Tax Increment Finance Plan
Tax Increment Finance (TIF) Plan
Plan & Guidelines
Town of South Hadley, Massachusetts
I. Background: The Economic Development Incentive Program (EDIP)
The Economic Development Incentive Program (EDIP), administered by the Economic Assistance Coordinating Council (EACC), is designed to promote increased business development and expansion in economic target areas of the commonwealth. Various incentives available under the EDIP, including TIF and Special Assessment agreements, are intended to provide municipalities with tools to leverage investment and job creation and retention of jobs.
Under Chapter 23A, Massachusetts General Law (MGL), Massachusetts municipalities with a designated Economic Target Area (ETA) may participate in the EDIP. The South Hadley ETA was designated by the EACC April 24, 2007.
Within its designated ETA, South Hadley can offer commercial and/or industrial property owners a Tax Increment Finance (TIF) agreement or a Special Assessment (SA) agreement pursuant to Chapter 23A, Section 3E, MGL in support of projects conforming to the applicable standards and criteria. To qualify for a TIF agreement, projects must further the goals of the ETA and add assessed value to properties and create net new jobs for Massachusetts.
A TIF agreement provides an exemption on property taxes on the value added to the property by the participating business. The exemption can be from 5 to 100% on added assessed value (AV) for a period of 5 to 20 years.
Additionally, the following benefits are also available to investment projects qualifying for a TIF agreement:
- Under a TIF agreement, an exemption of up to 100% of the value of any personal property can be provided to the business. (Note: This exemption is already in place for all Massachusetts manufacturers and Research and Development facilities.)
- A business participating in the EDIP also receives a state Investment Tax Credit (ITC) of 5% from the Commonwealth. (Note: all manufacturers in Massachusetts receive a 3% ITC; therefore, through EDIP participation, manufacturers receive an additional 2% ITC.)
- An Abandoned Building Renovation Deduction may also be available to owners of qualified buildings in an Economic Opportunity Area. Owners can deduct up to 10% of the costs incurred in renovating buildings that have designated as abandoned by the EACC. Generally, such buildings must have been 75% vacant for 2 or more years. This deduction is in addition to any other deduction for which the renovation costs qualify.
A Special Assessment agreement is designed to assist in the retention of viable businesses which are undergoing short-term financial obstacles. This provision allows for the total reduction of the existing assessment on real estate for qualified projects for a period of time. Statutorily, the assessment may be phased back to full assessment over a 5-year period.
How do the TIF & SA agreements Work?
TIF agreements provide an exemption on only the value added to a property through an investment by the property owner. Thus, under a TIF agreement, municipalities continue to receive all property tax revenues from the property as it was assessed before the new investment. Municipalities also receive additional revenue based on a pre-determined baseline growth factor (like an inflation factor) on the assessed value before the investment – projected over the term of the TIF agreement. The TIF exemption is based only on the added assessed value after the investment and can range from 5% to 100% for a term between 5 and 20 years. In accordance with the terms of the TIF agreement, the exemption percentages may vary from year to year. Upon completion of the term of the TIF agreement, the municipality receives property tax revenue based on the full assessed value of the property.
Special Assessment agreements differ from TIF agreements in that they provide an exemption on the existing value of the property. Pursuant to MGL, Chapter 23A, Section 3E, assessment of property under a special tax assessment is reduced to 0% of the actual assessed valuation of the parcel. The maximum amount of the subsequent assessments cannot increase by more than 25% for each successive year up to the fifth and subsequent years when the assessment may increase to 100% of the actual assessed valuation of the parcel.
Municipalities need to monitor the businesses benefiting from TIF and SA agreements. However, it is the responsibility of the participating "Certified Project" (i.e., the business entity receiving the agreement) to report on an annual basis to both the municipality and the Commonwealth as to its progress in meeting the requirements of the agreements. South Hadley does not presently have any such projects.
II. South Hadley’s Economic Development Incentive Program (EDIP) Guidelines
Purpose & Geographical Focus
South Hadley’s participation in the EDIP in South Hadley is to promote increased business development and expansion and retention in the economic target area. As stated in the town’s ETA application, the geographical focus of these efforts is the South Hadley Falls Area. Accordingly, the town has proposed to establish the South Hadley Falls EOA as depicted in the proposed EOA map:
Diversification of the town's tax base by expanding its commercial / industrial base has been a long-term goal of the town for many years. The overall goal of the ETA is to help achieve this goal by capitalizing on the investment made in the ETA, particularly the South Hadley Falls area, over the past 20 years.
The South Hadley ETA program has the following 5-year goals:
- Upgrade the visual image of the South Hadley Falls area with a focus on the commercial / industrial properties
- Expand access to improved employment opportunities for the residents of the South Hadley Falls area
- Achieve a 100% occupancy of the viable commercial / industrial space in the South Hadley Falls area
- Develop a tourism program and market in the South Hadley Falls area with vacant retail storefronts fully utilized
The EDIP incentives will further these and other community goals by:
- Increasing the Amount of Investment in Commercial / Industrial Development
At present, less than 8% of South Hadley's property tax revenue is derived from commercial or industrial sources. Given the nature of the town's available land and growth of its residential areas, little space is available for nonresidential growth. Therefore, redevelopment of existing building space is essential.
- Retaining Commercial / Industrial Developments
With limited space available for new commercial or industrial developments, it is essential that the town retain its commercial and industrial enterprises.
- Focusing on South Hadley Falls
Most of the commercial / industrial structures in this area are 50-plus years in age and have been transformed from their original uses as the market and technologies have changed. They have been less competitive than newer buildings and sites along more readily accessible roadways. Therefore, the EDIP will focus on providing incentives to the locations within the South Hadley Falls area, which are substantially vacant, vacant, functionally obsolescent or limited in their potential reuse and brownfield sites.
