Can a Maine municipality use a TIF district to pay public money directly to a private developer, and does that violate the equal-apportionment-of-taxes clause?

Plain-English summary

Maine's Municipal Development Districts statute, 30-A M.R.S.A. § 5251 et seq., lets a municipality create a Tax Increment Financing (TIF) district, borrow against the future tax revenue from new development in that district, and pay the proceeds toward project costs. The classic TIF transaction has the municipality build infrastructure; a newer pattern, by 1996, had the municipality channel TIF proceeds directly to a private business as an inducement for the business to expand or invest in town. The State Tax Assessor, on behalf of a TIF Task Force, asked the AG two questions about that newer pattern.

Question one was whether a municipality could constitutionally hand public money to a private taxpayer who was not providing direct services in exchange. The AG's answer was yes, anchored in Common Cause v. State, 455 A.2d 1 (Me. 1983). Common Cause held that the "public purpose" requirement in Me. Const. art. IV, pt. 3, § 1 is satisfied by indirect economic benefits like employment and tax-base growth, and that a properly authorized expenditure is presumptively constitutional unless it has no rational basis. The Municipal Development Districts statute and DECD's administrative approval process supplied that authorization for TIF projects, so payments to private developers as part of a duly approved TIF plan would normally clear the public-purpose bar.

Question two was whether the same arrangement violated Me. Const. art. IX, § 8, which requires that property taxes be apportioned and assessed equally according to just value. The Tax Assessor worried that using TIF revenue to defray a private party's costs functioned as a "de facto tax exemption." The AG disagreed. Article IX, § 8 limits how property is valued and taxed, not how the resulting public revenue is spent. The property in a TIF district is still valued and taxed at full value; the municipality simply chooses to spend some of the revenue on a project that happens to benefit a particular property owner. McBrierty v. Commissioner, 663 A.2d 50 (Me. 1995), confirmed that distinction; Sawyer v. Gilmore, 109 Me. 169 (1912), supplied the older statement of the rule.

The opinion's careful caveat: this is a general analysis of a general practice, not a green light for every TIF deal. The particular facts of a transaction might lead to a different conclusion. The AG also distinguished the older Brewer Brick decision, 62 Me. 62 (1873), where the Law Court struck down an outright property-tax exemption for manufacturing companies. Brewer Brick was about reducing the tax owed; TIF lets the municipality collect the full tax and then spend it.

Currency note

This opinion was issued in 1996. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is Tax Increment Financing (TIF)?

A municipal finance technique. The municipality designates a development district, freezes the existing taxable value of property in the district at its pre-development "original assessed value," and treats the tax revenue generated by the increase above that base (the "tax increment") as a separate revenue stream. The municipality can issue bonds backed by the increment, or pay incremental revenue directly to a private partner to defray project costs.

Why is paying a private party with TIF money even a constitutional question?

Maine has a "public purpose" doctrine drawn from Me. Const. art. IV, pt. 3, § 1, which says taxes can only be raised, and public funds can only be spent, for a public purpose. Giving cash to a private business looks like a private benefit. The reason it survives the test is that Common Cause v. State holds indirect economic-development benefits (jobs, tax-base growth) count as public purposes.

Doesn't TIF give the private taxpayer a tax break?

Functionally, the private taxpayer recovers some money it paid in property tax, so the net cost of doing business at the developed property is lower than it would be without TIF. But Article IX, § 8 of the Maine Constitution only cares about how the property is taxed (apportionment and assessment), not how the revenue is spent later. The taxpayer is paying tax at the same rate as every other comparable property; the municipality just decides to spend that revenue in a way the taxpayer benefits from.

Could the Legislature decide to ban this kind of TIF deal?

Yes. The AG noted explicitly that nothing about its constitutional analysis bound the Legislature. If lawmakers thought TIF payments to private developers were inappropriate as a policy matter, they could amend 30-A M.R.S.A. § 5252(8) to narrow the definition of authorized "project costs" or otherwise tighten the statute.

What role does DECD play in TIF approval?

The Department of Economic and Community Development administratively approves each TIF district. The AG flagged DECD's track record of approving similar TIF financings as one piece of evidence that the legislative scheme authorized this pattern of payments.

Background and statutory framework

Maine's Municipal Development Districts law is at 30-A M.R.S.A. § 5251 et seq. The statute lets a municipality designate a TIF district, define the "captured assessed value" (the value above an "original assessed value" baseline frozen at the time the district was created), and use the resulting incremental tax revenue for authorized project costs. 30-A M.R.S.A. § 5252(8) defines "project costs" broadly enough, in the AG's reading, to cover payments to private developers for property they own and use within the district.

