I-CUBED: Massachusetts Infrastructure Investment Incentive Program

Beveridge & Diamond, P.C. - Massachusetts Environmental, Land Use & Real Estate Alert, 2008

On June 12, 2008, the so-called I-Cubed legislation, amending St. 2006, c.293, §§ 5-12 (I-Cubed) was signed into law authorizing public infrastructure investment of up to $250 million for an unspecified number of certified economic development projects in Massachusetts.  See St. 2008, c. 129. Final regulations have recently been issued by the Secretary of Administration and Finance and the Commissioner of Revenue.  The purpose of the legislation is to support new job growth and economic development by providing innovative financing for new public infrastructure improvements required to support major new private development.

I-Cubed is a financing arrangement whereby the Commonwealth of Massachusetts, the municipality and the private developer share the cost and risk associated with the construction of public infrastructure needed to support a certified economic development project.  In order to be certified, the project must be approved by the municipality, the Secretary of Administration and Finance and MassDevelopment and meet the criteria set forth in the statute and regulations.  The public infrastructure improvements for a certified project will be financed by bonds issued by MassDevelopment. During the construction of the project, the debt service on the bonds will be paid by the private developer through municipal assessments that will reimburse the Commonwealth for the debt service cost.  Once the commercial component of the project is occupied and generating new state tax revenue, the debt service related to that component will be paid by the Commonwealth. If there is a shortfall in the state tax revenues generated by the project, the municipality will reimburse the Commonwealth for that amount.  The developer may agree to cover this shortfall, but is not required to do so.

In order to be eligible for financing under I-Cubed, the Secretary of Administration and Finance must find that the project would not be developed or reach the anticipated level of development but for the I-Cubed financing.  The cost of the public infrastructure improvements must be no less than $10 million and no more than $50 million.  Furthermore, the anticipated tax revenues must be at least 1.5 times more than the projected annual debt service on the bonds.  I-Cubed also limits projects to no more than two projects per municipality and restricts other public financing of the project. 

At least $50 million of the I-Cubed funding must be used for projects in economically distressed municipalities which are defined as communities with an unemployment rate at least 1.5% higher than the statewide average or a median income that is 80% or less than the state median income.  In general, I-Cubed identifies the following priorities for distribution of the funds: (i) highest priority will be given to municipalities with an unemployment rate at least 1.5% higher than the statewide average and a median income that is 80% or less than the state median income; (ii) second highest priority to municipalities that meet either the unemployment rate or median income criteria; and (iii) otherwise to projects located within growth districts or that commit to obtaining LEED Silver certification.

The intent of the I-Cubed financing program is that the new state tax revenues generated from the project cover the costs of the public infrastructure improvements needed to support the project.  To that end, only new state tax revenue or revenue that would be lost to the state if the project were not developed will be included in the evaluation.  The following tax revenue will not be included: (i) state tax revenue that replaces lost revenues from businesses that were replaced by the new economic development project; (ii) existing state tax revenues that relocate from another part of the state into the economic development district unless it can be shown that the business would have relocated out of state but for the new project; or (iii)state tax revenues from new or expanded businesses within the economic development district that replace other similar businesses within the state.

The new regulations are extensive and require a thorough examination to determine eligibility and potential benefits for specific development projects.

For more information, please contact Deborah A. Eliason at deliason@bdlaw.com.