Tax Break Travesty in Scarborough… $150 million!

Well, folks, this is the BIG ONE.  From those same wacky guys who brought you the Amazon headquarters proposal, here comes an only slightly less outlandish proposal.  But a much more serious one.  Indeed, deadly serious in terms of Scarborough’s financial future, not to mention our quality of life.


Artist’s rendition of Scarborough’s new “downtown”

Yes, Town Manager Tom Hall and Council Chair Bill Donovan are at it again.  This time Messrs. Hall and Donovan have put their heads (and egos) together and come up with a scheme to create a new “downtown” for Scarborough… and all for a mere $150 million of future tax dollars being paid to the developers.  This is the mother of all tax breaks.

This proposed mega-boondoggle uses two taxpayer fleecing vehicles: a tax increment financing agreement (“TIF”) and a credit enhancement agreement (“CEA”).

Please do not panic!  TIFs and CEAs sound intimidating but they just boil down to tax breaks for the developers.  At the most basic level, TIFs and CEAs just divert negotiated amounts of future property tax collections to a developer.    And when the developer gets a chunk of those future tax collections, those tax dollars aren’t available to support the schools, police/fire and other Town services.  And guess who makes up that future shortfall?  Bingo!  That would be you and me, dear Taxpayer!

Yes, the mechanics of TIFs/CEAs can get kind of hairy and complex, but don’t get lost trying to follow all the ins and outs.  That’s what they’re hoping for… that we’ll say to ourselves “Oh, gosh, this is too complex for me” and then decide to leave it to the “experts” on the Town Council.  Just stay focused on the basic premise: every future tax dollar that ends up in a developer’s pocket has to be replaced by another one from your pocket.

What we know at this point

The August 15 Town Council workshop that was supposed to unveil the Scarborough Downs development plan and the related taxpayer fleecing was a complete bust in terms of providing usable information about the project and the related TIF/CEA.  Only the vaguest information was presented.

But here are three important things we do now know:

  • This is the largest development project in the Town’s history – it is projected to add $600 million of real estate (apartments building, single family homes, retail/office space, etc.) to the Town’s total valuation.
  • The proposed tax breaks stretch over the next 20-30 years.  Its tax impact will last for a generation.
  • Bill and Tom are planning to ram the TIF/CEA tax breaks through the approval process during October, come hell or high water.  That’s right, we’ll have about a month to understand and evaluate the largest financial transaction the Town has ever entered.  (Remember how long we spent discussing the animal control ordinance a couple years back?)

What we don’t know

There are so many critical things that we don’t know.  Like the real total of the proposed tax break.  They won’t tell.  The $150 million amount is only a rumor.  No one has any idea of the projected budget or tax impact of the proposal. (Or if they do, they’re not telling.)  And then there are basic things like:

  • How many apartment units are planned?
  • How many single-family homes?
  • What’s the projected population increase?
  • What’s the projected school enrollment increase? (And will existing facilities accommodate it?)
  • What type and volume of retail activity is projected?
  • What type and square footage of “light industrial” activity is projected?
  • What are the projected traffic impacts on Route 1, Payne Road, etc.?

No – incredibly – the fact that those questions have not been answered doesn’t appear to bother most Town Council members.  As of now, we are absolutely clueless about the impact of the project on the Town over the next 10-20 years, but that doesn’t matter to them.  Let’s sign that agreement for a $150 million tax break to the developers for a project that no one really understands.  And let’s do it in the next 30 days!  (They are local developers, after all.)  Ahh, the joy of public/private partnerships!

Hardball Negotiating 101, Chapter 6

Don’t you love it when someone tells you that you have to “act in the next 20 minutes or this incredible deal is off.”  This hardball negotiating tactic – setting an artificial and unreasonable time deadline – actually has a name: “the exploding offer.”

Here’s how one negotiator describes the tactic:

Exploding Offers (artificial deadlines) – an exploding offer contains an extremely tight deadline creating pressure on the other party to conclude quickly.  The purpose of the exploding offer is to limit the time the other party has to consider alternatives.  (Andrew Boughton in Hard Bargaining, Negotiation Basics.

So here we have an exploding offer from the Scarborough Downs developers who maintain that if the TIF isn’t approved asap, the deal can’t happen.  They maintain that the commercial tenants they have lined up need to know right now that this project is happening; otherwise the prospective tenants will walk.  As the old saying goes: “I may have been born at night, but it wasn’t last night.”

Bottom line: this 30-year deal that provides the developer with a $150 million tax break has to be approved at the October 3 Town Council meeting or the whole deal is off.  If there were ever a bluff to be called, this would be it.

But wait, the Town Council is actually supporting this absurd schedule.  And of course, you and I, simple-minded rubes that we are, are not supposed to figure out the real reason that the TIF has to be finalized in October.  The real reason is that the current 5-2 Council voting bloc may well disappear in the November election, making it uncertain that the TIF deal will fly with a new Town Council in place.  Thus the headlong rush to approval with an irresponsible lack of regard for the financial implications of the agreement, let alone public understanding and concurrence with the deal.  (Fiduciary responsibility, anyone?  Anyone?)

Who promised what and when?

Speaking of how naïve we dimwitted taxpayers are… they think we don’t realize that this deal has been in the works for many months.  The developers closed on the property in January.  We would be astounded if the basics of the deal between the Town and the developer hadn’t been agreed to well before the property was purchased.  Nothing in writing, of course.  More like a gentlemen’s understanding, probably.

Who in their right mind would purchase a property that was going to require a $150 million tax break from a town in order to be successful without first having a very high degree of certainty that such a tax break would be forthcoming?  Only a very dumb developer would buy the property without knowing that a tax break was pretty much in the bag.  And the Five Brothers are not dumb developers.

Apparently the numerous previous prospective buyers of the Downs couldn’t arrive at a similar understanding with Town officials.  It pays to shop locally!

A Lesson Not Learned – Is It Just Blinding Arrogance?

You would think that after three School Board members were recalled (by a lopsided margin) that it might occur to the remaining Town leaders that they’re doing something wrong.  But, nooooooo, not our Town leaders!  They have an amazing gift of avoiding introspection.  So the bad behavior – lack of transparency, lack of respect for the public’s wishes, failure of processes – continues. And in the case of this TIF, with potentially devastating consequences to the Town in terms of both finances and quality of life.

Coming soon…

Well, that’s it for now.  Part 2 of this blog will follow in the next week or so.  Here are a few of the topics that will be covered:

  • More questions to ponder about the project and the deal
  • What the Enchanted Village (the new downtown) may look like, with exclusive New Urbanism  design features by a pricey Tennessee-based consultant
  • Into the Way-back Machine: how past TIFs/CEAs have worked out for Scarborough
  • Life in a banana republic (no, not the clothing chain)

All that and more.  Stay tuned.  If you’ve enjoyed this blog, please share it with friends.

Happy trails until we meet again!

Be neighborly,

TT Hannah

(nom de blog of Steve Hanly)

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