The constitutional backstops are two clauses of the Maine Constitution. Article IV, Part Third, Section 1 grounds the public-purpose doctrine. Article IX, Section 8 requires equal apportionment and assessment of property taxes. The AG's argument is that the public-purpose doctrine is satisfied by Common Cause v. State's indirect-benefit framework, and that the equal-apportionment clause does not constrain spending decisions, only assessment decisions, per McBrierty v. Commissioner and Sawyer v. Gilmore.

Brewer Brick Co. v. Bourez, 62 Me. 62 (1873), the older outlier, struck down a ten-year property-tax exemption for manufacturing companies. The AG distinguished Brewer Brick on the ground that it was about reducing the tax actually due, not about how the municipality spends collected revenue.

The opinion's final paragraph emphasizes that the AG's analysis is general. The "particular facts and circumstances of a given TIF financing might lead to a different conclusion." Some configurations (for example, a TIF that essentially pays the developer back dollar-for-dollar for tax owed, with no infrastructure or job-creation component) might fall outside the safe harbor of Common Cause.

Citations

• 30-A M.R.S.A. § 5251 et seq. (Municipal Development Districts statute)
• 30-A M.R.S.A. § 5252(8) (definition of "project costs")
• Me. Const. art. IV, pt. 3, § 1 (legislative power and public-purpose doctrine)
• Me. Const. art. IX, § 8 (equal apportionment and assessment of property taxes)
• Common Cause v. State, 455 A.2d 1 (Me. 1983) (indirect economic benefits satisfy public purpose; rational-basis review)
• McBrierty v. Commissioner of Administrative and Financial Services, 663 A.2d 50 (Me. 1995) (Article IX, § 8 governs assessment, not spending)
• Sawyer v. Gilmore, 109 Me. 169 (1912) (older statement of assessment-vs.-spending distinction)
• Brewer Brick Co. v. Bourez, 62 Me. 62 (1873) (struck down outright property-tax exemption for manufacturers, distinguished)
• Davidson, Tax Increment Financing as a Tool for Community Redevelopment, 56 Journal of Urban Law 405 (1979)

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/1996/ag_19960103.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

96-1

ANDREW KETTERER
ATTORNEY GENERAL

STATE OF MAINE
DEPARTMENT OF THE ATTORNEY GENERAL
6 STATE HOUSE STATION
AUGUSTA, MAINE 04333-0006

January 3, 1996

Brian H. Mahaney, Esq.
State Tax Assessor
Bureau of Taxation
24 State House Station
Augusta, ME 04333-0024

Dear Mr. Mahany:

I am responding to your request for an opinion relating to Tax Increment Financing (TIF) under Maine law. Your request is made in behalf of the TIF Task Force of which you are a designated member as well as in your capacity as State Tax Assessor. First, you have asked whether, pursuant to a TIF development plan or otherwise, a municipality may constitutionally pay public money directly or indirectly to a private taxpayer where the payments are not in exchange for services rendered. Your second inquiry is whether payments of public moneys by a municipality to a private taxpayer where those payments may offset the amount of incremental property taxes on property which is the subject of TIF financing violate the provisions of the Maine Constitution relating to equal apportionment and assessment of such taxes. For reasons set forth below, it is the opinion of this Department that a municipality may constitutionally pay public moneys to a private party without regard to whether the payments are in consideration of services rendered by that private party providing that the benefit to the municipality can reasonably be characterized as serving a public purpose, and that payments of revenues derived from property tax increments to private parties as described in your second inquiry do not result in an unconstitutional apportionment and assessment of property tax.

A brief description of tax increment financing is provided to assist an understanding of this opinion. In Maine, the authority for TIF financings is found at 30-A M.R.S.A. § 5251 et seq., the Municipal Development Districts statute. In a typical project utilizing TIF, a municipality adopts a plan for new development in an area of the municipality to provide new employment opportunities and broaden the tax base of the municipality. After adopting the plan, the municipality may then issue bonds to finance the costs of such things as property acquisition and the construction of new infrastructure. The bonds are repaid from future tax increments on the property of private persons making use of the new public improvements in the development area. This tax increment is calculated as the difference between the amount of tax at the new, improved value of property in the development area, or TIF district, and the original assessed value of the property prior to development.

