The proposed 20-acre CitySquare project in Worcester is among the many Massachusetts developments that could get a boost from the recently enacted District Improvement Financing law.
David Begelfer is hoping for a DIF jam in Massachusetts this summer.
Begelfer runs the regional chapter of the National Association of Office and Industrial Properties and has been a key backer of the District Improvement Financing (DIF) law that finally took effect in the Bay State last year after a decade of lobbying. Now that communities can use the financing vehicle to spark real estate development, Begelfer predicts that the measure will garner the same widespread popularity enjoyed in other states for a half-century under the more commonly used term of “tax increment financing,” or TIF.
“I do think it is going to be used extensively here,” said Begelfer. “I think you are going to see a lot of [DIF-related activity] in the next few months, and as people begin to understand what this can do for their communities, I think you will see even more.”
Under the provision, government entities such as a city or town can establish a DIF district and issue bonds to pay for improvements within it – such as a parking garage, water and sewer hookups or upgrading the commercial center. Bonds are repaid through higher property taxes created as private development is ostensibly drawn to the area, perhaps yielding an industrial park or an office building that would not have been possible without the public investment. By one description, DIFs allow governments to borrow against the anticipated increase in tax receipts over what is typically a 10- to 15-year timetable.
Potential ideas “run the gamut,” according to Patricia Singer, project director of the DIF program for the Massachusetts Office of Business Development. Singer, who joined the agency in 2004 after a career with a municipal bond guarantor, said parking garages seem to be the favored concept at present, although an affordable housing proposal has also made the list. Singer estimated that she has communicated with or visited nearly half of the state’s 351 cities and towns during the past year, and also speaks frequently with civic and business groups, including a presentation last week before the Merrimac Valley Planning Commission.
“We’re definitely still in a marketing phase,” Singer told Banker & Tradesman. “We want to make sure communities are aware of (the option) and understand all the fundamentals, so that if there is an opportunity, they will think about using the DIF.”
As the 45th state to allow a version of tax increment financing, Singer agreed that Massachusetts is late to the table but also maintained that such tardiness helped craft a law that does not have the same shortcomings as its predecessors. Although no state funding will be at risk, there is an approval process for communities or other local governments that seek to utilize DIF. Proponents must hold a mandatory public hearing and receive support from the presiding government – city council or town meeting, for example – to first establish a DIF district and then ask state permission to implement the financing plan. A DIF district could encompass a single parcel of up to 25 percent of a community.
Applications are made to the state’s Economic Assistance Coordinating Council, with Singer and MOBD appointed to manage the DIF initiative on its behalf. When voting on an application, the EACC weighs such matters as the number of jobs that would be created by the plan, the condition of the proposed district, and whether there are any hazardous waste or environmental problems which must be addressed. In her travels, Singer said she has identified about 35 potential DIF ideas that have a chance of making it to the application stage during the next two years. Of those, she said that her “gut feeling” is that about 50 percent are truly viable.
Although there have been some rumblings over the intricacies required in creating a DIF, which some say may discourage applications, Begelfer said he is pleased with the way the regulations are being implemented and Singer said she believes the rigid rules are needed to ensure any plan is properly “vetted” at the local level prior to reaching her office. Matters such as zoning, project feasibility and impact on property owners within a district are among the factors which must be considered when entertaining the DIF alternative, she explained.
“They really do have quite a bit of work to do before they come to us,” Singer said of project proponents. “It’s important that (the concept) be right, and not done just because DIF is available.”
By some accounts, there are about 10 DIF plans actually being pursued at present, with communities such as Attleboro, Quincy and Marshfield said to be in the mix. The project which seems furthest along is in downtown Worcester, where Boston-based Berkeley Investments is pursuing a $600 million mixed-use plan that is seeking DIF to fund infrastructure improvements in the surrounding area. The 20-acre CitySquare plan would include a new open-air street grid and central green space in addition to a mix of commercial, retail and residential space that would replace the Worcester Common Outlet Mall.
“That’s going to be a big one,” said Begelfer, anticipating a boost for downtown Worcester. “It’s what (DIFs) are all about.” An early May public hearing was just being set last week to allow residents and officials to explore the idea, after which the Worcester City Council would consider approval of the DIF district. Berkeley officials were unavailable to discuss the matter, but the firm has said it hopes to begin the first phase of CitySquare by the third quarter of this year.
Singer would not handicap which plan might make it to the EACC first, but said she is hopeful that at least one DIF will be approved by year’s end. While still in the formative stages, Singer said she is encouraged by the level of interest in DIFs and the “innovative” ideas which have been formulated.
“I’m really pleased with the warm reception that we’ve gotten,” she said, offering kudos to Begelfer and NAIOP for its backing, which includes links on the chapter website to MOBD and the DIF application. “They have been very good to us in trying to promote the product,” she said.
NAIOP initially filed a bill to establish DIF in 1994 and has certainly been among the concept’s biggest boosters. The state does have a long way to go to catch up with others – California, for example, approved $1.2 billion in tax increment financing bonds in 2004 alone, according to Singer. But Begelfer said he believes applications will pick up steam locally this summer.
“I do think this could become one of the most successful tools available to municipalities in trying to (encourage redevelopment) in Massachusetts,” said Begelfer. “We are a little bit behind the curve, but it looks like we are finally getting there.”
