Act allows tax-exempt financing of project
On Aug. 7, Gov. Deval Patrick signed into law a bill providing
municipalities an option to approve "special assessment financing"
of public infrastructure to support private development or
Chapter 23L of the General Laws, which I participated in
drafting, is a proven method of tax-exempt financing public
infrastructure in many other states. It has also been used in
Massachusetts when authorized by special legislation.
Many desirable private or community development projects must be
supported by public infrastructure improvements. However,
municipalities are often unwilling or unable to allocate scarce tax
revenues or increase municipal debt burdens to finance public
infrastructure for worthy projects.
Massachusetts has attempted to deal with this problem through a
variety of programs, including direct state grants, state tax
credits and pledging expected increases in state or local tax
revenues to finance bonds for infrastructure improvements. The
common thread of all of these programs is that either the state or
its municipalities ultimately use their resources to support
This measure is different: It is the "developer pays" option. It
provides the missing link enabling our communities to tap into a
robust, multi-billion dollar market for investment capital for
public infrastructure, without placing further stress on scarce
How it works
Under the new measure, a private landowner may file a municipal
petition to establish a "development zone." The petition must be
consented to by all affected landowners and include a detailed
improvement plan, an estimated budget and timetable to complete the
If the petition is approved by the municipal governing body
after a public hearing, then an "assessment plan" is adopted to
impose special betterment assessments on privately-owned property
within the development zone. These special assessments will provide
the revenues to support tax-exempt bonds issued by MassDevelopment
to finance construction of the public improvements, which may be
owned only by a public entity. The entire cost of construction,
financing and maintaining the improvements is borne by the property
owners in the development zone, not by the municipality.
Special assessment financing is not novel. It has been employed
for years in more than 35 states. Bond issuance peaked at about $5
billion in 2007, but has declined since the 2008 financial crisis.
The five largest bond underwriters sold 573 issues totaling $8.6
billion in principal amount from 2005 to 2009. Because these bonds
are secured by tax liens on the property, they are high-credit,
tax-exempt, long-term securities very attractive to investors.
Developers like special assessment bonds because they provide a
long-term, low-interest source of funding for pre-construction
expenditures, which does not interfere with construction or
permanent project financing. The municipality benefits from
enhanced property tax revenues from the project, without a
reduction of its scarce tax revenues or an increase in its
municipal debt burden.
The special assessment financing legislation in
- Does not create an entitlement for developers. It is entirely
optional. The municipality may elect in its sole discretion to take
advantage of its provisions in any given case, and to condition its
approval of a special assessment project as it deems
- Does not add additional debt burdens to municipalities. The
costs of the infrastructure and the debt service on the associated
bonds are paid by special betterment assessments on the
privately-owned real property in the development zone. By law, the
state and its municipalities have no liability on the special
assessment bonds, which are "revenue bonds" secured only by the
special assessments on the property in the development zone.
Betterment assessments are, by law, excluded from tax revenues
subject to the Proposition 2 ½ limit.
- Will enhance municipal tax revenues. The municipality in which
a development zone is created benefits from enhanced tax revenues
from new construction added to the municipal tax base.
- Does not affect zoning or land use regulation. Private
development in a Chapter 23L development zone is subject to all
zoning and land use regulations applicable to conventional
- Can be used to finance municipal improvement programs. Special
assessment financing may be used to finance community development
projects as well as to support private development, so long as all
affected landowners consent to the special assessments.
- Bonds may be used only for public infrastructure. Proceeds of
special assessment bonds must be used for public infrastructure
improvements and costs of issuance.
The Massachusetts law embodies a proven financing program
successfully used in many other states to attract billions of
dollars of investment capital for public infrastructure. It is a
local option, not an entitlement, which allows each municipality to
choose the rate of economic growth which best fits its needs. No
state or local general tax revenues or credit are involved. Special
assessment financing promises to be the rocket fuel needed to
propel economic growth in Massachusetts.
Attorney William F. Griffin Jr. is a shareholder at
Davis, Malm & D'Agostine P.C. in Boston. His practice focuses
on business law, real estate and environmental areas.