Happy New Year, Scarborough friends! Strap yourself in for another wild ride on the Tilt-A-Whirl that is life in Scarborough.
And you thought that last year’s $80 million tax break for the Scarborough Downs developers was the end of the story. Ha! How wrong you were! The “local guys” are back again – this time they brought along a wealthy accomplice – trying to hold up Scarborough taxpayers for another $2.25 million. Read on for the details of the latest heist…
For those of you who may have forgotten (or tried to forget) the details of the last Town Council’s generosity to local guys Risbara and Michaud… The deal was essentially that the Downs developers would get 40% of the taxes on new property value created at the Downs. That amounted to a tax break of $80 million over 30 years, give or take a few million. One of the things that the Town was supposed to get out of this tax giveaway was about 1,900,000 square feet of new non-residential construction. But not so fast.
The gist of the new grift is that the Town now needs to give an additional $2.25 million tax discount in order to induce the construction of a 200,000 square foot office building by WEX, a high-flying Portland-based financial/tech company. WEX will get a rebate of $150,000 per year of their tax bill for the next 15 years. Think of it as a kickback or signing bonus. (Remember that nice tax break the Town gave you when you bought or built your home? What, you didn’t get one?)
In short, the WEX deal means $2.25 million more tax dollars will flow into corporate pockets rather than into Town or school support.
[Editorial Note: Images and words such as “holdup,” “heist” and “kickback” are used strictly in the figurative sense. There is no suggestion that there is anything illegal or improper in the proposed transaction. It’s all just good, clean business!]
How the Tax Break Will Work
WEX is planning to build a $50 million operations center at the Downs…right next to the proposed community center (i.e., pool). At the current rate and the Town’s estimated assessed value of $45 million, that should generate $662,000 of tax revenue for the Town in the first year. Sounds wonderful, doesn’t it? But let’s see where that $662,000 ends up going based on the two “CEAs” or “credit enhancement agreements.” (CEA is just the polite name for this type of tax break.)
If WEX were a “normal” taxpayer, they would pay the Town $662,000 of taxes in the first year. But when you apply both tax breaks, the Town will end up getting only $247,000. That’s a reduction of $415,000 or 63%! Welcome to the world of high finance!
Also, let’s not lose sight of the fact that the annual $150,000 tax break is equivalent to the salaries of a couple of teachers or first responders.
Remember the old joke: “We lose money on every sale, but we make it up on volume.” This CEA would be funny if it didn’t have a real impact on our taxes.
So what do we know about WEX? Well, the company started in 1983 in Portland as a pioneer in the fleet (i.e., trucking) credit card business and has been astonishingly successful since then. It is now “a global leader in financial technology solutions.” It is Maine’s third largest publicly held company (based on revenues) with an enviable financial track record. Here are some of WEX’s recent financial highlights:
Does this sound like a company that needs a “helping hand” from the taxpayers of Scarborough? Not to us!
And, by the way, WEX just opened a new world headquarters building in Portland last year. It’s about 100,000 square feet, with a harbor view and lots of goodies as described in the following excerpt from one of their PR pieces:
“On each floor, our employees can find at least one kitchen/break room stocked with free coffee and healthy snacks as well as small, private wellness rooms dedicated to whatever wellness looks like to our employees, whether they be for meditating, nursing mothers or just grabbing a few minutes of quiet. Employees will also enjoy amenities including a rooftop deck (once the snow melts, it will be fully furnished and wifi-enabled)…” To get the full effect, visit WEX’s blog post about the new headquarters at this link.)
Sounds rather posh, doesn’t it? And yet somehow WEX can’t come up with enough scratch to pay their taxes at the same rate that all Scarborough residents and most businesses pay? What are we missing?
The arguments you will hear…
The combined WEX/Downs/Town public relations machine is, naturally, working overtime on this fantastic “opportunity” for Scarborough. (If we had a nickel for each superlative describing the company and the deal, we could retire from the blog business… much to the delight of many.) Please don’t get us wrong – WEX is a terrific company and solid corporate citizen and would be a welcome addition to the Town’s business landscape. But putting the squeeze on Scarborough taxpayers just doesn’t seem like a neighborly way to begin a relationship.
Here are some of the talking points that have been ginned up so far:
Sure, WEX is a great company with a wonderful reputation. Having them come to Scarborough would certainly be a positive for the Town’s attractiveness to businesses. But what savvy developer/business owner isn’t going to ask for the same favorable tax deal that WEX received? And are we going to say no? If we say no, on what criteria will that decision be based? Yes, we may have “only” given away $2.25 million to WEX, but the tab will be much, much more when we’re forced into future similar tax breaks for other businesses. We are essentially giving away a huge chunk of the favorable revenue-to-cost ratio of commercial property over residential property.
