Incremental Improvements – News from the front lines of Value Capture, Tax Increment Financing, and District Improvement Financing

“A DIF is not a tree” – John Sisson, Community Development Director, Town of Dedham, MA

Monday, May 20, 2019 was a big day for economic development financing in Massachusetts. Two towns adopted District Improvement Financing (DIF), the state’s version of “Value Capture.”

There’s a lot to be said about Value Capture, but as much time as I spend explaining the benefits of the tool, and the process of using it, when I’m working with communities I am always asked to tell them what another town or city is doing with it. What is it actually happening? In Massachusetts, the answer is now “a lot.”

On May 20, the Town of Dedham adopted the Providence Highway District Improvement District and Invested Revenue District at its Town Meeting. Dedham will engage in additional outreach and visioning to create plans and projects to improve intersections and traffic along Route 1, reconnect the Town with green spaces such as Wigwam Pond and the Charles River, and improve the quality of the district for businesses and residents. The DIF statute allows communities to establish district boundaries as a first step, and then adopt a program of public projects and a financial plan later. By adopting now, the Town established a lower baseline of assessed values, thereby increasing the potential new value that could be captured.

Dedham will use its upcoming Master Plan engagement process to identify and refine projects and policy choices for the Providence Highway District. It will then create a DIF Development Program to be adopted at a later Town Meeting. Another advantage for Dedham of DIF’s available two-step process is that the Town will also use the time to work with MassDot, which is responsible for Route 1 itself.

About an hour later, the Town of Easton adopted its Five-Corners District, District Improvement Financing Master Plan. Easton’s Master Plan establishes the district and the program of projects to be funded and the financial plan, adopting all DIF components at the same time. Easton is using DIF to further long term community planning goals, including transforming the Five-Corners area into a vibrant, mixed-use neighborhood by funding a portion of the costs of a major sewer infrastructure project. Like many Massachusetts communities, Easton expects to issue tax-exempt General Obligation Bonds in the future to finance the costs of the sewer infrastructure, and expects to assess betterments on properties within the new sewer district to pay the costs. Revenues captured using DIF will help the Town reduce the amount of betterments that need to be assessed, bringing them more into line with those supporting projects in other areas of the Town. Easton has published its Master Plan and resources about the DIF process on its website, here.

The Lincoln Institute of Land Policy describes Value Capture as “a policy approach that enables communities to recover and reinvest land value increases that result from public investment and government action.”

In the economic development toolkit, methods of identifying and capturing incremental property tax revenues resulting from increased assessed values on land and buildings – not tax rate increases – are often named Tax Increment Financing. 48 states have some form of this tool, with significant variation, but sharing the basic idea that public investment in roads, sewer, streetscapes, planning, and other economic development activity creates an environment that unlocks new private investment in commercial and residential properties.

The new private investment increases the property value in a specified district, and new property tax revenue generated by the incremental increase is eligible for capture and redirection to help pay for projects that create the positive environment, and attract investment, within the same district.

The capture and use of incremental new tax revenue has led many states to name their programs Tax Increment Financing or “TIF.” There are variations: Massachusetts uses District Improvement Financing (DIF) to differentiate its program from a tax reduction tool already called TIF. You can see a map of programs at the website of the Council of Development Finance Agencies, here.

At Camoin 310, when we talk about Value Capture as an economic development tool, we urge stakeholders to focus on their own state’s program, and not form opinions based on the experiences of communities using different statutes. The local approval process and degree of state involvement, the size of the district and amount of real property value that can be captured, the policy decisions incorporated into the financial plan, and the type of projects eligible for funding are determined by state statute.

While TIF differs significantly from state to state, what towns and cities do share across state borders are the benefits of proactive planning, targeted development strategies, results-driven public investment, and partnerships with the private sector to enhance the community.

Still interested in learning about how adding Value Capture to your economic development toolkit can promote your community’s goals? Visit this page.

Trees were on the agenda throughout Easton’s process as well; the denser development in a targeted part of town helps them direct growth to where it’s desired, a goal of the Envision Easton Comprehensive Master Plan. Projects to improve access to greenspace around New Pond, as well as sidewalks and streetscapes that encourage walkability and reduce traffic, will be eligible for DIF revenues.

So why is DIF not a tree? I began working with John Sisson in Dedham in the Spring of 2018, as part of a suite of resources and pilot projects for MassDevelopment. John understood early on that DIF can be an effective economic development tool, but since it’s not yet widely used in Massachusetts, he also knew that getting his coworkers and leadership on board, and gaining approval at a Town Meeting, would require planning and persuasion, unlike “easy” goals such as planting trees. He said "A DIF is not a tree" and that resonated with me at the time. The draft DIF plan was finished this winter, and John began his outreach program, including making the rounds of boards and committees, ultimately gaining recommendations from six, including the Conservation Commission, which wasn’t asked to make a recommendation but opted to provide one anyway.

I was with John for the Town’s “mini” meeting prior to Town Meeting, and several residents stopped by our table to ask questions or comment about the proposed DIF. Nearly all of them referenced being able to plant trees in the district with DIF funds.

Green space, open space, trees, streetscapes – these were what captured the imagination of residents, and let them visualize Route 1 as something other than acres of concrete and cars. The next week, Town Meeting voted to approve.

The takeaway here? I’d like to say “DIF really is a tree” but it isn’t. It is a tool that can catalyze discussion about, as well as financing of, community and economic development goals. DIF isn’t going to tell you what you can accomplish in your community, any more than a hammer sitting on your workbench tells you whether to hang a painting or build a bookshelf. In Dedham, it’s going to catalyze a conversation which, as far as I can tell, really is going to include a lot of talk about trees.

But Wait! There’s More!

Over the past year, Camoin 310 worked with three communities in Massachusetts that have adopted DIF: the City of Amesbury, the Town of Dedham, and the Town of Easton. Amesbury and Dedham participated in a pilot program through MassDevelopment, which provided Camoin 310’s consulting services as a grant through their technical assistance program. The Town of Easton engaged us directly, first to evaluate the feasibility of DIF for their goals, and then to implement when we recommended that it would be an effective tool.

I led Camoin 310’s creation of DIF resources for MassDevelopment, to support its goal of encouraging towns and cities throughout the state to learn about how DIF may promote their goals, and to provide materials that can assist with plan development and adoption. These are now available at their website here. You’ll find:

DIF Resources

  • District Improvement Financing (DIF) Guide
  • Three Pre-Recorded Webinars
  • Frequently Asked Questions (FAQS)

Interactive DIF Tools

  • DIF Estimator, to create preliminary estimates of the revenue potential for your community
  • Capital Mix Estimator, showing how DIF “plays well with others” and can be integrated into an overall capital plan
  • DIF Template, a downloadable document to help you create a district and development plan that can be adopted by your community

Case Studies

  • City of Brockton
  • City of Somerville
  • City of Taunton

Not enough DIF yet?

MassDevelopment is hosting a workshop in the City of Quincy on June 19. I’ll be speaking and participating in a panel with Rick Manley, Municipal Bond Counsel at Locke Lorde LLP; Rob Stevens, Deputy Planning Director for the City of Quincy; and Rob Dolan, Vice President, Investment Banking, MassDevelopment. More information is available here.

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