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District Improvement Financing (DIF) and Tax Increment Financing (TIF) are economic tools that promote redevelopment by use of public/private partnerships. TIF offers tax breaks to developers, while DIF channels tax dollars into targeted redevelopment districts.
Many municipalities in Massachusetts are faced with blighted, distressed, or simply underutilized areas. Many of these sites contain abandoned or contaminated facilities, while others are characterized by broken-down infrastructure and commercial operations that simply are not economically viable. These areas often see a decrease in assessed property values with a corresponding decrease in municipal revenue. At the same time, they pose a drain upon municipal services. Often, it is difficult to attract private investment to these areas
Both DIF and TIF provide municipalities with innovative tools to target districts or specific projects for redevelopment. The use of tax increments is the centerpiece of both tools.
A tax increment is the difference between the beginning assessed value of the targeted property in its broken-down 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.
Determining the value of the tax increment is essentially the same for both DIF and TIF, however, how the tax increment is used as an incentive is very different:
DIF is authorized by M.G.L.c. 40Q and its implementing regulations 402 CMR 3.00 et seq.
Once a district and program have been certified, the city or town has the ability to use various tools to implement the program. These include:
Initial funding for these activities is usually accessed through the posting of a bond by the city or town. DIF also allows for public/private development partnerships.
TIF is authorized by M.G.L.c. 40§59 and its implementing regulations 760 CMR 22.01. Under this legislation, landowners may be granted property tax exemptions of up to 100% of the tax increment. A municipality may enter into a TIF Agreement with a landowner for a maximum term of 20 years. M.G.L.c. 40§60 also authorizes TIFs for housing in urban centers. A city or town must initiate a TIF by a vote of its governing body approving the TIF Plan, which must include:
A TIF Zone must be in an area approved by the EACC as an Economic Opportunity Area (EOA) or found to be an area "presenting exceptional opportunities for economic development" by the Director of Economic Development. Certification of the TIF Plan is issued by the Economic Assistance Coordinating Council (EACC) after the plan is accepted by municipal vote.
Considerable planning is required up front, but the payoff in both increased future revenues and benefits to the public can be great. Successful projects will result in increased tax revenue to the municipality.
TIF provides a direct upfront benefit to a Developer in the form of tax relief. The money saved on taxes helps pay the project's construction costs. Depending on the size and location of the project, Developers utilizing TIF benefits can also often access other state financial incentives such as Investment Tax Credits, Abandoned Building Tax Deductions and Research and Development Tax Credits.
DIF provides financial benefits to developers as well, by providing infrastructure and surrounding amenities to support their projects. Early public funding takes the initial burden off the developer and minimizes risk.