Alabama will become the latest BRAC jurisdiction to use tax increment financing (often referred to as “TIF” for short) to support the infrastructure and commercial development related to BRAC issues. Its legislature recently approved the use of such financing to cover the cost of infrastructure improvements for a new office park outside the main gate of the Redstone Arsenal in Huntsville.
The specifics of tax increment financing often vary from jurisdiction to jurisdiction, but the basic concept is the same -- governments and developers seek to leverage the increased tax revenue generated by contemplated development to facilitate lending to build such development. Local or state governments typically issue bonds backed in some manner by the increased tax revenue, and lend the proceeds to developers to fund the improvement or reimburse the developer for expenditures already made. In some cases, these governments contract for themselves for infrastructure improvements underwritten by TIF bonds.
The Anne Arundel County (Md.) Council is in the process of approving the use of tax increment financing for an expansion of the National Business Park, a commercial office park just outside the borders of Fort Meade whose tenants are mainly government contractors and subcontractors in the defense and national security fields. And tax increment financing has underwritten revitalization efforts following the closure of military bases in Denver and in Glenview, Illinois, among others. Because credit has recently been increasingly difficult for developers to obtain, tax increment financing, developers who had not utilized TIF bonds in the past have started actively seeking such financing from local governments.
Maryland’s BRAC Revitalization and Innovation Zones (“BRAC Zones,” for short) contemplate the use of tax increment financing for improvements within such zones, intended to be in areas in which BRAC commercial and residential growth will be channeled. Counties and cities with BRAC Zones get a bonus: the State will pay over to eligible counties or cities with BRAC Zones an amount equal to the increased State property tax resulting from the new development and one-half the increased county or city property tax resulting from the new development. This money can then be used by the county or city to repay TIF Bonds or to fund additional infrastructure improvements relating to BRAC. Notably, the Westport Waterfront project in Baltimore City lies in a BRAC Zone, and its improvements are being financed with tax increment financing.
The specifics of tax increment financing often vary from jurisdiction to jurisdiction, but the basic concept is the same -- governments and developers seek to leverage the increased tax revenue generated by contemplated development to facilitate lending to build such development. Local or state governments typically issue bonds backed in some manner by the increased tax revenue, and lend the proceeds to developers to fund the improvement or reimburse the developer for expenditures already made. In some cases, these governments contract for themselves for infrastructure improvements underwritten by TIF bonds.
The Anne Arundel County (Md.) Council is in the process of approving the use of tax increment financing for an expansion of the National Business Park, a commercial office park just outside the borders of Fort Meade whose tenants are mainly government contractors and subcontractors in the defense and national security fields. And tax increment financing has underwritten revitalization efforts following the closure of military bases in Denver and in Glenview, Illinois, among others. Because credit has recently been increasingly difficult for developers to obtain, tax increment financing, developers who had not utilized TIF bonds in the past have started actively seeking such financing from local governments.
Maryland’s BRAC Revitalization and Innovation Zones (“BRAC Zones,” for short) contemplate the use of tax increment financing for improvements within such zones, intended to be in areas in which BRAC commercial and residential growth will be channeled. Counties and cities with BRAC Zones get a bonus: the State will pay over to eligible counties or cities with BRAC Zones an amount equal to the increased State property tax resulting from the new development and one-half the increased county or city property tax resulting from the new development. This money can then be used by the county or city to repay TIF Bonds or to fund additional infrastructure improvements relating to BRAC. Notably, the Westport Waterfront project in Baltimore City lies in a BRAC Zone, and its improvements are being financed with tax increment financing.
Because tax increment financing necessarily involves one or more government entities, the money may come with conditions intended to further particular socioeconomic goals of the government, or it may end up being considered a subspecies of government procurement -- even if the improvements are developed by a private developer.
To the construction contractor, the most relevant of these concerns is the potential application of prevailing wage legislation. In the District of Columbia, for example, projects funded by tax increment financing are subject to the wage standards of the Davis-Bacon Act, the federal government’s prevailing wage law. In Pennsylvania, state courts have broadly construed Pennsylvania’s prevailing wage law to include TIF projects built by private developers.
Additionally, tax increment financing projects built by private parties may be subject to subcontracting goals for minority business enterprise and/or women-owned business enterprise participation, as is the case in the District of Columbia and Kansas City, Missouri, among others.
Where the infrastructure improvements are actually being built through the public entity’s procurement regime, of course, whatever prevailing wage requirements and MBE/WBE programs that public entity has in place will govern.
-- Will Pearce, LEED AP BD+C
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