Massachusetts General Laws Chapter 121A and Massachusetts Regulations 760 CMR 25.00 authorize the creation of single-purpose, project-specific, private Urban Redevelopment Corporations (URC).
The URC's purpose is to undertake residential, commercial, civic, recreational, historic or industrial projects in areas which are considered to be:
- blighted open space.
The statute and regulations authorize the exemption of 121A developments from real and personal property taxes, betterments and special assessments.
They set forth procedures for negotiating an alternative tax payment on these developments. They also allow private developers to exercise the power of eminent domain to assemble development sites under certain circumstances.
By allowing tax exemptions, 121A Agreements are used to encourage:
- development in areas with high property tax rates
- or in areas that are minimally marketable as locations for private investments
The ability of a city or town to offer what is essentially a tax break and accept a substitute reduced tax, provides the city or town with at least some tax revenue on property that would otherwise have been undeveloped.
At the same time, 121A agreements provide certainty to developers in the amount of taxes they will pay for the duration of the agreement.
A 121A Agreement must serve a public purpose.
Although, the most frequent application of c.121A has been in the construction of housing for low and moderate income families, the opportunity exists to use this tool for economic development.
M.G.L. Chapter 121A Implementation Regulations
Urban Redevelopment Corporations are:
- private limited dividend entities that are formed to develop 121A projects.
The corporation may not:
- undertake more than one project nor,
- engage in any other type of activity
Under c.121A, a private entity bears the responsibility for planning and implementing the project and owns the project throughout its existence.
The following may enter into 121A Agreements:
- Non-profit corporations
- For-profit corporations
- Joint ventures
- Public/private partnerships
- Insurance companies and banks also qualify under special statutory provisions of the law.
- Acquire, sell and hold land, including the taking of land by eminent domain (in specified circumstances)
- Manage property
- Construct and improve facilities
- Borrow money and issue bonds, notes or other evidence of indebtedness
- Receive exemption from real and personal property tax
How it Works
Urban Redevelopment Corporations are exempt from real and personal property taxes, betterments and special assessments.
Instead, these 121A entities must make three types of substitute payments:
- Minimum Statutory Payment - paid to the Commonwealth’s Department of Revenue and returned to the general fund of the city or town where the project is located.
- Negotiated Payment: paid directly to the city or town, and local officials have wide latitude in determining the amount of this payment.
- Excess Income Payment: as “limited dividend corporations” any excess profits above 8% ROI must be returned to the city or town up to the level of tax that would have been assessed if the property were a non-121A entity.
Property that is under a 121A Agreement does not have its value counted in assessments of municipal land.
Chapter 121A Application Approval Process
DHCD is responsible for the administration of the 121A program for all cities and towns in the Commonwealth, with the exception of Boston where it is administered by the Boston Redevelopment Authority (BRA).
The application for designation as a 121A entity must be approved by both the city or town in which the proposed project is to be located and DHCD.
The statute and regulations assign specific responsibilities to a number of different local officials, which all have legally defined roles in the c.121A approval process. Generally, the Board of Assessors has played the dominate role in negotiating the level of payments to be made under Section 6A of c.121A.
- The local Chief Executive Officer (CEO)
- The City Council
- The Board of Assessors
- The Planning Board
There are several important distinctions between cities and towns in the local approval process.
- In a city, the City Council acts as the local governing body and the Mayor or City Manager acts as the CEO.
- In a town, the Planning Board plays the role of the local governing body and the Board of Selectmen act as the CEO.
The 121A Agreement
A 121A entity is required to sign two agreements, one with the city or town and one with DHCD. The agreement signed with the city or town is known as a 6A Agreement because it is described in Section 6A of c.121A. The agreement signed with DHCD is known as the 18C Regulatory Agreement because it is described in Section 18C of c.121A.
- Section 6A Agreement: Following application approval, the developer must execute the 6A Agreement with the city or town agreeing to carry out the 121A project in accordance with the approved application. The 6A Agreement describes the tax payment to be paid by the developer and includes the duration of the agreement, the schedule of any payments above the statutory minimum (i.e., the negotiated payment) and any special conditions which have been negotiated with respect to parking, resident employment, exterior design treatment or other aspects of the project. The 6A Agreement may also include an escalation clause, a provision for an increase in the tax payment over the length of the agreement
- Section 18C Regulatory Agreement: Following submission of the 6A Agreement, the developer must execute the 18C Regulatory Agreement with DHCD, stating project costs and method of financing, limitations on cumulative annual return on investment to 8% of the amount invested in the project, the payment of excise as prescribed, and requirement that prior approval by DHCD must be obtained in the event that the project is to be transferred, assigned or sold.
After DHCD has reviewed and approved the application, the 18C Regulatory Agreement is executed, the letter of approval is issued and the Secretary of State approves the formation of the Urban Redevelopment Corporation.