The Town Council got its first look at a proposed Tax Incremental Finance (TIF) District for the Pettengill Road area from contracted planner Stu Arnett. If the council likes the idea, it would go to the voters in March 2014.
“This is the first in at least three stages of public input,” Arnett said at the Aug. 1 Town Council meeting. “What we’re talking about is how to finance infrastucture in the airport area, and our internal recommendation as your outside contractor is to begin pursuing the idea of a TIF district over the next two months, with a first and second reading, and eventually, if you decide to go that route, put it on the Town Meeting in 2014.”
The proposal would involve construction of a 5,000-linear foot road with four lanes that would open 1,000 acres of privately held land to development near the Manchester-Boston Regional Airport, according to Londonderry Geographic Information Systems manager and planner Jon Vogl.
What’s a TIF?
Arnett said a TIF district is a tool, not an end. “It is probably the state’s most significant tool for economic development and tax base infrastructure available to local government,” he said. Arnett said the goal of a TIF district is to accelerate paying down a bond. On the positive side, he said, it saves taxpayers the cost of interest. The downside, however, is that it defers new revenues for the town, school district and county.
“If you pay off a bond in 10 years instead of 20 years, you’ve obviously saved the taxpayer money,” Arnett said. Arnett said a TIF district is best used if it meets three criteria: infrastructure is needed, activity is probable or in hand, and it is not a fix for a bad idea.
“It becomes less speculative the more you have in the pipeline, such as if you have interest in the beginning or a project is probable,” he explained. “(But) a bridge to nowhere is still a bridge to nowhere.”
Arnett said a TIF district does not change the tax rate, assessment, or payment, and is not a tax break or a tax premium. Indeed, he said it does not have anything to do with the taxpayer. Instead, it involves the use of tax proceeds.
“So if you are in a TIF district or out of a TIF district, your tax rate’s the same, your tax assessment’s the same, and the TIF district goes away when the bond is retired,” Arnett said. “There is an oversight committee that by statute has to include at least one property owner from the district; strong town representation, typically the town manager, finance director and planning director; and it has the ability to invite others,” Arnett added. “It reports back to the state Department of Revenue Administration and the whole program has a manager who is appointed by the council.
“If you start a second phase, you have to start the second phase at second phase dollars, you can’t keep the thing open forever,” Arnett noted. Arnett provided the council with a list of 26 communities in New Hampshire with TIF districts.
If a TIF district were to be considered, the process would begin by creating the district boundary, establishing a financing plan for incremental taxes to retire the bond, and setting up a development program for the physical development of the district. Public meetings would be held with the school board and county commissioners, and the town would name a district administrator and advisory board. After two public hearings by the town council, the council could authorize the district and put to vote at Town Meeting authorization of the infrastructure bond.
Private Money vs. Taxpayer
“There are two options in financing the infrastructure – one is private, the other is public,” Arnett said. “As far as private financing, the strategy is just to wait for markets to get better and developers put in sewer and water. The positive there is that it doesn’t cost the town to have a developer come in and install the infrastructure. The negative is that while you’re waiting you’re losing revenue and jobs and quality control. A developer might just put in what is necessary for that developer, such as cul-de-sacs and minimal two lane roads to meet his needs, leaving interior land unreachable.
Arnett said the town could go ahead and build the infrastructure, collecting 26 cents of every new dollar to pay off the bond. “If you do it with a TIF district, you’re collecting 85 cents of every new dollar.
“The third option, which we are recommending, is that you do it with the TIF district in place, which will allow quality control, and you’re working with the school and county,” he said. “We are also trying to supplant the TIF with grants. You’ve applied for a TIGER (Transportation Investment Generating Economic Recovery) grant recently for the whole $8.2 million amount but we know that application requires matching and you don’t have any, and with this we’re trying to show the feds that we’re working towards the match.” Proposed District
Arnett said the Pettengill Road area under consideration now abuts Route 28, which he termed more realistic.
“As far as financing up to $12.2 million in bonding with $8.2 million for Pettengill Road and $4 million for sewer and a recreation infrastructure, which includes the rail trail, unlike a warrant at Town Meeting, it doesn’t have to be precise,” he said. “If you want to put this up with a cap so that you can come down but you can’t go up, you can do that when it’s voted on at Town Meeting.”
Arnett said the number could come down if the town were successful at getting grants, as well as considering what the sewer fund would contribute and the construction costs and interest rate at the time it’s built.
Arnett said they are assuming a TIF district would start with a 250,000-square-foot building in the pipeline now. A proposal for a 250,000-square-foot warehouse and distribution center went before the planning board at its most recent meeting. The owner or developer has not been named.
Also assumed is 100,000 square feet of building construction annually, a $70 per square foot assessment, a bond rate of 4.75 percent and revenue at $18.2 million. Arnett noted that a TIF can be initiated without the financing.
“Once you satisfy the annual debt service, you can escrow the surplus, you can put it back against the debt or you can put it in the general fund,” he said. “So often times towns either will do a 100 percent dedication to the fund or a 50 percent dedication to the fund and let the other 50 percent go back to the operating budget.”
He said an alternate bond structure of interest only payments would have a positive yield at day one.
Town Council Chairman John Farrell asked how much square footage would be needed to break even from day one.
“With the interest only scenario, you do it in the first year,” Arnett said.
To break even within the first five years, 650,000 square feet would be needed. “So 650,000 square feet from day one will break even in five years,” Farrell said. “With a $12.2 million (bond) at 4.75 percent,” Arnett responded. Councilor Tom Dolan said with 250,000 square feet already in the pipeline, 400,000 square feet is needed to break even from the first year.
“You wouldn’t do this because you don’t borrow a bond on day one because no one will sell you a bond on day one, they want the project to be done,” Arnett said. Arnett said the TIF district tool was needed because infrastructure is needed, there are projects in hand and that value would be lost if the TIF is delayed. He projected $3 million to $6 million new tax revenue would come to the town and 200 jobs per year would be gained.
Noting that “time kills all deals,” Arnett said the time to act is now. “This is all about an acceleration factor,” Dolan said. “We can wait for serendipity and that may happen in 30 years, but we need quality roads.”
Arnett said existing permits for the area expire in 2014. According to Vogl, the permits for the Pettengill Road project are a wetlands permit from the state Department of Environmental Services (DES), a DES Alteration of Terrain permit, and an Army Corps of Engineers permit. There are also permits in place for the Pettengill Road interceptor sewer.
In answer to Councilor Tom Freda’s question about how long it would take to build, Department of Public Works Director Janusz Czyzowski said the road would take two construction seasons.
The matter returns to the council agenda at its Aug. 19 meeting.