Legal Perspective: The 411 On The State's I-Cubed Act | Program to help public infrastructure projects
Recently, the state authorized $250 million in new state infrastructure funding for job-creating private development projects as a result of recently enacted enhancements to the so-called Infrastructure Investment Incentive (I-Cubed) Act.
The I-Cubed Act has been hailed as a model of state, municipal and private cooperation in meeting the challenge of building public infrastructure dependent projects with scarce public funding. The act, once fully implemented, will join other recent state public infrastructure programs, such as District Improvement Financing being used in Worcester’s City Square Project.
The Specifics
The I-Cubed program is designed to help finance public infrastructure improvements (such as streets, sidewalks, and water and sewer service) that are necessary in the development of state revenue producing, job-creating private projects.
Once a project is built and generates new state tax revenues through new jobs and new sales, the state will pay the annual debt service costs for the public infrastructure improvements. Under the act, private developers will construct the improvements, and once complete, will generally transfer ownership of the infrastructure to the municipality. Project developers are responsible for debt service costs until their projects are occupied. In the event a project doesn’t generate enough state taxes to offset the state’s debt service payments, the host municipality of the project is responsible for the shortfall.
Under the act, the Massachusetts Development Finance Agency is authorized to issue bonds to finance infrastructure improvements for industrial, manufacturing, office, retail, research and development, residential, or other commercial facilities. Projects must first be approved by a host municipality.
Once approved, project proponents and municipalities must submit a joint proposal to MassDevelopment and to the state Executive Office for Administration & Finance for approval.
As part of the approval process, the state Department of Revenue will certify that the amount of the new state tax revenues allocable to the project will be at least equal to projected maximum annual debt service. Municipalities are required to establish a liquidity reserve for each assessment parcel within the project in an amount equal to twice the total annual debt service due on bonds allocable to the assessment parcel.
No economic development proposal which secured municipal approval prior to the September 7, 2006 is eligible. Also, no more than two economic development proposals can come from any one municipality.
Upgrade
The recently enacted changes eliminate some of the hurdles of the 2006 I-Cubed Act which helped block its full implementation and which limited its reach.
For example, the legislation eliminates a cap of five projects that could receive the new funds. Therefore, many more projects may receive support under the new Act than was initially anticipated. However, given that more projects may be eligible, there may be pressure to have smaller per-project awards.
Perhaps in anticipation of such pressure, the changes also add an additional $50 million to the $200 million originally authorized, reserving the additional money for projects in economically distressed municipalities. In another change, the new act states that the bonds will be backed by the full faith and credit of the Commonwealth in order to make the infrastructure bonds more saleable. Further, the new legislation also clarifies that the state’s procurement laws do not apply to a developer’s construction of the public infrastructure improvements.
The new changes allow certain projects to be able to take advantage of other state incentive programs, such as Tax Increment Financing Zone incentives and Public Works Economic Development grant funding.
Under the enhanced bill, developers can utilize TIF incentives for projects designated as a TIF zone by January 1, 2009. The enhanced bill also relieves restrictions against using TIF and other infrastructure programs such as Public Works Economic Development grants for “tenants of a certified economic development project which is not an affiliate of the developer.”
Before any funds are released, the Executive Office for Administration & Finance must distribute its draft regulations implementing the act. However, interested project proponents and municipalities are already making inquiries regarding this funding.
John Ziemba is of counsel at the Worcester-based law firm of Bowditch & Dewey and co-leads the government strategies practice group. He can be reached at jziemba@bowditch.com.
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