District Improvement Financing (DIF)

Questions and Answers

What is the DIF?

What does the DIF do?

Will I pay more taxes because of the DIF?

Will taxpayers in a DIF district pay more taxes?

What impact will the DIF have on the Town’s tax base?

Has the Town done anything like this before?

Why is the DIF Being Proposed?

What controls are in place for the DIF?

What projects are being proposed?

What are the risks?

How and why did you decide on the areas you are including in the DIF?

What is the approval process for a DIF?

Why should we focus DIF investment downtown?

Shouldn’t downtown businesses do this themselves?

What is the DIF?

“DIF” stands for “District Improvement Financing”. A program similar to the DIF exists in nearly every state. These programs essentially allow communities to capture a portion of new tax revenue in a certain area and use that money to pay for capital improvements. No new taxes are levied, and there is no reduction or redirection of existing tax revenue.

As a hypothetical example of the DIF, consider an undeveloped area in the Town of ABC which is zoned for a commercial office park. There are no roads or other infrastructure in this area, so businesses which might be interested in locating in the Town are less likely to do so. They are more likely to locate in communities that already have the necessary infrastructure in place.

Under the DIF, the Town of ABC can build roads and other infrastructure into the office park, issuing bonds to finance the construction. New tax revenue is created as companies move into the new office park, and all or a portion of the new tax revenue can be dedicated to repaying the bonds that financed the infrastructure investment. Employment in the Town would increase, as would commercial property tax revenue.

The DIF can be used in a number of ways. The Town’s proposal is less speculative than the hypothetical example above, and is explained more completely in attached documents.

What does the DIF do?

The DIF allows communities to dedicate new tax revenue from a development to pay for specific capital improvements in the DIF district. It is created for declared purposes which are reviewed and approved by the Selectmen, Finance Committee, Town Meeting and the Commonwealth. No variation is permitted from the plans; by state law, the Commonwealth receives annual status reports and ensures compliance with the approved project plan.

Will I pay more taxes because of the DIF?

Your tax rate will remain the same; no one is charged taxes at a lower or higher rate under the DIF. The only way you would pay more taxes is if your property value increases.

Will taxpayers in a DIF district pay more taxes?

Property owners in the DIF district are taxed at the same tax rate as other property owners; the DIF does not give anyone a tax increase or tax reduction. As values increase in the DIF district, however, a portion of the new revenue that comes to the Town would be dedicated to specific capital improvements that have been approved by the Selectmen, Town Meeting and Commonwealth. No one would pay a higher or lower tax rate, and all properties would have their assessed value determined in the usual manner.

What impact will the DIF have on the Town’s tax base?

A DIF district indirectly increases the property taxes collected by a community. Infrastructure investments financed by the DIF are designed to stimulate new growth, thereby expanding a community’s tax base. This would provide new tax revenue that can help pay for the DIF investment and help pay to provide services to residents.

Has the Town done anything like this before?

Yes. The Town actually enacted an unofficial DIF in the mid-1990’s, before the DIF was created as a recognized program under state law.

In 1994, the Natick Mall was expanded for the first time. The Board of Selectmen and Town Meeting proposed and passed a financing plan that dedicated the new Mall revenue to pay for the renovation and expansion of the Public Library, for the construction of the new Police and Fire Headquarters complex and for the construction of Town Hall. The Town has done the DIF before; we are now proposing to do it officially under the recognized State program.

Why is the DIF Being Proposed?

The DIF is being proposed to help finance necessary capital improvements in Natick. These capital investments are focused on downtown Natick to help complete the redevelopment of downtown. Focusing development downtown helps preserve open space and minimizes the impact of development on Town services.

This proposal is also being made to give us an opportunity to “pilot” the DIF. The project proposed for the DIF – replacement of the Middlesex Avenue Parking Garage – will occur with or without the DIF because the facility is deteriorating severely and must be replaced. The Town will be required to replace this garage one way or another. Use of the DIF for this project will provide the Town the opportunity to test the DIF on a project we need to do; nothing will be lost if the program is unsuccessful because the project will be required regardless of the funding mechanism.

What controls are in place for the DIF?

The Town is required to develop a detailed project plan that specifies the work to be conducted, community benefits, expected outcomes and a specific financing plan. This plan must be approved by the Board of Selectmen, Town Meeting and the Commonwealth of Massachusetts.

The Commonwealth will receive annual status reports from the Town regarding the DIF to ensure the project plan is being adhered to, and the State’s Economic Assistance Coordinating Council has enforcement authority. Town administration will also provide regular status reports to the Selectmen, Town Meeting and Finance Committee, including a written report on an annual basis.