- Stimulating Job Creation / Retention
The EDIP program supports job creation / retention. Consistent with the town's standards for designation of an EOA (as stated in the ETA application), priority will be given to projects that are likely to generate employment opportunities or retain employment opportunities, particularly for ETA residents.
On August 21, 2007, the South Hadley Selectboard adopted the following criteria as the programmatic guidelines for the EDIP incentives:
- Does the proposed project strengthen the Falls area?
- Does the proposed project provide for skilled labor, expand jobs and pay livable wages, specifically benefiting residents of the South Hadley ETA or benefits persons residing within adjoining ETAs?
- Does the proposed project leverage private investments (e.g. $3 to $4 of private investment or $1 of public (e.g. new sewer line, road improvements, etc) with public funds?
- Does the proposed project involve a substantial investment of private capital for development, redevelopment and/or equipping buildings in the South Hadley Falls area? ("Substantial investment" is measured as a percentage of the current property's assessed value for existing buildings and/or as a ratio of investment per job created/retained.)
- Does the proposed project improve the quality of life for South Hadley residents?
- Does the proposed project increase homeownership opportunities?
- Does the proposed project positively impact real estate values?
- Is the proposed project a catalyst for future good development?
- Does the proposed project increase local revenues?
- Does the proposed project help achieve any of the ETA's 5-year goals by:
- Upgrading the visual image of the South Hadley Falls area, particularly the commercial / industrial properties
- Expanding access to improved employment opportunities for the residents of the South Hadley Falls area
- Increasing occupancy of the viable commercial/industrial space in the South Hadley Falls area
- Developing the tourism market in the South Hadley Falls area
- Is the proposed project located within an area which meets the definition of being either a blighted open area, decadent area or substandard area as defined in MGL Chapter 121A?
- Does the proposed project contribute to alleviating the "blight, decadent or substandard" conditions.
- Does the proposed project provide a service or function which is currently needed by residents of the South Hadley Falls area, disadvantaged population groups and/or ethnically diverse populations?
- Is the proposed project located within an area which meets four or more of the following criteria?
- Relative concentration of vacant buildings and unkempt properties
- Poverty Rates exceeding the ETA average Poverty Rate
- At least 35% of the households have annual incomes below 80% of the Springfield MSA annual income
- The percent of households headed by females is greater than the average for the ETA
- The percent of households renting their residence exceeds the average for the ETA
III. Rating / Evaluation of Prospective Projects
These aforementioned thresholds will guide selection of projects being considered for EDIP incentives. Projects should meet 1 or more of these guidelines to be considered for a TIF or SA agreement. Businesses proposing projects should take note that the town will give greater consideration to granting incentives to projects which conform to many of the guideline thresholds as opposed to only one such threshold. SA requests will be evaluated more critically than TIF requests in terms of the viability of the business and need for the assistance.
- Projects conforming to most of the thresholds will be considered warranting maximum TIF exemptions of up to 100% decreasing over a 5-20 year term.
- Projects conforming to 1/3 to 1/2 of the thresholds will be considered moderate projects warranting TIF exemptions of up to 75% decreasing over a 5 to 15 year term.
- Projects conforming to more than 1, but less than 1/3, of the thresholds will be considered limited projects warranting TIF exemptions of up to 50% decreasing over a 5 to 10-year term.
- Projects conforming to only 1 of the thresholds will be considered minimal projects warranting TIF exemptions of up to 25% with relatively short terms of 5 years.
- Projects seeking an SA agreement must meet further multiple thresholds and demonstrate a need for the assistance and include a commitment to remain in South Hadley and current on all taxes and municipal utilities for a period of no less than 5 years beyond the term of the exemption.
Town Meeting – Final Determining Authority
The above-stated thresholds and evaluation guidance are designed to help South Hadley officials in setting negotiation parameters for prospective EDIP projects. By statute, the South Hadley Town Meeting decides whether or not EDIP project proposals are suitable for the town's approval. While this rating / evaluation system provides a guide to determine the possible range for TIF / SA exemptions, it does not restrict the authority of the town meeting to reduce or increase exemptions or to deny the proposed projects entirely.
Public Notification Process
When a prospective TIF / SA project enters discussions with the town's designated official (either the Town Administrator or Town Planner), the official will seek to adhere to the following process:
- The official will use discretion in proposing the use of either TIF or SA at all times.
- All projects will be evaluated in accord with the aforementioned thresholds and rating / evaluation system. Proponents of projects which do not conform to any of the thresholds will be so informed so that they may have an opportunity to demonstrate how they would further the thresholds. No negotiation will proceed unless the official determines that the project conforms to one or more thresholds or furthers the goals of the program.
- Negotiations with a prospective project will be handled by the Town Administrator, unless the Town Administrator delegates that function to the Town Planner or other appropriate official. At no time will the identity of the prospective project be revealed to the general public or other municipal officials beyond a general description without the express authorization of the proponent. Confidentiality is often a requisite in any negotiation, as public revelations of prospective property buyers or lessees may adversely affect property purchase or lease negotiations. Upon entering a TIF / SA negotiation with a prospective project, the official will inform the Chair of the Selectboard.
- Once a TIF / SA agreement has been negotiated with a prospective project, the Town Administrator will coordinate with the Selectboard scheduling of a town meeting consideration of the agreement. All appropriate documents, including the proposed TIF agreement, Economic Opportunity Area application (if necessary) and TIF Zone Plan (if necessary) will be forwarded to the Selectboard, Town Counsel, Appropriations Committee, and Town Meeting members.