FREEPORT — The Town Council voted 5-2 Tuesday night to increase the current cap on the Destination Freeport Tax Increment Financing District from $11.4 million to $20 million, and will dedicate $20,000 of the funds annually for 10 years for a downtown movie theater.

The council decision also extends the TIF to 2029, an additional 10 years, and creates an arts and culture district in the downtown area.

Councilors Joe Migliaccio and Eric Pandora voted against the proposal.

Migliaccio said he is in favor of the theater, but would like the cap to be raised only enough to fund the theater. He questioned the use of the additional funds, and why they were necessary.

“I’m not OK with putting more money into a less flexible bucket,” he said. “I am comfortable raising the cap to the point needed to fund the (theater) project.”

Pandora said he objected to the proposal because the use of TIF funds is a departure from previous council policy. He said he is concerned that once project rebates start, it will be difficult to deny similar requests in the future.

While he said he is in favor of increasing the Destination TIF, he is uncomfortable with what he sees as a policy shift.

But Councilor Jim Cassida said the use of TIF money is a positive way to shift funds out of the general fund.

“We can shift funds within the guidelines of the TIF for projects funded by the general fund,” he said. He said the money could be used to minimize or neutralize tax burden, or as another option, to fund Freeport Economic Development Corp.

“There are many options,” he said.

Town Planner Donna Larson said TIF money could be used for construction, parking facilities, street sweepers and snow blowers, village beautification, benches, economic development projects, and activities that promote creative economy and arts and culture. The state prohibits the use of TIF funds on, among other things, government buildings, police stations, athletic fields and swimming pools.

The increase of the TIF cap would result in $8.6 million of value sheltered from county tax and increases in state revenue sharing and state aid to education.

Last week, Berenson Associates, developer of Freeport Village Station, withdrew its request for an additional $550,000 TIF on the parking garage reconfiguration to help build the proposed six-screen movie theater.

After a public meeting with business owners and residents in July, Al Yebba, chief operating officer of the Massachusetts-based company, said he heard public reaction to the request for a $750,000 tax break and did not want to move forward without public support.

Instead, Yebba focused on the $200,000 tax break over the next 10 years from the Destination Freeport TIF.

Although he said the economy makes it difficult to borrow, Yebba hopes to find additional funding to move forward with the $2.3 million project.

“Even with the $200,000, there are a number of other hurdles, any of which could put the theater on the sidelines,” he said. “We withdrew our earlier request and our hope and expectation is the $200,000 is enough to get us over the hump.”

Yebba said if the theater fails, the TIF proceeds will end. He also said Maine-based tradesmen would be a priority during construction and there would be two Freeport Appreciation Days during the year, where residents will get free admission and non-profit organizations would be allowed to seek donations.

Belmont Capitol is the proposed theater operator. The company is part of what used to be the Boston Culinary Group, and owns 20 other theaters from Bangor to New Jersey, ranging from art houses to multiplex cinemas.

Although a November opening date may be aggressive, since the approval process has taken longer than expected, Yebba said he is optimistic.

“We are going to start working on this as soon as tomorrow,” he said.

Amy Anderson can be reached at 781-3661 ext. 110 or aanderson@theforecaster.net