Once the project plan is approved by the Commonwealth, the Town can conduct the project(s) as approved in the plan. The Commonwealth has continuing oversight authority for the DIF to ensure there is no variation from the approved project plans. Communities may not vary from their approved project plans, but they may change them only after following a specific process, which involves review and approval by the Selectmen, Town Meeting and the Commonwealth.

How and why did you decide on the areas you are including in the DIF?

The parcels proposed as part of the DIF are some of the most densely developed properties in Natick. Downtown Natick – our second-largest commercial area – is at a competitive disadvantage as compared to the largest commercial area – the Natick Mall – due to a severe lack of parking. The Town believes it is appropriate to use the expansion of the Natick Mall to help address the main competitive disadvantage of downtown.

We believe it is critical to provide additional downtown parking if our local business owners are to effectively compete with national retailers in other areas of town and in other communities. The success of local businesses helps our downtown remain a vibrant commercial and residential area, and construction of additional parking will help ensure this occurs. It will also help complete the redevelopment of Natick center by allowing additional cultural, residential and business opportunities to be offered to our community.

The areas included in the DIF also include the portion of the Cloverleaf Mall property which is proposed for residential development under the Commonwealth’s Chapter 40B affordable housing regulations. This will provide additional revenue to support required capital investment in our community.

What is the approval process for a DIF?

After a public hearing, both the DIF district (the area to be included in the DIF) and the DIF project plan (the project(s) to be completed in the DIF area) must be approved by Board of Selectmen and Town Meeting. Final approval is provided by the Commonwealth through the Economic Assistance Coordinating Counsel (EACC). This process must be repeated to change the DIF district or project plan.

Why should we focus DIF investment downtown?

There are a number of reasons to focus this investment downtown. First, downtown suffers from a significant lack of parking, which is artificially limiting development in the area. The result is partially vacant and underutilized buildings that do not add to our community.

Downtown was designed to handle density; this proposal would help direct investment to this area. Development downtown would occur without impacting open space, drainage, or other issues, and would not require the construction of new roads. It would also have the smallest possible impact on public services, because police, fire, library and general government services are already in the area.

Downtown also represents an area of strong return for the public investment. Other than by zoning open space for development and building a new office park, it is difficult to think of an area where public investment can provide a significant financial return to our taxpayers. Elimination of vacant space downtown will create additional tax revenue without the construction of new buildings. Garage construction will also permit the market to develop new amenities for all residents of our community – affordable housing, cultural resources, new businesses, new restaurants and others – that can not be built now because of our parking shortage.

It should also be noted that construction of additional downtown parking is necessary to ensure existing commercial businesses do not leave Natick. More and more business can be conducted via telephone, fax, e-mail and the Internet; a parking shortage can – and will – result in businesses leaving downtown (or Natick all together) for locations without parking problems. Construction of parking is necessary not only for downtown to move forward, but also to prevent it from sliding backward.

Shouldn’t downtown businesses do this themselves?

It is tempting to suggest that the downtown parking problem is the responsibility of the residents and businesses who locate downtown, and therefore they should solve this problem themselves. It should be noted, however, that this problem was not of their making.

Downtown Natick was laid out and built long before the car was invented; the Town’s parking shortage is a result of development decisions made long ago. A significant part of our parking shortage also results from the many public amenities and services – social, cultural, religious, commuter and governmental – that exist downtown.

Looking at municipal services only, the Public Library is a wonderful facility that attracts more than a thousand users on an average day. In 1995, the Library alone was projected to require 65 parking spaces, though additional parking was not provided to meet this need. The success of our Library – and the dramatic increase in library programs – likely requires even more parking spaces today.

Looking only at the South Avenue parking lot (188 car capacity), public employees – including Town Hall, public safety and the Library – consume nearly 130 parking spaces each day, not including the approximately 30 spaces required to conduct periodic public safety and public works training events. The community as a whole is served by downtown, and these services are driving a parking shortage for the residents and businesses located there.

Middlesex Garage is owned by the Town, and the Town is responsible for replacing it. Local business owners will receive a benefit if the parking shortage is addressed, but their property values – and property taxes – will increase if this happens. This will help fund services for our community as a whole.

The benefits of a functioning, sustainable downtown accrue to the entire town, and the costs of a failing one burden the entire community. Our community as a whole has created a parking shortage while benefiting from the services provided by downtown businesses, governmental and other service entities. It is appropriate for the community as a whole to help provide the solution to this problem.