District Improvement Financing (DIF) programs allow municipalities to set aside a portion of the increase in tax revenues within a specified district to be used for improvements within that district.  This is a critical tool pays improvements through future tax revenues, allowing for less reliance on developer mitigation or impact fees.  While it can stimulate development, it also decreases tax revenues available to the general fund and should therefore be applied only in highly distressed areas.  

While relatively new to Massachusetts, District Improvement Financing has been implemented in other states with considerable success. A city or town wishing to use this tool must first designate a development district and program, which must be certified by the State Economic Assistance Coordinating Council.  A development district may be as small as one parcel or may comprise up to 25% of a town or city's land, and can be in effect for a maximum of 30 years. The development program must identify zoning and land use controls, development plans, infrastructure improvements, and a financial plan.  

Once a district and program have been certified, the city or town can use various tools to implement the program. These include purchasing land, infrastructure construction or reconstruction, incurring debt, and pledging tax increments and other project revenues for repayment of these debts.  Initial funding for these activities is usually accessed through municipal bonding.  Public/private partnerships can also be used to implement the program.

Additional flexibility in the District Improvement Financing program might result in more widespread application of this tool.  In particular, the program might be modified to permit off-site improvements that are directly related to the district.  For example, a municipality planning for town center revitalization might use DIF to fund the development of an off-site wastewater treatment facility, or infiltration beds for treated wastewater.  Similarly, DIF might be used to acquire a well site and aquifer protection land necessary to serve new compact growth.  

District Improvement Financing can be an effective incentive for growth, since the cost of improvements is not borne by the developer through mitigation payments, impact fees, or direct improvements; instead, the program transfers the cost of improvements to the municipality, along with some of the risk.  In order to minimize that risk, municipal policies should be coordinated to steer growth into the designated districts.  If an abundance of developable land exists elsewhere, or there is limited development potential within the district, then anticipated growth will not materialize, nor will the tax revenues necessary to pay for improvements.  In order to advance this coordination, the Massachusetts Office of Business Development should require development districts to demonstrate consistency with local plans, MetroFuture, and the Commonwealth Sustainable Development principles.  Currently there are no such criteria. 

16.a    The Legislature should allow municipalities to use DIF funds for off-site infrastructure improvements

16.b    Massachusetts Office of Business Development should establish consistency with MetroFuture and the Sustainable Development Principles as a criteria for DIF approval

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