Five years after its initial passage, the state’s Chapter 40R affordable housing statute has sparked interest in cities and towns statewide as a bulwark against its controversial cousin, Chapter 40B. But increasing worries about the stability of 40R’s funding mechanisms have discouraged many towns from adopting the measure.

Now, supporters are attempting to reassure towns by passing a bill which would change the funding mechanism, diverting some state tax revenue produced by the new developments into the Smart Growth Fund, from which town incentive payments are drawn.

But the bill’s prospects are uncertain – even as the potential repeal of Chapter 40B, the state’s other affordable housing statute, looms in November. A 40B repeal would leave 40R the only affordable housing statue left for developers seeking to build.

Unlike 40B, which allows developers to override town zoning laws by including a certain percentage of affordable units in their development plans, 40R requires towns and cities to approve and participate in the development process. It also provides additional funding to towns to help cover infrastructure and planning costs.

This funding was originally intended to come largely from the sale of surplus state land. But as sales dry up in a tough environment, and surplus land itself becomes scarce, proponents are advocating a new, more stable approach to funding the initiative.

Cutting Down Sprawl

The “smart growth” principles on which 40R is based are aimed at cutting down sprawl by encouraging new housing in areas where residents can walk to shops and/or offices. Requirements include having a specially designated, and zoned, smart growth district approved in a city or town that would allow for mixed commercial and residential development, proximity to mass transit and the construction of multi-family units.

So far, 28 cities and towns throughout the state have had 40R developments approved, according to Bill Reyelt, Department of Housing and Community Development smart growth program coordinator. Another nine have received the go-ahead from DHCD and are waiting for local approval, while six more are at an earlier stage in the process.

Towns which successfully adopt a 40R district are eligible for incentive funds from the state of up to $600,000, depending on the amount of units allowed. Once development is underway, additional incentive payments are available.

So far, these incentives have been fully funded for all approved projects. But the Smart Growth Fund which pays for these incentives, the fund replenished through the sale of state lands, is dwindling – leaving many communities gun-shy about jumping into 40R.

“We kept running into resistance from communities, who were saying, basically, ‘too often in the past we have seen the state tell us they would fund something and then we do what they tell us to do and they take the funds away,’” said Barry Bluestone, director of the Dukakis Center for Urban and Regional Policy at Northeastern University, and an architect of the law. “So [towns] want some type of mechanism which would assure [them] that if [they] develop a 40R, the funding would be there to pay the fees that the town has coming to it.”

The new bill, currently before the Legislature’s Community Development Committee, would do just that. The bill creates a permanent funding source for the Smart Growth Housing Fund by redirecting state income tax revenue generated by 40R developments into the fund, until any anticipated incentive payments are fully covered.

The bill is scheduled to be voted out of committee later this month, and has attracted the sponsorship of Rep. Kevin Honan, D-Boston, chair of the Joint Committee on Housing. But directly diverting state income taxes in such a way is highly unusual, and may prove unpopular at a time when state lawmakers are pinching every penny.

Even in larger towns supportive of the increased zoning regulations the law brings, implementing 40R can sometimes be burdensome. Because the 40R process allows for more input in design plans, there are more opportunities for opponents to drag out the planning process.

Natick created a 40R district in order to attract development to a former industrial site, according to Patrick Reffert, the town’s planner. But the site is currently embroiled in a legal battle between the developer and an abutter.

“Here’s a project that you want to have happen, but the more it gets reviewed, the more it get susceptible to appeals,” Reffert told Banker & Tradesman. Had the project been a 40B project, Reffert would have been able to demand aid from the developer to help with the design plans. But under 40R, he said, “I had no help from anybody. It was more intensive than I had the ability to afford, time-wise.”

According to a recent report by the Metropolitan Area Planning Council, almost 10,000 homes have been zoned in existing 40R districts – but only 1,200 have so far been built, a disparity partially intended by the law’s designers.

“The goal was to ultimately help keep house prices from going through the roof again, by having a surplus of zoned land,” enticing future development to existing smart growth districts by cutting down on planning time, said Ted Carman, founder of Boston’s Concord Square Planning & Development and an architect of the 40R law.

If more towns are to adopt 40R as the economy begins to recover, as advocates hope, a more permanent and reliable funding solution will need to be found.

“Zoned land is not going to sit there unused,” said Eleanor White, president of Watertown affordable housing consultants Housing Partners Inc. “Any new program takes quite a while for people to figure out…I think it’s amazing that so many communities have figured out the value of this program.”