Financing Tools

Affordable Housing Tax Increment Financing

Definition: Allows cities and towns to designate specific areas as affordable housing development districts. Within these districts, a portion of the future tax revenue increases (tax increments) resulting from new development or property value appreciation can be set aside for present-day affordable housing projects.

Benefits: By leveraging increased property tax revenues generated by development within the district, a municipality can support and promote affordable housing. Revenues from a district can be used for affordable housing projects, including land acquisition, building or rehabilitating housing, issuing bonds, and/or other related improvements. The revenues can also be used to repay bonds or loans taken to finance these projects.

Getting Started: Municipalities should first conduct an affordable housing needs assessment to (see “Local Housing Needs Assessment” in Policy Tools), identify potential district areas by locating areas with significant development potential or those with a high concentration of substandard housing, and engage with stakeholders to gather input and ensure buy-in.

Due to the complexity of the program, local officials should work with municipal finance staff and/or a consultant. GPCOG Economic Development Director Paul Johnson can help municipalities initiate the process.

State Policy & Local Examples: State law requires that at least 25% of a district be suitable for residential use, development must be primarily residential, and at least one-third of the units must be for households at or below 120% of area median income (30-A M.R.S.A. §§ 5221 - 5235). MaineHousing offers an AHTIF Program to support establishment of AHTIF districts. AHTIF districts have been established in several Maine municipalities, including Bridgton, Cumberland, and Portland.

Freeport Housing Trust has successfully built two housing projects using affordable housing tax increment financing. The Freeport Town Council in March, 2024 approved a third. The project in the photo was built in 2012 and contains 25 apartments for households ages 55 and older. The Town of Freeport shares 50% of the taxes on the incremental value of the property to be used on operating expenses.

Credit Enhancement Agreement

Definition: A financial mechanism that can be used within a tax increment financing (TIF) district to compensate a developer or business either fully or partially for approved development project costs using TIF funds.

Benefits: By agreeing to cover a portion or all the loss in the scenario of a developer default, municipalities (generally with higher creditworthiness than an individual developer or housing authority) allow a developer to obtain more favorable financing conditions for a project.

Getting Started: Due to the complexity of credit enhancement agreements, local officials should work with municipal finance director and/or a consultant. GPCOG Economic Development Director Paul Johnson can help municipalities initiate the process.

State Policy & Local Examples: Credit enhancements agreements are not a right under state statute. Municipalities may decide to use such an agreement on a case-by-case basis. Issuing a credit enhancement agreement requires the municipality to hold a public hearing and approval from the Maine Department of Economic and Community Development (30-A M.R.S.A. §§ 5221 - 5235). CEAs have been utilized in communities such as Brunswick and Scarborough, to fund affordable housing development.

In September 2020, Scarborough approved a credit enhancement agreement for Jocelyn Place, a senior housing facility with 60 affordable one-bedroom units. Photo courtesy of Brooks More.

Housing Authority

Definition: A housing authority operates and manages public and affordable housing programs at the local level. Housing authorities work under the legal authority of state and federal laws to address the housing needs of community members who are unable to afford housing through the regular market due to income constraints or other factors.

Benefits: Housing authorities can access federal, state, and local funds specifically allocated for the development or maintenance of affordable housing. They also have the authority to develop underused or unused land and may provide tax incentives to private developers to build affordable housing.

Getting Started: Establishing a housing authority is a complex process. We recommend consulting with legal counsel, state housing agencies, and the U.S. Department of Housing and Urban Development (HUD) for guidance and support.

State Policy & Local Examples: Applicable standards for housing authorities are numerous and broad in their application; however, there are some standards especially relevant to municipalities seeking to establish a housing authority (Housing Authority 30-A M.R.S.A. §§ 4701 - 4994). Within Greater Portland, there are housing authorities in Biddeford, Portland, South Portland, and Westbrook.

