After Fidelity and Evergreen Solar cut jobs despite huge state job creation subsides and and the City of Boston got slammed in its loan to the soon-to-be bankrupt W Hotel, you would think that corporations sniffing at the public trough would be sent packing. But no, it’s business as usual - and worse!
The latest boondoggle involves Big Pharma, a big developer, and a new kind of subsidy that plays games with taxpayer money Fidelity and Evergreen Solar didn't dream of.
Vertex Pharmaceuticals, with facilities scattered around Cambridge, just got a new drug approved and decided to consolidate and expand their buildings. The Boston Waterfront offers the most suitable location for its needs, so Vertex decided to move its entire operation, with its current workforce of 1,240 employees, into two Fan Pier buildings. The buildings will be constructed by Joe Fallon, mega-developer friend of Mayor Thomas Menino.
Fallon’s waterfront developments have all been subsidized with huge tax breaks, and he hit an even bigger jackpot here.
Governor Deval Patrick, lesson apparently not learned from past experience with Mass Life Sciences Center’s the poor job-creation record, forked over a $10 million Life Sciences tax credit.
Based on the Boston Redevelopment Authority’s declaration that the project area, which the Globe calls a "luxurious new neighborhood," is officially "blighted," Menino granted the project a $12 million property tax waiver. As revealed at the project’s City Council hearing on May 20, Vertex didn’t want to pay rent on both Cambridge and Boston leases while it was moving over -- so this tax break is being given to cover Fallon’s transition-period rent.
Most important, Patrick and Menino teamed up to offer Fallon $50 million dollars via an as-yet-untested and little-understood type of subsidy: the state Infrastructure Investment Incentive (or I-Cubed) program. I-Cubed was Menino’s 2006 legislative initiative that allowed the city to shift more of the costs of development subsidies to the state.
Under I-Cubed, the state issues bonds that pay for project infrastructure. To pay off that loan, the state uses future income tax revenues from new project employees; the state also uses project-related state sales taxes. So instead of those taxes going to the general fund for schools, roads, libraries, etc., they go to paying off a developer’s loan. However, if a project fails to generate enough state tax revenues to pay back the loan, I-Cubed then requires the city to provide the money. The city can demand that the developer keep a two-year reserve fund, and after that an assessment can be placed on the property for reimbursement
But if the project fails, the developer is unlikely to pony up the money, and a lien is not a timely or dependable recovery mechanism.
In the end, the state can hold the city responsible by withholding local aid to cover the debt. In this first I-Cubed project to be implemented with Vertex, though, Menino and Patrick have colluded to shift the funding risk from the taxpayers of Boston to the taxpayers of Massachusetts.
Here's how and why:
Vertex officials testified that they plan to hire only 200 workers when they move to Boston; they said they anticipate 300 more hires over the following several years. The City expressed confidence that these new workers’ income taxes and project-related state sales taxes will amply cover the debt, at about $3.3 million a year, totaling $99 million over the 30-year loan period. But obviously, officials see a substantial risk that this revenue won’t be enough, because the plan is to also tap into state income taxes generated by Vertex’s existing 1,240 employees.
This is a problem; I-Cubed cannot legally be applied to existing jobs.
The point of I-Cubed is to create jobs that produce new, not existing, income tax revenues to pay off the bonds. That is, unless there is "compelling evidence" that a company like Vertex would leave the state without the subsidy. Then, and only then, can the City and state consider existing jobs as "retained" jobs, whose taxes may be used for bond service.
Sure enough, at the City Council hearing, a representative from the Municipal Research Bureau briefly mentioned Rhode Island had courted Vertex.
However, Vertex executives, at the same hearing, testified that the Boston Waterfront site is uniquely ideal, with ample space for an expansion campus near workforce sources, synergistic life-science clusters, excellent transportation options, and life-style amenities for employees--culture, restaurants, and retail. Fallon testified similarly, pointing out the public investments, like the Big Dig, that made this site so desirable for Vertex. City Councilor Mike Ross said, "Where else can you get over a million square feet in an urban setting? That’s what’s attractive."
Think about it: would high-tech Vertex leave the brain bank of the world to go to Rhode Island? Of course not, just as JPMorgan Chase, which got a $4 million subsidy, wouldn’t really have moved to Braintree as threatened, and Liberty Mutual, which got a $46.5 million subsidy, wouldn’t really have moved to some hamlet in New Hampshire as threatened.
A quick Google search (here, here and here) would have informed our officials - if they really wanted to know -- that Rhode Island’s biotech labor force, the top criterion, is woefully deficient for Vertex’s needs.
Nonetheless, we can be sure that our officials will find "compelling evidence" that Vertex would have moved to Rhode Island if they did not get this I-Cubed assistance from taxpayers. It won’t be the first time the Governor has cooked the books to boost a corporate subsidy.
Patrick, Menino and City Council are subverting the law to give these corporations over $120 million for no reason -- other than to claim false credit for job creation. Slashing services for both state and city taxpayers is apparently their idea of shared sacrifice.