BRUNSWICK — A tax dispute between the town and the operator of the former naval air station could cost both sides money.
It could also cause a decline in the town’s general fund balance, which could have future budget implications if Brunswick faces unanticipated expenses.
The Midcoast Regional Redevelopment Authority later this month is expected to ask a Cumberland County Superior Court judge to declare that a hangar leased by Kestrel Aircraft is tax-exempt because it is being used for aeronautical purposes on a municipal airport.
MRRA’s board authorized the lawsuit last month.
The redevelopment authority is contesting the town’s stance that Kestrel is taxable. The town’s Board of Assessment Review rejected an appeal from MRRA last year.
“As you know, MRRA and the town disagree on whether an exemption from property tax is available for the portion of Hangar 6 leased to Kestrel Aviation,” Steve Levesque, MRRA’s executive director, said in a March 27 letter to the town. “Our respective legal counsel has advised us that this comes down to an interpretation of the state’s exemption law and that reasonable people can disagree on the interpretation.”
MRRA has agreed to pay Kestrel’s taxes until the company’s tax-exempt status is decided. If Kestrel’s nearly 84,000-square-foot property at Brunswick Executive Airport is found taxable, the aviation company would pick up the tab and reimburse MRRA for past payments.
However, if the court issues a judgement in MRRA’s favor, the town would have to pay back approximately $240,000 in property taxes the redevelopment authority has paid on behalf of Kestrel for the last two fiscal years.
Interim Town Manager John Eldridge, also the town’s finance director, said nearly half of that amount, about $120,000, would have to come out of the town’s tax increment financing account for Brunswick Executive Airport.
Losing that money from the account’s current $170,000 balance, he said, could have an impact on MRRA, which is seeking funding requests from that account of about $110,000 for 2013 and $175,000 for 2014.
“MRRA has submitted a request and it’s going to be difficult for us to determine how much is available to fund their request if we’re looking to refund a significant portion of that fund for Kestrel,” Eldridge said.
The airport TIF account was approved last year as part of a landmark tax deal between the town and MRRA, which sets aside new tax revenue created at the airport and Brunswick Landing for infrastructure improvements. MRRA is eligible to apply for up to 50 percent of those revenues for its own projects.
When asked about the potential TIF money MRRA could lose for future projects, Levesque said: “As we said in the letter (to the town), we have an obligation to existing tenant and future tenants as to what the actual tax policy is. We’re seeking a referee because we’re at an impasse.”
As for Kestrel’s 2012 property tax payment, also about $120,000, Eldridge said that would come out of the town’s current $9 million unassigned fund balance, which is expected to be closer to $8 million, because $1 million is being planned as an appropriation for next year’s municipal budget.
Eldridge said depending on how this year’s municipal budget balances out, the fund balance could dip lower than $8 million, “which is approximately $1 million below” the target amount recommended in the town’s fund balance policy.
Besides the possibility of losing Kestrel’s approximately $120,000 from the fund balance, the town will also have to grapple with how to plug an estimated $285,000 deficit created by the growing and unanticipated costs of the new Town Hall building, which opened at 85 Union St. on Wednesday.
“The fund balance requirement would require us to replenish it over the next three years,” Eldridge said, “and it is a factor in the town’s bond rating.”
A spokeswoman for Kestrel declined to comment.