Wednesday, June 19, 2013
Bill Stokes and Bill Dowling
The city of Augusta has a long history of economic development.
In 1823, the city bought 34 acres of land and gave it to state government in order to secure its place as Maine's capital.
In 1867, the city bonded for $250,000 to help the Sprague family purchase and upgrade the Kennebec Dam, leading the way to the construction of the Edwards cotton mill a decade later.
Both of these decisions paid off with good-paying jobs for generations of Augusta workers.
Augusta now faces another critical economic development decision.
Next year, MaineGeneral Medical Center will leave its hospital building near downtown Augusta to occupy its new building near Interstate 95.
It is good news for central Maine residents to get a new, state-of-the-art hospital in north Augusta. But it is bad news for Augusta downtown to experience the departure of hundreds of employees.
Much progress has been made in recent years in rehabilitating the downtown area, with new restaurants and offices and apartments.
This progress would be threatened, however, if the old hospital turns into a vacant building with broken windows and deteriorating parking lots.
It is important that the city work with the private sector to turn around this building, to re-occupy it with new employees and make it, for the first time, a taxpaying asset.
A partnership has been established among the city of Augusta, MaineGeneral Health Care and the Augusta East Development Co. (led by Kevin Mattson) to do just this.
The developer has purchased the building for $2.5 million, and plans to spend up to $23 million in the next 10 years to develop 250,000 square feet of new office and retail spaces and related uses.
MaineGeneral has promised to lease 50,000 square feet of the building to give it a good start. And the city is working to use its tax increment financing authority to speed up the rehabilitation investment.
This is a big project. Can it be done? If anyone can do it, Mattson can. Just look at the old SCI (formerly Digital) building that he bought at auction about 10 years ago.
Today the Central Maine Commerce Center is absolutely full, all 317,000 square feet, and it is paying more than a half-million dollars in property taxes to the city.
Likewise, when the old hospital is redeveloped, there will be new customers for downtown businesses, new jobs for Augusta school graduates, and additional funds for taxpayers to fix streets and pay for schools.
The city is working on a deal that would dedicate funds, which normally would be paid as property taxes, to be spent on rehabilitating the building instead. This decision will speed the renovation.
When the building is 75 percent occupied, the city begins to share in the revenue stream, and will be able use its share of the money for projects such as fixing East Side streets and modernizing the Hartford Fire Station.
When the building is totally occupied, estimated to be in seven years, the developer and city share the property tax revenue stream 50-50 until the tax increment financing deal ends in 20 years, at which point the developer will pay 100 percent of his property taxes.
Would this deal cost Augusta taxpayers very much? Not really. No property tax revenue comes from this site now, because it is owned by a non-profit. So the TIF will not change the city's bottom line.
In addition, the tax increment financing law allows Augusta to not to count this project as property valuation in the formulas for various purposes, such as county taxes, municipal revenue sharing and general purpose aid to local schools.
In this particular case, the total investment upon the project's completion is estimated to be in the range of $25 million. If this amount were added to Augusta's property tax valuation, the city would lose roughly $200,000 per year because of lower state aid and higher county taxes.
The tax increment financing structure saves Augusta taxpayers from having to make up this loss during the 20-year life of the TIF.
If there is any cost at all to this approach, it is that full property tax revenues to the city from the project will be delayed. If the project is successful, however, the property tax revenues from the project will be far higher than they would have been without the redevelopment.
Past generations of city leaders in Augusta stepped up to make the investments needed achieve state capital designation and to generate power from the river. Now it's our turn.
We -- a current mayor and a former mayor -- think joining the partnership to redevelop the old hospital is the right thing to do for Augusta's future.
Bill Stokes is the mayor of Augusta. Bill Dowling is the chief operating officer for Mattson Development Co.