The Portland Housing Authority and Avesta Housing were co-developers on this 45-unit, mixed-income apartment building located in the heart of the East Bayside neighborhood in Portland. Built in 2017, the new building has nine market-rate units and 36 affordable units.

Housing Trust Fund

Definition: Established sources of funding for affordable housing initiatives often set up by state or municipal governments and designed to receive ongoing dedicated sources of public funding. Housing trust funds support the preservation, rehabilitation, and production of affordable housing.

Benefits: Housing trust funds serve as consistent and reliable funding sources for a variety of municipal activities, such as construction or rehabilitation of affordable housing units, down payment assistance for low-income homebuyers, rental assistance, land acquisition, and preservation of existing affordable housing stock.

Getting Started: Due to the complexity of establishing housing trust funds, local officials should work with municipal finance director and/or a consultant. GPCOG Economic Development Director Paul Johnson can help municipalities initiate the process.

State Policy & Local Examples: The Housing Opportunities for Maine (HOME) Fund is a flexible source of funding for affordable housing issues in Maine. MaineHousing’s HOME Fund Report from April 2023 provides use of funds over for year 2021 and 2022. A few housing trust funds have also been approved and/or established on the local level, such as in Portland and South Portland.

These two units were built by the Kennebunkport Heritage Housing Trust, which uses a land-lease model. The trust owns the land and leases it to those who live in the privately owned home built on it. Removing the cost of the land is partly how the organization can offer housing that is more affordable.

Impact Fees

Definition: One-time charges imposed by municipalities on new development that are intended to offset the costs or impacts that new development may have on public services, infrastructure, or community resources, including the demand for affordable housing.

Benefits: Although less consistent than housing trust funds, impact fees can provide a dedicated source of revenue for affordable housing, especially in areas experiencing rapid growth. A municipality can leverage impact fees to incentivize direct construction of affordable housing by reducing or waiving fees for developers for projects that include a certain number of affordable units (see “Reduce or Eliminate Impact Fees” in Policy Tools).

Getting Started:  A municipality should first assess the current and projected demands on public services, infrastructure, and affordable housing (see “Housing Needs Analysis” in Policy Tools), consult with residents, developers, community organizations, and other stakeholders to understand their perspectives and concerns regarding impact fees, and engage a consultant or expert to complete a detailed study on the feasibility and appropriateness of impact fees. The study should determine the actual cost or impact of new developments on public services and infrastructure, ensuring that the fees are justifiable and directly related to the impact of the development.

State Policy & Local Examples: Maine municipalities have the authority to require construction of off-site capital improvements or the payment of impact fees instead of the construction (30-A M.R.S.A. § 4354.).

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A rendering of Portland Foreside Development Co.'s proposed mixed-use development, including retail and restaurants, which could be subject to impact fees during the entitlement process. Rendering courtesy of Portland Foreside Development Co.

Land Acquisition & Disposition

Definition: The process by which municipalities, housing authorities, non-profit organizations, and other entities purchase or otherwise obtain land specifically to develop or preserve affordable housing. Municipalities can also acquire vacant public lots or obsolete public buildings to be repurposed for affordable housing.

Benefits: A municipality can ensure that land for affordable housing is still available despite rising property values.

Getting Started: Conduct a local land inventory, establish criteria for suitable land (e.g., location, size, accessibility, proximity to public transportation, and existing infrastructure), gain community buy-in by engaging with stakeholders, and perform due diligence. Potential funding sources include municipal budgets, federal or state grants, housing trust funds, public-private partnerships, and/or a municipal bonding authority.

State Policy & Local Examples: Maine municipalities have the authority to acquire, use and dispose of property (5 M.R.S.A. § 13120-G.).

Windham land purchased by developers on the shores of Highland Lake for the development of Sunrise Cove.

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Affordable Housing Tax Increment Financing

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Credit Enhancement Agreement

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Impact Fees

Land Acquisition & Disposition