2017-07-21 / Front Page

City amends Fairchild TIF

By Wm. Duke Harrington
Staff Writer

SOUTH PORTLAND — One of the South Portland’s largest property tax payers will get a break of sorts on future bills, following a unanimous vote of the city council Monday, July 17.

Fairchild Semiconductor, which set up shop in South Portland in 1962, was the beneficiary of the city’s first TIF (Tax Increment Financing) district in 1994. Under the deal, new investments in buildings and equipment at the firm’s 20-acre complex on Western Avenue are sheltered from assessment by the city. That helps to make the total value of the city seem smaller in the eyes of the state, a decided benefit which school subsidy dollars are dolled out each year. In return the city returns half of the property taxes on any new development to Fairchild, a payment known as a credit enhancement agreement.

The other half stays with the city, but goes into a TIF account, rather than the general fund. Money in the account can be used for local infrastructure upgrades and for qualifying economic development efforts, giving the city a pool of money to draw on for those special projects other than residential taxes.

However, to get its half of the tax bill returned, Fairchild had to invest $12 million into its site in a rolling three-year average.

“That threshold is going to be difficult for them to continue to make,” said Shana Cook Mueller, an attorney with Bernstein Shur who handles TIF questions for the city.

Last year, Fairchild was purchased by Arizona-based ON Semiconductor for a reported $2.4 billion.

“During the period leading up to the sale, and immediately following the sale, new investment in the plant was limited and the three-year average investment fell to around $10 million,” Mueller said.

According to city Finance Director Greg L’Heureux, the company invested $13.7 million into its plant in 2015, followed by $7.5 million in 2016 and $8.8 million last year. That netted the company a return of $45,826 on the tax bill it would otherwise have paid had those dollars not been in a TIF district, essentially making them invisible to the state.

According to the city’s online assessing database, Fairchild land, buildings and equipment were valued at $39.8 million last year. For the property that stood before creation of the TIF deal in 1994 it paid a tax bill of $703,685 for the fiscal year that ended June 30. Meanwhile, under the Business Equipment Tax Exemption, Fairchild does not have to pay personal property tax on business equipment purchased after 2008. However, the state reimburses those lost taxes for the city. Normally the rebate would be 57 percent of the lost tax, but because Fairchild is in a TIF district, South Portland gets the full amount, resulting last year in an additional 985,794 on top of the $703,685 paid directly by Fairchild.

Because Fairchild investments over the coming year will mean a miss on the $12 million three-year average, the amendment agreed to by councilors will waive the minimum, and give the company a 100 percent kick back of taxes on whatever new investments it does make.

L’Heureux said that is expected to mean a return of $72,500.

The new TIF deal then sets a tiered investment threshold. Starting with the 2018-2019 tax year, the company will get back 20 percent of its tax bill for an average annual investments of more than $6 million, 40 percent for more than $8 million, 60 percent for more than $10 million, 80 percent for more than $12 million (the level at which it was getting 50 percent back), followed by 90 percent for more than $13 million, and 100 percent for spending above $14 million.

Assuming the company gets back to a $12 million rolling average for site upgrades, it should reap $58,000 per year, L’Heureux said.

“TIFs are complicated creatures,” Councilor Claude Morgan said, after motioning for the new deal. “It is not a giveaway. It is a two-way street, and we receive enormous benefit.”

Mueller said the new tiered structure is the same as the TIF edit the council granted to National Semicondictor when it was purchased by Texas Instruments.

“What we are looking at here is an amendment that seeks parity with a different TIF offered to a direct competitor, so that they are on a level playing field,” Morgan said. “This really does not cost the city or the taxpayer.”

“The city is the winner in this,” Councilor Maxine Beecher agreed.

However, two residents in the audience at Monday’s meeting were less then thrilled with the new deal.

“This company probably has a market capitalization in the billions of dollars,” Mussey Street resident Greg Lewis said. “You might think it’s all well and good, they get a break and the state pays it back to the city, so it’s a wash. But where do the state taxes come from? From me and you and everybody in this room and home watching on TV. So, in other words, the citizens pick up the taxes that the large multi-billion-dollar company can’t seem to find the money to pay. That is precisely the kind of economic development I am against.”

“This smells of tax subsidies for large super-wealthy corporations,” agreed Edwards Street resident Paul Cunningham. “If they are not meeting their profit margins, maybe they need a new business plan.”

According to Mueller, Fairchild has retained its own corporate identity following the sale to ON. The company employs about 650 people in South Portland.

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