The account that funds the state’s smart growth law is running out of cash, raising the prospect that the state’s first major effort at using incentives to promote housing construction could grind to a halt before it really gets rolling.
Less than $1.4 million remains in the state’s Smart Growth Housing Trust Fund, which pays municipalities bonuses for approving and building dense housing developments. Budgeted payments over the next few months will further deplete the fund, leaving just $177,000 left in the account.
“I hope the commonwealth would honor its own legislation,” says Barry Bluestone, an economist at Northeastern University’s Dukakis Center for Urban and Regional Policy. “We’re starting to get some real results. Housing is finally going up, even in this weak economy, and with a very strong market for rental housing, I’m hoping we’ll see a lot more.”
The smart growth trust fund finances Chapter 40R, the state development statute that was enacted in 2004 to promote dense, transit-oriented development. Under Chapter 40R, municipalities designate smart growth development areas, pre-zoning them for dense housing or mixed-use construction. The trust fund pays cash bonuses, based on the number of units approved in each smart growth district. Payments range from $10,000, for allowing the construction of 20 new housing units, to $600,000 for approving more than 500 units. In addition, the trust fund pays out $3,000-per-unit density bonuses when developers break ground on construction projects in 40R districts.
Chapter 40R is an incentive-based alternative to Chapter 40B, the affordable housing law that allows developers to bypass local zoning in communities with a paucity of affordable housing. Chapter 40B projects often put municipalities in a reactive stance, responding to housing projects developers put on the table. By contrast, Chapter 40R allows municipalities to proactively identify and zone growth districts.
To date, the state has approved 33 Chapter 40R districts in 31 municipalities. Those municipalities have built or begun construction on 1,270 housing units, with an additional 1,275 units expected to break ground over the next six months, and 9,000 pre-zoned units remaining in the development pipeline. The Smart Growth Housing Trust Fund has paid out $14 million connected to this development activity. Grants range from a $10,000 payment to support a project in Belmont to $1.7 million for the revitalization of Haverhill’s downtown.
The dwindling trust fund balance throws Chapter 40R’s future into doubt. There isn’t enough money in the fund to meet density bonus commitments to every municipality that has created a smart growth district, and the smart growth program becomes less attractive to municipalities without financial incentives.
“It would be incredibly challenging to pitch 40R without the incentive package,” says Jennifer Raitt, chief housing planner at the Metropolitan Area Planning Council. Raitt says Chapter 40R is attractive to cities and towns as a zoning overlay district, but one of the program’s chief selling points has been the availability of grants that help offset development impacts on local budgets.
Bluestone says the trust fund is “about more than just 40R or affordable housing.” When the Legislature was fashioning Chapter 40R, he says, municipalities were worried that the state would fail to follow through on the statute’s financial incentives. Policymakers are now considering incentive-based programs to shape a range of municipal behavior, from budget management to regionalization.
“It would be a terrible thing to now have one of the first [incentive] programs remain unfunded,” Bluestone argues. “It would be a signal to communities that if the state develops analogous programs, the state cannot be trusted.”
The trust fund has seen its balance diminish because there’s no steady revenue stream to support it. Currently, the fund is backed by surplus land sales. Rep. Kevin Honan, co-chair of the Legislature’s housing committee, has filed a bill that would replenish the trust fund by dedicating a portion of the income taxes paid by residents of Chapter 40R districts. The bill’s legislative prospects are unclear.
“At the time, taking revenue from the sale of state land struck me as a short-term solution,” says Doug Foy, the Romney administration official who spearheaded Chapter 40R’s creation. “The advantage to having communities embrace zoning reform is, it saves everyone a lot of money. You save on transportation and sewer infrastructure, kids are able to walk to school, housing is more affordable. The benefits dwarf incentive costs, so it would be a pity if they were allowed to fall apart.”