SOUTH PORTLAND — One of the city’s largest corporate taxpayers is asking the City Council to extend a company tax break.
Fairchild Semiconductor has had a reduced tax rate through a tax increment financing district since the mid-1990s.
That agreement expires on June 30.
The city has tweaked the TIF district over the last few years. In addition to accounting for a changes in the state business tax program, the city also extended the agreement for an additional 10 years.
But rather than continuing to share the revenue with the company, as it has in the past, the city decided to keep all of the sheltered tax dollars, which can only be used for specific economic development and infrastructure projects.
The TIF also allows the city to shelter increases to its valuation to protect state education and revenue-sharing funds, which decrease as property values increase.
According to documents provided by the city’s TIF attorney, Shana Cook Mueller, Fairchild has seen a reduction in tax benefits since the state changed investment incentives for business equipment.
The state used to require businesses to apply for tax refunds paid to municipalities on new equipment purchases.
But now, equipment purchases are tax exempt, and the city must apply for reimbursement from the state.
Fairchild has seen its share of the TIF revenues drop from more than $500,000 in 2008 to less than $180,000 in 2011.
The city, meanwhile, has seen its TIF revenue increase from $320,000 in 2008 to more than $1.2 million in 2011, after the business equipment tax rebate is accounted for.
The way the TIF is currently constructed, the company would no longer receive a tax benefit as of July 1.
At a workshop on Monday night, Fairchild attorney James Saffian said the company would like to receive 50 percent of the TIF revenue, or about $115,000 a year, over the next 13 years.
In exchange for the extended benefit, Saffian said the company would make a commitment to make an average annual investment of $12 million in its South Portland facilities – a $2 million increase over the current $10 million investment requirement.
Saffian said that when the existing TIF agreement runs out this summer, the company will have to account for the lack of revenue.
Michael Lee, Fairchild’s South Portland plant controller, said that extending the tax agreement is critical for the business to remain competitive in the global market.
Lee said the company is competing against much larger, international companies that have financial support from their governments.
“They want our jobs, and they want to eat our lunch,” Lee said.
Lee said the company makes components for computers and mobile devices, including Nokia and Blackberry cell phones. But unlike other industrial manufacturers, the smart phone market is highly competitive and always changing, Lee said, so the company needs to be able to keep up with market and technological changes.
“It’s a good margin product, but it’s highly erratic,” Lee said. “As the demand shifts, our demand can shift rapidly.”
Lee outlined a series of moves the company is making to stay competitive.
The company recently announced the layoffs of 120 employees, while refocusing efforts on increasing labor productivity and increasing production of some products over the next five years.
Lee said Fairchild’s South Portland facilities, which include a chip manufacturing plant and corporate offices, are only a “small piece” of the company’s international portfolio.
Although the company recently closed a plant in Pennsylvania, Lee said the company hopes to continue be a source of good, high-paying jobs in South Portland, where employees earn between $32,000 and $120,000 annually.
Councilors did not publicly discuss their positions on amending the TIF district to share the sheltered tax revenue. Instead, the council went into a closed executive session to discuss contractual and proprietary information.
However, Councilor Tom Coward noted the proposal by Fairchild would ensure that the company remains one of the city’s largest taxpayers.
“You’re not asking for, and we’re not going to be, reducing your taxes to zero,” Coward said. “The facility at the end of this will continue to be one of our major taxpayers on our community, a major employer, and will be a source of benefits to everyone in this room and in the community.”
Saffian said the company hopes a new TIF agreement will be taken up by the council sometime in March. Any change in the contract would require a public vote by the council.
Randy Billings can be reached at 781-3661 ext. 100 or firstname.lastname@example.org