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Traditional Methods of Funding Town and City Infrastructure Improvements
- A city or town issues general obligation bonds pledging its credit to fund infrastructure improvements paid for through local property taxes, or
- A city or town issues bonds but recoups some or all costs through betterments or assessments on benefited real estate, or
- The municipality receives a federal or State grant or low interest loan, or
- The local community imposes impact fees on new development to fund some infrastructure costs generated by the project, or
- New real estate developments pay their own direct and indirect infrastructure costs.
Many worthwhile infrastructure needs do not qualify for these methods, or are not financially feasible without Chapter 40T.
New Massachusetts Infrastructure Funding Tools: Attempting to Fill the Gap
- District Improvement Financing (“DIF”)-Communities, with State approval, can use new property tax growth in a defined district to fund needed infrastructure improvements. This program has not been widely used since projects are difficult to finance without the community pledging its credit and making up shortfalls if tax growth is not achieved. See http://www.mass.gov/?pageID=eoedsubtopic&L=4&L0=Home&L1= Financing+%26+Funding&L2=Other+Financing+Options&L3= District+Improvement+Financing+(DIF)&sid=Eoed
- More Jobs Program (“MORE”)-Direct grants by the Commonwealth for infrastructure needs that are necessary for private employers that will create at least 100 new jobs. Initial appropriation was limited to $100,000,000. Current appropriation has already been committed. See http://www.mass.gov/?pageID=eoedsubtopic&L= 5&L0=Home&L1=Expanding+or+Locating+in+Massachusetts&L2=State+Agencies&L3= Massachusetts+Office+of+Business+Development&L4= MORE+Jobs+Capital+Program&sid=Eoed
- I-Cubed Infrastructure Finance (“I-Cubed”)-Authorizes MassDevelopment to issue up to $200,000,000 in bonds to finance infrastructure. Bonds are to be paid back through new State employment and sales taxes generated by the project. It is limited to five projects, only two of which can be in any one community. See http://www.mass.gov/Eoed/docs/SmartGrowthPres.pdf
Comparison Of Chapter 40T With business Improvement Districts (BIDs) (Chapter 40 O) & District Improvement Financing (DIF) (Chapter 40 Q)
- BIDs are limited to an additional tax of .5% of assessed valuation of property within the BID. This greatly limits revenues to support projects.
- BIDs can only finance primarily commercial projects
- BIDs have no detailed financing mechanism to issue bonds or secure them
- Property owners can initially opt out
- No legal framework for financing infrastructure. No bonds have ever been issued by a BID.
- BIDs are largely used in the US for marketing, and supplemental public services i.e. police and sanitation. The two operational Massachusetts’ BIDs are in Hyannis and Springfield
- DIF diverts taxes that would otherwise go to General Fund
- Municipality may not wish to use new tax growth to pay for infrastructure, even though it supports a project
- Existing DIF structure makes it difficult to issue revenue bonds-no method to insure that anticipated tax receipts with be available to pay debt service
- Inflation factor, built into DIF, poses problems for underwriters
- DIF can be used under Chapter 40T to enable the issuance of revenue bonds backed by special assessments without putting the municipality at financial risk.
Unlike the proposed Chapter 40T, all of the new programs rely on either local property taxes or State income, sales, and employment taxes to pay for infrastructure. While these programs can be very useful, they cannot possibly fund all of the Commonwealth’s infrastructure needs. We need to add Chapter 40T to our funding tool kit.
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