Tax Increment Financing (TIF)

City of Marlborough – Tax Increment Financing Plan Guidelines

The City of Marlborough may enter into Tax Increment Financing Agreements (TIF) thereby incenting companies to make investments that create long term economic benefits for the City.

The criteria used to determine the benefits that result from a company’s investment should include the following:

1. Does the investment result in the addition or expansion of a growth company in an industry expected to flourish over the foreseeable future
2. Does the investment create additional jobs in the City
3. Does the investment serve to retain jobs in the City
4. Does the investment help remove blight and encourage additional investment in the area

Evaluation Criteria Discussion:

1. Highest and best use refers to, based on zoning, location and other uses in the area, is the intended project going to result in the highest and best use for the property?  Different classes of property have a large delta in their value per square foot or acre. We would not want to incent a developer to locate a warehouse operation on a 5 acre parcel and a total value of $5 million if the same parcel could ideally yield an $11million value for class A office space. In order to evaluate the highest and best use, the project would need to be evaluated based on the resultant value by square foot or acre for the parcels logical highest use.
2. Using incentives to attract rapidly growing companies in emerging or expanding industries provides the opportunity for the city to benefit from the continued future growth of the company and its industry. The applicant company would need to be evaluated based on our desire to have it located in the city. Having new companies in emerging industries join the city helps diversify our commercial and industrial tax base.
3. One of the requirements for these City and State incentives is that the project creates additional jobs.  The quantity and expecting timing of the new jobs is forecasted in the project application with the requirement to report on actual job creation in subsequent years.  These projected new jobs can be used in evaluating the project’s benefit to the city.
4. It is not only important to attract new jobs and development into the city but it is just as important to retain the resources already located here. When evaluating the benefits of a project, we should not only score the number of new jobs associated with the project but also be cognizant of and acknowledge that the project and incentives also contribute to retaining the applicant’s existing jobs within the city.
5. There will be projects that are in a location that improving the general area and mitigating blight will be a benefit of the project. There may be other times when the primary reason the city may want to encourage development in a particular area is to replace the blight that currently exists in the area. In such cases, the economics of undertaking such an improvement project in an area must likely to have other blighted properties may required much higher incentives to make the project work. The city will need to determine on a project by project basis if the blight issue is an additional consideration to the other factors.

When a company sufficiently meets the criteria above such that the city is willing to entertain a TIF agreement, the following guidelines for the range of percentage of real estate tax exemptions will be considered.  The following assumes a TIF agreement of 13 years of more.

The merits of each TIF agreement will vary greatly from one application to another.  Once the benefits to the city of each project are evaluated the above ranges can then be applied based on the perceived benefits accrued to the city by the project.

Following are examples of 15 year TIF schedules representing both a low benefit and a high benefit project.  Of course any schedule in between these high and low guidelines would be appropriate based on the overall evaluation of the project against the suggested criteria.

The lower end of the range provides an average of a 14% exemption over the 15 year term while a higher end of the range provides a little over a 50% exemption over the same time period.

The majority of projects would need to last a minimum of 13 years in order to fully utilize the state incentives discussed below. However, there are projects where a project of a shorter duration would be more likely in which case their schedule would need to be designed to fit those specific circumstances.

Other Considerations

The local TIF agreement is a prerequisite for an applicant to receive additional Incentives from the State in the form of significant Investment Tax Credits (ITCs). Depending on the type and level of investment in buildings and equipment, these ITCs can be considerable and may exceed the benefit of the real estate tax exemption provided by the city. The ITC eligibility is tied to the length of the TIF Agreement and the City should be diligent in providing TIF relief to its corporate citizens in a framework that complies with the state eligibility requirements for the ITC. In order for the ITCs not to be subject to possible recapture based on the expiration date of either the EOA or the TIF agreement, the assets must be in service for 12 or more years.  With that in mind, 15 year EOAs and TIF agreements should be the first consideration.

It there are significant ITCs connected to the project, the TIF should run for 13 or more years to protect any ITCs from possible recapture.

Additional consideration should be given to provide relief to companies through the construction phase of the project when values will be increasing but the assets are not yet in service.  This can be accomplished by having the earliest years have very high exemption percentages during the construction phases.

These guidelines are meant to provide a basis of evaluation and framework that will lend the process a more consistent approach than otherwise might be the case.