk Economic Development Corp. and member of the economic development committee, spoke in favor of credit enhancement agreements.

“We’ve done a lot to try and attract development in our downtown, we’ve invested millions of dollars; it’s not working all by itself. We need something like a credit enhancement tool to be able to push forward development deals like that,” Georgitis said.

Resident Ed Karytko asked selectmen what benefits there would be for the town’s taxpayers if the amendment is allowed

“(Costin) was clear on making the point that this is money that comes out of the general fund,” he said. “What’s in it for me, John Q. Taxpayer? What’s really in it for me?”

Karytko said he is concerned about the town investing tax dollars into incoming businesses and then losing the money if the business fails.

“I have a really big problem whether it’s federal government, state government or local government shelling out taxpayers’ money to get people to start their businesses in their town,” Karytko said. “You put this tax increment into a company that wants to come in here, they’re in here for two years, go belly-up and that taxpayer money is gone. We’ve lost that.”

Board of Selectmen Chairman Albert Searles said if the town grants credit enhancement to a developer, then that developer must agree to pay back the amount granted through the agreement.

“We get all the money back. It’s still in that district – the taxpayers didn’t lose anything,” Searles said.

He said not only does the developer pay back the money he borrowed from the town, but the town also gains a new “viable” business that provides more revenue and jobs.

“That’s how it benefits you. People that live in your community have jobs and spend their money in their community,” Searles said.

He said TIF districts and credit enhancements are tools used to build economic growth for the long-term benefit of the town.

Selectman David Spofford said he wanted to clarify that all TIF funds come from taxes paid by the businesses within their respective districts. Spofford also said not every resident is going to agree with the proposed TIF amendment.

“Nothing that we do here on this board is done to deceive the public,” Spofford said. “At the end of the day what we’re trying to do is compete for economic development in a bad economy with other towns.”

Selectman William Ward reminded Karytko that the amount of money a developer would receive from the town is based on the value the developer creates. Ward also said credit enhancement funds would be temporary and not allocated to a developer for the entire life of the business.

Selectmen tabled the issue and will discuss it again at a special meeting scheduled for Jan. 31.

Staff Writer Kristy Wagner can be reached at 282-4337, ext. 233.