After 2015 law revision, more CT municipalities use tax increment financing to spur new development

A new version of an old economic development tool — tax increment financing — is gaining traction among municipal leaders and developers who say it carries little risk and great reward, with several Greater Hartford projects serving as proof of its potential.

Tax increment financing, commonly referred to as TIF, is a development finance tool that uses new or incremental tax revenue generated by a completed project to repay the costs incurred to fund it.

TIF is not a new concept — it’s been around for nearly 30 years — but a 2015 state law made it more accessible, with project oversight and fund allocation now in the hands of local municipalities.

Prior to 2015, cities and towns needed special state legislation to establish TIF districts and programs. TIF was often used to repay bonds issued to finance large-scale developments, notably Steelpointe Harbor in Bridgeport and Harbor Point in Stamford.

Now under local control, TIF is used in a variety of ways and often on a smaller scale.

Each TIF district — and the financial terms under which project money is given, paid back or reimbursed — is unique.

Municipalities are using TIF options like credit enhancement agreements, low-interest or forgivable loans, and funds for land acquisition, brownfield remediation, infrastructure or initial project development.

Towns typically establish a TIF account funded with incremental tax revenue from a development, which is then used to reimburse developers or fund new projects.

Windsor Locks was the first municipality to use the post-2015 TIF law for the $62-million redevelopment of the historic Montgomery Mill industrial property into a 160-unit apartment complex.

The town established the TIF district in 2015, and crafted a 10-year credit enhancement agreement with Boston-based developer Beacon Communities, which completed the project in 2020.

The deal allows Beacon to get back nearly $83,000 a year for 10 years from incremental tax revenue generated by the development — more than $800,000 in total.

The property in 2015, before the redevelopment, was generating around $10,000 a year in taxes. This year, the apartments will generate $284,000 in property tax revenue.

The town now takes in about $200,000 a year from that incremental tax revenue, which is used to support other projects in the TIF district.

First Selectman Paul Harrington said the TIF deal helped get the Montgomery Mill project rolling, and is now helping the town fund other developments in the downtown district that would otherwise never get off the ground.

Since 2015, TIF districts have also spurred developments in Bloomfield, Windsor, Bristol, New Britain, Enfield and Cheshire.

Deal safeguards

In 2019, Cheshire created a TIF district in its north end encompassing more than 600 acres. Within that area are a number of parcels and projects — including the 100-acre mixed-use Stonebridge Crossing development.

The massive project includes plans for hundreds of apartments and townhomes, retail plazas, restaurants, a grocery store, hotel and senior living facility.

The town entered into a TIF credit enhancement agreement with property owners and developers Tri-Star Development and Miller, Napolitano and Wolff to install infrastructure for the property, such as water and sewer lines, roadways and sidewalks.

In return, the town will reimburse the developers up to $7 million of that cost through future tax revenue generated by the development.

Part of the agreement states developers have to increase the property value by $50 million, $15 million of which must be in commercial development. That part was a safeguard added to ensure the development wouldn’t be all residential, town officials said.

A 2021 feasibility study by Goman+York Property Advisors estimated the project will add $167.8 million in market value, yielding about $3.9 million in annual property taxes.

Image

Andrew Martelli

Cheshire Economic Development Director Andrew Martelli said development of that previously-vacant area would not have happened without the TIF deal because the infrastructure costs were prohibitive for developers, and taxpayers weren’t in favor of bonding for the work.

Creative TIF financing

New Britain Mayor Erin Stewart said her city established downtown TIF districts in 2017, “as a way to finance projects that would otherwise require bonding.”

TIF districts often target developments in areas that are blighted or underutilized, and establish “the funds and the creativity to get projects done,” Stewart said.

Developer Dan Czyzewski built a 44-unit luxury apartment, mixed-use space in New Britain at 222 Main St. He used a $250,000 TIF revolving loan to offset some of the fit-out and equipment costs for The Assembly Room, a ground-floor industrial dining hall that has several restaurant tenants.

That allowed the developer to then work on building the residential floors above.

“It was a privately funded project but we used the TIF to attract the retail tenants,” Czyzewski said.

It’s “the signature project” for his company, Exclusive Development, and a showpiece in the center of New Britain, he added.

The property is now generating more in taxes due to its increased value, and the city is able to capture that money to put toward other projects in the district.

Czyzewski said TIF programs make a project more attractive to developers.

“It helps offset development costs, and you’re getting a more favorable partner with a shared interest in an economic development project over a traditional loan from a financial institution,” Czyzewski said.

In addition to the revolving loan program with low interest and flexible terms, New Britain TIF options include a lease rebate program intended to stimulate new tenants, and a code correction program for older buildings.

“We have a lot of older buildings citywide that are not up to code, and people come in with a vision, but the capital to start doesn’t cover code work,” Stewart said. “The code correction program makes buildings safe and benefits the businesses and the property owners,” by getting a beneficial project started.

Gaining in popularity

Windsor Economic Development Director Patrick McMahon served on the panel that created the 2015 revised TIF law when he was president of the Connecticut Economic Development Association.

Image

Patrick McMahon

He also helped write the master plan for TIF districts in Windsor and Old Saybrook.

TIF is still a relatively new concept for some towns, but as more municipalities use them “and see the benefits, there’s a track record, and I anticipate more communities will go forward with them,” McMahon said.

Developer Avner Krohn has many properties in his portfolio, but his first venture into TIF deals was with The Brit, a $20-million-plus, 107-unit apartment building with 6,400 square feet of commercial space in New Britain.

He used a TIF option where the city issued a low-interest loan, which was then paid off with part of a state grant he won for the project. Krohn is working on another development in New Britain where TIF will provide matching funds to a state grant.

Municipalities have to be creative to support new apartment development amid the challenging economic conditions brought on by higher interest rates and supply chain issues, Krohn said.

“Today more than ever before, it’s got to be a mix of different municipal tools that have to come into play in order to make housing projects affordable,” he said

Little risk, much reward

Attorney Michael J. Andreana, of law firm Pullman & Comley, sat on the panel that created the 2015 revised TIF law and still consults on establishing TIF districts throughout Connecticut.

Image

Michael J. Andreana

He said TIF legislation prior to 2015 was underutilized and a cumbersome undertaking that many towns and developers weren’t interested in going through.

The new act allows for a faster and more custom TIF district establishment.

Andreana said there was more risk for municipalities under the previous TIF legislation, issuing bonds up front for large-scale projects that might not be repaid if the project failed or doesn’t live up to its projected economic impact.

Another argument against TIF deals is that governments shouldn’t be supporting private development projects using new tax money, “but the argument back is that these projects (and the new revenue) wouldn’t happen without these incentives,” Andreana said.

“Now that we have successful examples, towns are more interested in looking at TIFs,” Andreana said. “It’s more in the mainstream now, but it took some courage for the first few to jump into it and for people to see it being successful,” he said.