A Tax Increment Finance Agreement is a local real estate property tax exemption negotiated and executed between a host municipality and an expanding or relocating company. The business must be making a significant private investment that increases the base assessed value of the property as the tax abatement is given only on the incremental increase in the property value.
Below you will find information relative to Tax Increment Finance deals, their governing regulations and 2014 program reforms, the Economic Development Incentive Program Application (EDIP) process, and examples from communities around the Merrimack Valley Region.
District Improvement Financing Program (DIF)
In August 2003, the District Improvement Financing (DIF) Program was established by the Massachusetts General Law Chapter 40Q. The accompanying regulations, CMR 402 3.00, were promulgated in August 2004.
The District Improvement Financing Program (DIF) is a locally driven public financing alternative available to all cities and towns in the Commonwealth. The DIF program enables municipalities to finance public works and infrastructure projects in a designated area by “capturing” the increase in property tax revenues, or tax increment, derived from new housing, commercial or industrial activity in the designated area and applying the revenues towards the municipality’s development program.
A tax increment is the difference between the beginning assessed value of the targeted property in its dilapidated state and the assessed value going forward in time, as the planned improvements take shape. The tax increment, calculated by the local Assessor, is the tax on the added value of new construction, rehabilitation or new equipment or machinery. Using DIF, municipalities can pledge all or a portion of tax increments to fund district improvements over time.
A DIF is a municipal financing vehicle. DIF enables municipalities to pay for the public works and infrastructure necessary to attract growth by pledging the future incremental tax revenue resulting from growth within a designated area to the municipality’s year-to-year development initiatives or pledged to service bond financing obligations. DIF is not a tax abatement tool or a new tax. Additionally, DIF does not increase future taxes, and does not reduce or redirect current property taxes.
Property owners in the designated district do not pay additional fees; rather, a portion of the real estate taxes from the new development goes to a dedicated fund to pay the bond obligations necessary to finance major public works projects. Thus, the DIF supports important revitalization projects without increasing taxes to the general public.
Additional resources and examples of DIFs can be found below:
For more information, contact John Markowitz at MassDevelopment: 617.330.2085
Business Improvement Districts (BID)
Business Improvement Districts (BID) are special districts in which property owners vote to initiate, manage and finance supplemental services above and beyond the baseline of services already provided by their city or town governments. To finance these services, a special assessment, or common area fee, is levied only on property within the district. The goal of a BID is to restore or promote business activity and vibrancy in targeted commercial areas. The assessments are collected and expended within the district for a range of management, marketing and economic development services and programs including:
- District Management Services
- Maintenance and Security
- Promotion and Marketing Services
- Business Services
- Physical Improvements and Property Management
A BID creates a stable local management structure that provides a sustainable funding source for the revitalization and long-term maintenance of downtowns and commercial centers. There are three primary advantages of a BID:
- The ability to provide additional and enhanced services that improve the business environment
- The capability of professional management of retail and commercial services, similar to those offered in a mall, that enhance the district and strengthen a municipality’s economic capacity
- A predictable and reliable source of funding.
Below please find links to the BID MA Regulations and various BID Districts throughout the Commonwealth, as well as implementation studies.
How it Works:
Communities are authorized to establish BIDs under M.G.L. Chapter 40O. A BID must be a contiguous geographic area in which at least 75% of the land is zoned or used for commercial, retail, industrial, or mixed uses. A BID is established through a local petition and public hearing process. The petition must be signed by the owners of at least 60% of the real property and at least 51% of the assessed valuation of the real property within the proposed BID. The petition must also include delineation of the BID boundaries, a proposed improvement plan, a budget and an assessment/fee structure. The BID petition must be forwarded by the municipality to DHCD.
All property owners within the BID are assessed a fee in addition to their real property taxes to fund the supplemental services and programs. The treasurer-collector of the municipality collects the fees and distributes them to the management entity designated by the BID. The amount of the fee is established by each BID but cannot annually exceed one-half of one percent (.05) of the total assessed value of the real property owned by participating members of the district. The BID has the option to limit or cap this maximum fee on individual properties or the total annual revenue generated by the BID. The municipality may exempt owner-occupied residential, agricultural or tax exempt properties from the BID fee.
For more information about BIDSs, contact Emmy Hahn at DHCD: 617.573.1364
The I-Cubed (Infrastructure, Investment, Incentive) Program is designed to help finance public infrastructure improvements, such as streets, sidewalks, and water and sewer service. The program allows MassDevelopment to issue up to $325 million in tax-exempt bonds to support approved development projects with major infrastructure needs. The Massachusetts Secretary of the Executive Office for Administration and Finance and the Commissioner of the Department of Revenue administer the program, in conjunction with MassDevelopment.
Payment in Lieu of Taxes Agreements (PILOT)
A PILOT is a payment in lieu of taxes made to compensate a local government for some or all of the tax revenue that it loses because of the nature of the ownership or use of a particular piece of real property.
The Town of Andover PILOT report was completed in 2013 (see right). The report contains summary information on tax exempt property in Andover; general background information on the use of PILOTs in MA; the Town of Andover’s longstanding PILOT agreement with Phillips Academy; and example PILOT agreements and policies from other municipalities. Also included is the City of Boston’s link to their Pilot Home Page, and a report on PILOTS, Calculating the Fiscal Impact of Boston’s PILOT program by Emily K. LaClair.
Special Tax Assessment (STA)
A Special Tax Assessment (STA) is a local real estate property tax exemption negotiated and executed between a host municipality and an expanding or relocating company. A STA exempts a percentage of the total property tax liability of the real property of a parcel.
Per M.G.L. 23A § 3E, Special Tax Assessments:
- Can be located in any of the Commonwealth’s 351 cities and towns.
- Have a minimum duration of 5 years and are structured with the following exemption schedule:
|Year of Agreement||Tax Assessment|
|Year 1||100% tax abatement on the real property of the parcel|
|Year 2||75-100% tax abatement on the real property of the parcel|
|Year 3||50-100% tax abatement on the real property of the parcel|
|Year 4||25-100% tax abatement on the real property of the parcel|
|Year 5- onward (as negotiated)||0-100% tax abatement on the real property of the parcel|