Groton — Special taxing districts like the ones Groton is considering to spur economic development are effective tools, but should be used cautiously, according to a city manager in Maine where the programs are used.

“It’s a wonderful tool for economic development, but it does require a level of scrutiny, not just that the project is going to be successful, but that it meets the needs of the community,” said Nate Rudy, city manager of Hallowell, Maine.

Rudy also formerly served as director of economic and community development for Gardiner, Maine, and business development specialist for the Kennebec Valley Council of Governments.

Groton’s Office of Planning and Development Services asked the Town Council last week for permission to spend $51,000 to create a tax increment financing program that Groton could later debate and potentially adopt. The planning department would pay for the consultant using salary savings and deferring two other projects. The council is expected to vote on the department’s request Dec. 6.

In Maine, municipal tax increment financing is allowed by state law and administered and managed at the local level. The success of the tool depends on how it’s put together and managed, said Doug Ray, spokesman for the Maine Department of Economic and Community Development.

The incentives can all go to benefit a business to lure a company to town, or they can be used to build new roads and new sewer lines, he said.

“But that tool is a 100 percent locally driven, locally approved,” he said.

Tax increment financing is one of at least three tax incentive programs in Maine which can sometimes be confused.

The state also offers the Maine New Markets tax credit program, which was abused in at least one instance.

In Millinocket, the Great Northern Paper mill took advantage of the program and then walked away. The mill’s owner, a private equity firm called Cate Street Capital, closed the mill and laid off more than 200 people, one year after obtaining $16 million in tax credits, according to the Maine Sunday Telegram.

“They got a ton of money from the town of Millinocket and just took off basically,” Rudy said. “So people got a lot of bad blood over that. A lot of ill will. That’s made it hard to use any kind of (tax increment) financing, because everyone thinks they’re going to get raked over the coals,”  said Rudy, adding the experience has led to closer scrutiny of developers when using financing programs.

He said in most instances, tax increment financing pays for improvements that benefit not only the development but the community as a whole.

Groton is looking at four potential special taxing districts – the Route 1 downtown area, Poquonnock Bridge, the Thames Street waterfront and the intersection of routes 184 and 117.

If approved, the consultant, Camoin Associates, would form an advisory committee of interested parties like property and business owners, representatives of community groups and real estate professionals to discuss the program. Any program would also be subject to public hearings and review.

Tax increment financing boosts development by helping developers at the front end, rather than after a project is built. Here's how one part of the program works: A town maps out a taxing district and looks at the assessed value of property in that district. Then it estimates the additional taxes a new development would bring in.

Next, the town agrees that after the development is built, it would rebate a percentage of the additional tax revenue back to the developer for a period of time. It can be years or decades.

The two sides sign an agreement and the developer then takes it to a bank, and uses it to get an additional loan or credit to go ahead. The town doesn’t rebate taxes if the project isn’t built, because no additional tax revenue materialized.

“If (there’s) no project, no rebate. And again, we’re not looking to rebate 100 percent. We’re looking to rebate some smaller percent,” said Paige Bronk, Groton’s manager of economic and community development.

Groton Planning Director Jonathan Reiner said the town must also look at the costs of development to the town in services.

“This is a tool and a tool can be used beneficially or it can be used improperly,” he said. Groton plans to move slowly and carefully to create the least amount of exposure, he said.

Ray, the spokesman from Maine said, "It's what we have to compete. We are competing in a global economy here and incentives and business attraction matters."

d.straszheim@theday.com