The Municipal Relief package signed into law in August 2003 included an authorization for municipalities to use a new economic development tool know as District Improvement Financing (DIF). Towns and cities will now have a means to fund needed infrastructure improvements to attract business growth and/or housing development.
The Massachusetts Chapter of NAIOP (National Association of Industrial and Office Properties) first drafted the bill in 1994 and spent the last legislative sessions educating the legislature about this highly effective tool. Final regulations were approved in July 2004. Applications are now available.
Communities have been finding themselves in a Catch 22. They need new infrastructure to attract development and increase their tax base, but they do not have the funds to do the critically needed work due, in part, to a limited tax base. The wait for state funds is lengthy and those monies are now seriously limited. DIF is an effective, proven tool that can provide incentives to eliminate or prevent blight, create value, and expand the employment base through public improvements and private development.
In over forty states since its beginnings in Minnesota in 1947, DIF is more commonly referred to as Tax Increment Financing (not the “tax abatement” tool enacted in the state during the 90’s) and has been used actively in various forms.
This new law will allow communities to use DIF to fund capital improvements using bond financing. The infrastructure would be financed from a portion of the real estate tax increases for an entire district. Property owners in the district do not pay additional fees, but a portion of the real estate taxes from the new development goes to a dedicated fund to pay off the bonds.
In practice, a redevelopment area is created through a public process and revenue bonds can then be issued to pay for land acquisition, site preparation or public improvements. Subsequently, housing, commercial or industrial projects are developed and financed privately. Once the bonds are repaid, the municipality has the full use of all the real estate taxes.
DIF provides a way to direct and possibly accelerate the natural growth in real estate taxes from the development in a designated area to the payment for needed infrastructure. Many economic development projects need public improvements, such as public parking facilities, roadways, sewers, parks and landscaping in order to be successful. With limitations on state funding and with many pressing priorities in the budgets of municipalities, the infrastructure necessary to create new development opportunities is straining the capital budgets of most localities. Growth in these communities could be inhibited.
As a safeguard against overly optimistic growth plans, development districts or redevelopment areas and their programs must be certified by the State's Economic Assistance Coordinating Council. The programs must include a financial plan with a statement of costs and sources of revenue, a list of public improvements and facilities, relocation plans, environmental controls, and program duration.
In challenging economic times, such as these, the Legislature and Governor should be congratulated for providing municipalities with this new option to get growth where it is needed.