In recent years, however, it has been common for a municipality and private enterprise to create jointly a development program under which the private enterprise will agree to construct a new building or expand production capacity through acquisition of new production equipment if the municipality will assist in the financing of the new property through a TIF financing. Pursuant to this type of plan, the private enterprise acquires TIF property, and the municipality, through its governing body, appropriates and pays to the private enterprise a portion of the cost of the new property with the tax increment generated by the new property.

I. Public Purpose

Your first inquiry addresses the question of whether it is constitutional for a municipality, in the second of the situations just described, to expend public moneys without obtaining the benefit of direct services to the municipality. This issue was specifically addressed by the Law Court in Common Cause et al. v. State of Maine et al., 455 A.2d 1 (Me. 1983). In that case the Law Court held that indirect economic benefits, such as enhancing opportunities for employment, may be taken into consideration in deciding whether the expenditure of public funds is for a public purpose as required by Maine Constitution, Art. 4, Pt. 3, § 1. Further, the court determined that appropriate authorization of public spending will be treated as constitutional unless it is determined that the legislative decision authorizing the spending has no rational basis. Id. at 25. Thus, appropriately authorized public spending for the purpose of encouraging economic activity is presumptively permissible.

II. Unequal Taxation

Your letter also inquires about the propriety of a municipality creating a TIF district and using all or part of the captured tax increment from the district to defray the expense of acquiring taxable property for the benefit of a private party. Your question appears to be whether it is appropriate for the "project costs" of a TIF district, as defined in 30-A M.R.S.A. § 5252(8) and borne by the municipality, to include the cost of acquisition of real or personal property to be owned by a private party which is also a taxpayer in the municipality. You suggest that such a practice may, as you characterize it, constitute a "de facto tax exemption," and, therefore, may violate the provisions of the Maine Constitution, Art. 9, § 8, which requires that all property taxes be apportioned and assessed equally according to the just value of that property.

Although the acquisition of property for the benefit of private parties is not a traditional implementation of the TIF concept, see Davidson, Tax Increment Financing as a Tool for Community Redevelopment, 56 Journal of Urban Law 405 (1979), such a utilization of public moneys, as noted above, does not violate the principles established in the Common Cause case. Further, this Department does not believe it can be said to violate the provisions of the Maine Constitution relating to equal apportionment and assessment of property taxes. Me. Const. art. IX, § 8. Under such TIF financings, the property acquired by a private party is the subject of annual municipal property taxes levied in accordance with the provisions of Article IX, Section 8. By agreement of the municipality and the owner of such property, the municipality, in effect, chooses to appropriate to the property owner an amount of money equal to the tax increment revenues received by the municipality to pay for all or a portion of the costs of the property. This practice cannot be said to violate the provisions of the Maine Constitution relating to property taxation since there has been no change in the valuation of the property. In a recent decision interpreting Article IX, Section 8, the Law Court confirmed that the provision applies only to the apportionment and assessment of taxes, and not to the manner in which the government chooses to spend tax revenues. McBrierty v. Commissioner of Administrative and Financial Services, 663 A.2d 50, 54-55 (Me. 1995). See Sawyer v. Gilmore, 109 Me. 169, 174-178 (1912). This is not to say, of course, that the matter is beyond legislative control; if the legislature feels that the financings of this kind are inappropriate, it can certainly choose to amend the existing statute to curtail the practice.

Please note that the conclusions reached in the present matter are limited to the factual circumstances described above. The particular facts and circumstances of a given TIF financing might lead to a different conclusion. As a general matter, however, the acquisition of private property through the use of a TIF is not unconstitutional under existing law.

Expenditures of this kind are contemplated by the Municipal Development Districts law. This conclusion finds support both in the broad language of the statute generally and in the specific language employed to define authorized "project costs," 30-A M.R.S.A. § 5252(8). It is also of significance that the Department of Economic and Community Development (DECD), the state department charged with the administrative approval of each TIF district has, we are informed, approved numerous, similar TIF financings in the past.

The situation is thus distinguishable from the case of Brewer Brick Co. v. Bourez, 62 Me. 62 (1873), in which the Law Court invalidated an effort by a municipality to exempt outright the payment of property taxes by all manufacturing companies for a period of ten years.

I hope that I have addressed your inquiries in a satisfactory manner. Should you have further questions, please feel free to inquire further.

Very truly yours,

ANDREW KETTERER
Attorney General

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