SKOWHEGAN — Town officials have approved the creation of a tax increment financing district for a housing project planned by the Kennebec Valley Community Action Program at its Skowhegan headquarters off Norridgewock Road, west of downtown.

The plan, says David Pelton, KVCAP’s director of real estate development, is to build 40 units of market rate suites, housing for the elderly and low-to-moderate-income units in the existing building as well as a new addition for apartments.

The $5.4 million project would be developed with 75 percent of the taxes going back to KVCAP in the TIF arrangement, as the program divests itself of its nonprofit status for that property, according to Jeffrey Hewett, Skowhegan’s director of economic and community development.

All other KVCAP property will remain nonprofit.

Pelton said financing for the project is proposed through the Maine State Housing Authority, so certain rules have to be followed, including the fact that the building is listed as a historic place and that renovations have to comply with state guidelines.

The two-story brick building was once the hospital and maternity ward of the Maine State Reformatory for Women, located nearby. It was built by the Works Progress Administration in 1937, according to “Voice on the Kennebec,” written in 1983 by Kathleen Martin.

The WPA was part of President Franklin D. Roosevelt’s New Deal programs.

The hospital and children’s center were closed in 1957. KVCAP purchased the property about 20 years ago.

Built in 1916, the reformatory closed in 1974 and was converted into apartments for the elderly, so there is precedent for housing on Neil Hill, about a mile from downtown Skowhegan, Pelton said. He said 16 units would be converted in the original building and 24 more would be built in the new addition.

Pelton said the 30,000-square-foot building currently is used for office space for KVCAP programs such as heating assistance, transportation and home repair.

“We think it would be a better use to have it be affordable housing,” he said. “We only use about a third of that building.”

Hewett agreed, noting that the building now is tax-exempt because KVCAP is a nonprofit organization.

“That building now is pretty much vacant,” he said. “They used to have the day care center there, and they moved that up to near Bloomfield Elementary. It’s basically an empty building.”

Hewett said Maine State Housing uses points that a project developer must meet in order to be eligible for funding. One of the points is obtaining a housing TIF, which selectmen approved this month.

“The town has said it will give them some benefits in points to expand that project,” he said. “How we’re proposing to do it is that KVCAP will transfer ownership from their nonprofit to a for-profit business — just for that project.”

In the TIF agreement, the value of the property and the current tax rate of $18.20 for every $1,000 in property valuation are used to calculate the taxes. About 75 percent of the tax money would go back to KVCAP as an incentive to do the project, while the rest would be tax revenue in the town’s general fund.

Hewett said that in the first year, before any depreciation of the property is calculated in, $74,569 would be returned to KVCAP, while $24,856 would be kept by the town.

“What they gave us, we’re going to give back to them, but we’re going to keep 25 percent of that tax,” he said. “So we’re going to go from zero taxation coming in, to 25 percent of the $5.4 million.”

Over the 20-year life of the TIF, the town will take in about $200,000 in taxes on the property.

Pelton said Maine State Housing Authority rules require that some of the units become affordable housing. The project would be a mix of one-, two- and three-bedroom units, with 20 percent of them rented at market rates and 80 percent of the units rented at prices below market rate.

“Typically, renters for these units qualify if they earn 50 to 60 percent of the average area income,” Pelton said. “There is no targeted age group. We expect a mix of those working in the area and some retirees. It’s a combination of historic renovation and new construction.”

He said the entire project could take 18 to 24 months to complete. Part of that time would be spent going through the funding process.

Pelton said KVCAP and the Kennebec Explorer bus service would maintain a presence in Skowhegan once the project is funded and completed. He said they would find office rental space somewhere in town to keep the programs going.

Doug Harlow — 612-2367

dharlow@centralmaine.com

Twitter:@Doug_Harlow