- Tax Increment Financing in New England
- July 31, 2014 | Author: John H. Sokul
- Law Firm: Hinckley, Allen & Snyder LLP - Concord Office
As we all know, the easy sites in New England are gone. The large, square, flat, clean, dry sites with highway access close to large, affluent population centers have been developed. However, there are still plenty of great development (and redevelopment) opportunities. Each presents various challenges or constraints to be addressed - ledge, wetlands, environmental, access, infrastructure, etc. In today’s competitive environment, it takes creativity, money and the ability to add value to make a project happen.
Developers should be aware of all the tools at their disposal when evaluating challenging development and redevelopment sites in New England. Most of the New England states have tax credits and other incentives to encourage economic development. One notable tool available in all New England states is Tax Increment Financing (TIF).
While the specific rules vary from state to state, TIF is available to municipalities to address the following situation. An area within the municipality is zoned for commercial, retail or other business development. Certain development constraints, issues or challenges in the area result in costs which exceed an amount which a private developer would be willing to pay in connection with a development project. Typical development constraints relate to the condition or lack of infrastructure (highway, water, sewer), or environmental contamination. As a result, future growth in the area is retarded due to the excessive expense of updating or extending needed infrastructure improvements or cleaning up contamination. Public assistance is needed to stimulate private investment in the area and Tax Increment financing is a tool which enables municipalities to deal with this situation.
A Development District is created for the targeted area. This is done at the local level and there are typically limits on the maximum size of the District. A Development Plan is established for the District that identifies the specific improvements that will be constructed within the District. Formal findings typically need to be made that justify the need for the improvements. Municipal or state bonds are issued to finance the construction of the identified improvements. The bonds are paid by the new (incremental) taxes raised by new development and property tax increases in the District. Eventually the bonds are paid off and the new tax revenues flow to the municipality. That is TIF in a nutshell.
Most TIFs use the increase in real estate taxes from new projects in the District to pay the bonds. Connecticut also has a sales tax TIF which uses the new (incremental) sales tax revenues from the project to pay the debt service. This is obviously especially attractive for retail projects.
The Massachusetts TIF program is different than the other New England states in that the MA TIF involves an exemption from property taxation on all or part of the increased value of real estate as a result of the new investment or development. The exemption is available to businesses that are locating to or expanding within the state. The amount and length of the discount is negotiated between the community and the business (subject to final state approval). The discount can range from 5 to 100% for 5 to 20 years.
The beauty of TIF financing is that TIF projects do not use municipal general operating funds and do not lower or redirect any existing tax revenues being collected by the municipality. Only tax increases generated from new development in the TIF District are used to pay down the public financing. Presumably, the new tax revenues would never have been collected by the municipality but for the public investment. Used appropriately and prudently, TIF can be a true win for municipalities and private developers.
Some notable projects in New England that have involved TIF financing include:
Cabela’s - East Hartford, Connecticut
North End Opportunity Corridor - Concord, NH
Osgood Landing - North Andover, Massachusetts.
Kettle Point - East Providence, RI