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BIW's 1997 TIF analyzed

BIW getting larger break than agreed

by Gina Hamilton, Times Record staff 

 

BATH, MAINE

As Bath Iron Works [owned by General Dynamics] pursues new tax breaks, an analysis provided by city officials shows the defense contractor has received tax benefits in excess of what was projected from an existing 1997 tax-increment financing pact. The 1997 TIF established two districts that were to produce a total projected revenue for BIW of $78.5 million and for the city of approximately $35.1 million on new taxes generated by construction at the shipyard.

Records show that in 2012, the latest tax year available, the projection was for BIW to receive $3,305,991. In fact, it received $4,068,787 -- $762,796, or 23 percent, more than projected. On the city’s side in the same year, expected TIF revenue was $1,481,614. In reality, the city received $927,386.

Based on the TIF figures alone, the city has averaged only 66 percent of projected TIF revenue, while BIW has received, on average, 136 percent of projected revenue from the deal. 

Two “clawback” provisions that weren’t part of the city’s analysis have brought in more money to Bath’s coffers. With the "clawbacks" factored in, “by my best calculations, BIW got 14.6 percent more than projections,” city tax assessor Paul Mateosian said, “and the city received 6.8 percent less than projections" over 15-year life of the TIF. Officials said there is nothing in the 1997 pact that allows the city to renegotiate the TIF, even once it was clear BIW was exceeding its projections and the city was getting substantially less.

The city lost projected some TIF income because of state rules governing business equipment tax exemptions — or BETE, Mateosian said. The state Department of Economic and Community Development, at the beginning of the TIF period, was rebating 100 percent of BETE funds Bath was refunding to BIW. But that percentage decreased over several years, he said, beginning in the early 2000s. The city is now receiving only 58 percent of the BETE funds it was receiving in 1997.

The 1997 TIF was approved in order for BIW to construct its Land Level Transfer Facility, a state-of-the-art facility that permits work outdoors on a large concrete block and a dry dock, allowing the company to release newly constructed vessels safely by filling the container and floating the vessel at river level, rather than using the old slipways. The dry dock also was built that can be used to work on ships outdoors in all seasons. In the new facility, BIW retained 100 percent of the new value. That is, Bath refunded all property taxes for the new structure.

Bath retained 50 percent of the business equipment tax and other personal property taxes.

On the LLTF, BIW got a refund of more than 45 percent of all its Bath taxes in the last 15 years of the existing TIF. If the city had not entered into the TIF agreement in 1997, and BIW had not done the improvements at the shipyard, Bath would have brought in a little more than $28 million more than it did in the last 15 years, according to city figures. If BIW had done the improvements anyway, and paid full freight, Bath would have brought in more than $106 million from BIW over the same period, according to figures provided by the city.

Mateosian said additional figures that aren’t on the city analysis include two safeguards built into the 1997 TIF agreement that could restore the funding back toward the original agreement. The first safeguard, according to Mateosian, is a provision that if the tax value of the old part of the shipyard drops below $128 million, some funds would be taken back for the city. That provision was to ensure that BIW didn’t abandon the older part of the shipyard, which was paying the full tax share. Over the last 15 years, that safeguard provision has brought $5,045,250 back to the city, bringing its total to $17,613,986 to date.

There is a second safeguard provision as well, according to the assessor, which may kick in during the last portion of the TIF, which expires in 2023. This provision says that, should BIW begin to receive more than $85 million in refunds, the value of the real property in the TIF would drop to the 2002 base value, which is before the revaluation that occurred in Bath in 2005. This could occur as early as 2020, if current trends hold.

But even using those figures, there is a large variance between BIW’s return on the TIF and Bath’s expected return. Mateosian said projections are not exact, and many things, including a property revaluation that affected the amount the city took in from the TIF, took place during the last 15 years to affect tax calculations. He defended the apparent discrepancy by saying the 21.4 percent difference between what was expected to be paid to BIW and what BIW actually received is “within the TIF ballpark.”

He also says that the numbers are likely to turn around in Bath’s favor during the remainder of the TIF if the second safeguard provision kicks in.

Tax-increment financing has become an increasingly popular way to finance development using public funds. Municipalities agree to forego some of the property tax that would be generated, rebating it to companies in exchange for projects that would create jobs, redevelop derelict sites or generate future tax funds.

“I don’t know of anyone who believes the improvements at BIW were a bad idea,” he said. “Would BIW have built the drydock anyway? No one knows. Would BIW be here today without the [1997] TIF? I don’t think anyone knows that, either. But ask anyone in Millinocket or Lubec what they’d be willing to pay for $30 million of economic development,” he said, referring to the TIF proposal currently in front of the City Council.

BIW is requesting a new tax-increment financing package it says is necessary to remain competitive. The company wants to use sheltered property tax funds to invest $32 million into its Ultra Hall. The company expects the building will generate $500,000 in tax liability every year; it wants the city to share that liability for the next 25 years in a 50-50 split — an arrangement much more straightforward than the 1997 TIF.

A second official public hearing on the proposal is slated for Wednesday, Nov. 20, at a City Council meeting where the TIF is expected to be decided.

Meanwhile, a group of Bath citizens is holding a public forum at City Hall tonight at 6:30 p.m. to discuss the proposed new TIF. Bath Citizens for Responsible TIF Action envisions the program as a moderated forum. Panelists include Orlando Delogu, professor emeritus at University of Maine School of Law; Joel Johnson, economist from the Maine Center for Economic Policy; and Benet Pols, Brunswick town councilor.

Delogu took Bath and the state to court in 1997 to determine whether the process of taxpayer funding of TIF districts -- specifically, the BIW TIF districts-- was constitutional. The state supreme court ruled it was.

Bath city councilors have been invited to tonight’s forum, but City Clerk Mary White said not all will attend because if all did, it would become a public meeting that would require the city to announce it in print a week in advance. Some state legislators are also expected to attend.

BIW officials declined the invitation. “We are extremely disappointed that BIW has refused to attend the forum,” said Lorry Fleming, a Bath Citizens for Responsible TIF Action representative. “There are pointed questions that only BIW can answer.”

Some of the "pointed questions" the group wanted to ask were posed at a Nov. 6 City Council public hearing, when Jon Fitzgerald, lawyer for BIW, hinted broadly that BIW might not survive without the additional $250,000 per year tax break from the city — a concern echoed by a number of BIW employees in attendance.

Jerry Provencher, a member of the citizen’s group, said he was happy someone was asking questions about BIW’s TIF funding. “We have long thought there was a real problem when the largest corporation in the city is getting millions of dollars back in tax dollars but the schools need a special bond to just keep the doors open.”

- Another similar article from the Bangor Daily News can be seen here