HALLOWELL — More than $10 million of property value in a pair of local tax-increment financing districts was not sheltered for the past three years, causing more than $200,000 in tax revenue — destined for projects in the city’s downtown district — to be put into the city’s general fund erroneously, city officials said.
The errors could affect the city’s overall valuation at the state level, which factors into Hallowell’s share of revenue sharing and school subsidies.
Hallowell City Manager Nate Rudy said he is in the process finding out the remedy for the error ahead of a scheduled April 22 presentation to the City Council’s Finance Committee.
Nate Rudy
City Councilor Maureen Aucoin, a member of the Finance Committee who also has served as the city’s assessor’s agent and interim city manager, explained the error earlier this month at a meeting. She said property in two TIF districts — one for the Woodlands Senior Living of Hallowell and one for a Summit Natural Gas pipeline — was not assessed as it was in a TIF district.
Rudy said he was not aware of the issue until this February.
TIF agreements allow municipalities to forgo property taxes generated by new development within designated districts, as long as the sheltered money is used for certain purposes, such as economic development or infrastructure improvements. Though the municipality loses tax revenue, it also sees a benefit: Money sheltered through a TIF agreement doesn’t count toward a municipality’s overall property tax value during the TIF’s life. Lower taxable value means more state revenue sharing.
By her estimate, Aucoin said a total of $208,765 in property and personal property taxes was put into the city’s general fund in fiscal years 2017, 2018 and 2019, based on $10.7 million in cumulative captured property value.
Aucoin told the Kennebec Journal that the city’s assessing agent, Rob Duplisea, of Pittsfield’s RJD Appraisal, is responsible for calculating the increased assessed value for properties within a TIF district. After the value is assessed, it’s then up to Rudy, the city manager, to use the values in budget discussions and move funds to their appropriate place, according to Aucoin.
“The city manager … acts as chief financial officer for the City of Hallowell and is then responsible for distributing those TIF funds to the appropriate account,” she said in an email. “In the case of the Woodlands TIF, this process never occurred.”
Maureen Aucoin
Rudy said Tuesday that he had “a role” to play in the error but said the Finance Committee and other city officials also have roles. Further, Rudy said he did not have a chance to be briefed about the Woodlands TIF when he became city manager in June 2016.
He said the error “seems like something all of us have been missing,” but he was “certainly not interested in laying blame.”
Aucoin’s calculations showed the Woodland’s TIF district had a captured assessed value of $3,140,807 in fiscal year 2017, paying $59,361 in personal property and property taxes. In fiscal year 2018, the district had a $3,190,068 in captured assessed value and paid $62,844 in taxes. In fiscal year 2019, the district had a $3,060,676 captured assessed value and paid $60,295 in taxes. The Summit TIF was wrongly assessed only in fiscal year 2019. It had $1,333,210 in captured assessed value and paid $26,264 in taxes.
“The property was assessed and reported to state in the total valuation,” Aucoin said. “It was treated like any other property not in a TIF district. … The city just didn’t capture the value.”
Rudy confirmed the error and said he did not find out about amendments to a TIF district —made in 2014 — until this February. He said he has been in contact with state agencies to learn the effects the error, and would present findings of fact at the April 22 meeting of the City Council’s Finance Committee.
Back in 2014, a TIF given to the developers of the Woodlands Senior Living of Hallowell was extended until 2035 and amended to route money paid in property taxes into the downtown TIF district. Before the amendment, for fiscal years 2007-2016, 98 percent of the district’s captured value was returned to the developer through a credit enhancement agreement and 2 percent was used by the city for “administration of the TIF district.” In 2014, the TIF was extended until 2035. Starting in fiscal year 2017, 99 percent of the captured value would be allocated to the downtown TIF district and 1 percent would be used for administration.
Another TIF was given to Summit Natural Gas, which built pipelines in Hallowell. When asked for a copy of the Summit TIF, Rudy was unsure whether he was in possession of a copy.
Workers from McGee Construction, of West Gardiner, patch a gas pipeline trench Nov. 12, 2013, in Hallowell. The subcontractors were working for Summit Natural Gas of Maine laying the energy line in Hallowell. Kennebec Journal file photo by Andy Molloy
Each year, the city calculates what percentages of tax funds collected go to school, municipal and county expenditures. Using these figures from fiscal years 2017 to 2019, the Kennebec Journal found $78,952 — or 37.8 percent — of the $208,765 was used for city expenditure, while $119,826 — 57.4 percent — when to school district funding and $9,987 — 4.8 percent — went to Kennebec County administration.
The implications of the error could have a longer-term effect, because the city’s total tax valuation and property value assessment are used in formulas to determine state school subsidies and revenue sharing. What effect it will have on state revenue sharing and school subsidy is not clear because some state formulas use figures from past fiscal years, and some numbers from fiscal years 2018 and 2019 have not been used in calculations.
Nichole Philbrick, municipal services tax section manager at the Maine Revenue Service, said the state figure of valuation uses the municipality’s property assessment and a sales ratio study to determine what number factors into state calculations. It is normal for the state’s value for a municipalities to be lower or higher than the municipality’s assessment because of differences in assessing between municipalities.
In fiscal year 2019, Hallowell’s total real estate and personal property assessment, including exemptions, is $258,434,722. The city is expecting to collect $4,882,216.49 in taxes, according to tax commitment books.
Last fall, Hallowell officials passed a budget that included double-counted funds and omitted $150,000 in carryover funding between readings, which caused a $103,000 variation on the city’s tax rate calculation sheet. When asked about the pattern of errors in the city’s budgeting process, Rudy said city officials are “discovering areas” where the city process “needs improvement.”
“We’re all surprised by this and caught off-guard,” he said. “This was (due to) a lack of continuity and transfer of knowledge.”
Councilor George Lapointe said Wednesday he did not think the two errors within the last year mean there is a larger problem with the city’s financial management. He said the Finance Committee will meet with the city’s TIF committee and consultant Raegan LaRochelle to review the city’s TIF policy. That meeting is scheduled for May 1, according to the city’s website.
After deliberations at the April meeting, Aucoin said the errors will be correct in fiscal year 2020’s budget.
Councilors Kate Dufour, Michael Frett, Diano Circo, Kara Walker and Patrick Wynne were not immediately available for comment Tuesday.
Sam Shepherd — 621-5666
Twitter: @SamShepME
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