By the way, did the new Foley’s Gym on Haigis receive a tax break? If not, is it too late for him to go back and ask for a 23% tax reduction? (Which reminds us… have the Edge/Downs folks asked for their CEA for the new downtown sports complex yet?)
Yes, lots of jobs. But why is that such a great thing? Oh, right, it makes us a “vibrant” and “fast-growing” community. Neither vibrancy nor fast growth will do much to keep your taxes in check, despite claims to the contrary. In fact, “vibrancy” may just be one of those marketing terms that really means “increased traffic congestion.” And the Town’s fast growth over the past decade doesn’t seem to have solved our persistent budget problems.
Another thing… have you noticed a lack of jobs in Scarborough lately? Are there lots of unemployed folks hanging around that we have somehow missed?
Perhaps. But is that a major issue? There are other companies out there. The idea that some have suggested that the land where WEX is going may otherwise sit idle for years and years seems far-fetched. The Downs developers have consistently touted what a fantastic location the property is.
WEX agreed saying they evaluated the Downs and several competitive sites with respect to “an accessible location near major highways, a campus setting with on-site amenities and expandability for future planned growth.” WEX concluded: “The Downs surpassed all criteria and we were quite impressed with the master plan and offerings.” In other words, the Downs is a premier business location. It should not need massive incentives to be developed!
The developers have already received $80 million in commitments to, among other things, provide the Town with 1.9 million square feet of non-residential buildings. But apparently that was just the first installment. How many more millions of dollars will be diverted from supporting Town and school needs to lining the developers’ pockets? There’s a fuzzy line between encouraging legitimate economic development and making corporate welfare payments. Does the WEX deal cross the line?
Maybe we are naïve, but we really thought the current Town Council was serious about transparency and actually listening to the citizens on major issues. Yet here we are, after who knows how many months of non-public discussions, being presented with a tax break proposal that has all the earmarks of a done deal.
In fact, the credit enhancement agreement was apparently viewed as so certain that neither WEX nor the Downs (nor the Portland Press Herald) felt the need to mention its existence when the deal was announced. Not sure how they could have come to that conclusion without strong assurances from some Town officials that approving the agreement was a mere formality, perhaps with a small bone of faux public input thrown to the witless populace.
Well, folks, now it’s our chance to show them what a real public discussion is like!
What’s next with WEX?
>>> Wednesday, January 22 at 6pm, Town Hall — Town Council Workshop on the WEX deal. The propaganda package for the workshop is available on the Town website. Here’s the link.
>>> Wednesday, January 22 at 7pm, Town Hall — Town Council Meeting with first reading of WEX Credit Enhancement Agreement.
>>> Wednesday, February 5, Town Hall – Public hearing on the WEX deal.
>>> Wednesday, February 19, Town Hall – Town Council Meeting with second reading/approval of the WEX Credit Enhancement Agreement.
If you haven’t already signed up for the SMARTaxes newsletter, please consider doing so since they will undoubtedly follow developments on the WEX tax break. To be added to the newsletter mailing list, just send an email requesting it to firstname.lastname@example.org.
Other developments that will scare your socks off
In the scheme of things (and there is a lot of scheming going on), it turns out that the WEX tax break barely registers on the Taxpayer Concern Meter (the “TCM”). In our next fun-filled issue, we’ll bring you up to speed on three huge projects that are all jockeying for a major claim on your disposable income… if there’s any left.
- Community Center/Pool – The ad hoc committee that was convened to make an emergency evaluation of the Downs’ community center lease offer will make its report to the Town Council within the next 2-3 weeks. Incredibly, they will recommend that we continue considering the Downs’ lease proposal in spite of the fact that its 30-year lease cost for the building itself is $36 million more than the estimated cost if we build the same building ourselves and issue debt — $90.6 million in lease payments versus $54.2 million of debt payments if we build it ourselves. Apparently there are lots of “intangibles” that need to be considered.
- Library Expansion – Somehow the cost estimate for the library expansion leaped from $8 million to $14 million in a few short weeks. Things move fast in Scarborough! But remember, it’s “the library’s turn” in the long-range capital plan.
- New primary school – We’re not sure if this is going to be a K-2 (Kindergarten through second grade) school or a preK-3 (pre-Kindergarten through grade three) school or somewhere in between. But we do know that the cost estimates keep growing. We now look back wistfully at the initial estimate of around $60 million. Now an amount of $80 million gets bandied about. Or more.
Seems like it will be a head-spinning year in Scarborough!
That’s all for now, folks! We’ll try to keep you up-to-date. In the meantime…
(nom de blog of Steve Hanly, who is solely responsible for the content of this blog)