As a State Senator Peter gets many emails related to his legislative work. Peter’s Inbox is an ongoing series where we highlight some of those emails preserving the anonymity of the author. You can write to Peter directly at peter@millsformaine.com.

Senator Mills,
I wrote you just under a year ago to get an explanation on some tax benefit information as it relates to wind power development projects. I appreciated your prompt response and the helpful information you included as attachments. In fact, I’ve read your Megawatts From Mountaintops article several times trying to gain a greater understanding of its contents.

I have, even after re-reading it about 10 times, never been able to comprehend the section on Maine’s Tax Increment Finance Law, specifically, how it applies to the Unorganized Territories. I hate to ask you to take the time to do this, but, can you explain this to me in layman’s terms? Or, if such information exists, a source for a simplified version of this law – a TIF For Dummies.

Also, a question regarding the statements you made in the article on the tax benefits for residents in the UTs. You stated that the assessed value would increase temporarily in a town where a development was located. Temporary, I assume, because of the depreciation of the capital investments. Does it follow, then, that the tax benefits to the residents will follow a similar curve? In other words, would the residents realize significant decreases in their taxes initially, followed by steady diiminishment of those benefits? If so, how rapidly could those benefits be expected to erode?

I realize this is a great deal to ask, but, I would really like to understand this issue.

Peter’s Response

Unfortunately, I didn’t have space in the Mountaintops article to explain much about TIFs. It would be nice if I could simply refer you to the statutes, but the key provisions are located in several different places and are confusing to read.

TIFs are primarily for towns. They permit a town to carve out a portion of the value of a new investment. The taxes due on that portion of the project are paid into a special TIF account controlled by the town. These tax revenues may be used for economic development by the town. Or, the town may refund a portion of the taxes to the developer as a “credit enhancement” to help the developer amortize debt incurred to build the project.

The town is given special inducements to create a TIF because the property within the TIF is not recognized as part of the town’s valuation for paying county taxes or for receiving state school subsidies or municipal revenue sharing. In other words, if a town granted a 100% TIF to a developer, then its county taxes would not go up and revenue sharing and GPA would not go down. Other tax payers in the county and in the state would be picking up part of the cost of giving up regular property taxes on the project. If 100% of the TIF were rebated as a credit enhancement, it would be the same thing as declaring the project tax exempt.

When a project is proposed for the Unorganized Territories, the county commissioners are designated to act for the county as though the county were a town. But in the UT, there is no revenue sharing and no school subsidy (Schools in the UT are paid for directly by the state through property taxes the state collects on all UT property.)

The biggest problem with creating a TIF in the UT is that the money kept by the commissioners has to be applied to economic development within the UT itself in places where LURC zoning practically forbids most forms of development. The money can’t be spent in adjoining towns like Rangeley, Jackman, Greenville and Millinocket.

Your second question is about changing valuations over time. As the value of the investment diminishes through depreciation or obsolescence, the tax value also drops, at least initially. Not long ago, I asked the director of the Property Tax division about the taxation of Wyman Dam. Wyman was completed in 1930 and has been depreciating for 79 years. He said that if the dam continues to produce a profit, then its value is adjusted to reflect its earning capacity. Even though Wyman is 79 years old, it is presently valued for tax purposes at well over $100 million.

Something similar might occur with wind power facilities, but with wind power there is less investment in concrete and earthworks and more in depreciable machinery. Also, I suspect that designs are constantly improving. If so, then obsolescence would be a bigger factor. For whatever it is worth, the value projections filed by the companies in support of TIF applications call called for straight line depreciation leading to negligible value at the end of a 20 year term.

Peter Mills