City councilors praise Liberty Mutual expansion but tear into CEO; some residents object to tax break

Ramshackle Salvation Army building: To become sparkly new corporate headquartersRamshackle Salvation Army building: To become sparkly new corporate headquarters?

Boston city councilors today generally backed a proposed city/state deal to grant Liberty Mutual 20 years' of tax breaks to build a new headquarters in the Back Bay, but said the insurer's CEO really should take his foot out of his mouth and stop comparing Boston to Venezuela (assuming the Herald quoted him accurately, which councilors Feeney and Linehan doubted). Residents, however, objected to giving a very profitable company money for building on a "blighted" property. The company itself said it has no plans to move out of Boston no matter what happens - but might not expand without the tax break.

The insurer - the only Fortune 100 company left in Boston - last year bought two unoccupied buildings and a parking lot at Columbus Avenue and Berkeley Street, with plans to spend $300 million to build a new corporate headquarters there.

Both the mayor and the state have said they would forego $16 million in taxes apiece over 20 years to make the deal happen. Ron Rakow, assessing commissioner, said the three parcels at the location only generate $40,000 a year in property-tax revenue now, in part because the Salvation Army is tax exempt. Even with the tax break, Rakow said the project would mean $50 million in new tax revenue over 20 years. Rakow said the city would not lay out any money up front for Liberty Mutual, but would instead discount its taxes over 20 years.

Michael Ross praised the insurer as a good corporate citizen, but blasted CEO Ted Kelly for his complaints about over-paid public employees and how the company has more success working in Venezuela than in Massachusetts. Ross said the comments are untrue, ignore the quality of life in Massachusetts and our highly educated workforce and are just "damaging to our brand, to our city and our state."

He added, "When a CEO says those types of things, it takes a lot for us to recover, especially when they're not true."

Libery Mutual Vice President Paul Mattera suggested Kelly was taken out of context because he was talking about longer-term issues, such as public pension reform.

"Boston has so many wonderful qualities and this commonwealth has so many wonderful qualities, we're not interested in, nor would we consider, moving away," he said. However, without the tax breaks, the company might not expand in Boston, either, he said.

"For $16 million (in tax breaks) for a corporation in excess of $25 billion (in revenue), you're saying this is a significant dealbreaker for you?" City Councilor Charles Yancey asked.

"The way you become successful is you watch every penny," Mattera said.

"If you watch your pennies, then you don't have to worry about your dollars," Councilor Maureen Feeney, agreed.

Nearby residents, however, objected to the proposed tax break. John Keith, who lives on Tremont Street, compared Mattera's comment about not building to Filene's Hole developer Steve Roth's comments about letting a property stay blighted to squeeze more tax incentives out of New York: "And the mayor doesn't like that, but he likes this," he said, adding "There is no blight in that neighborhood."

Larry DiCara, company lawyer (and former city councilor) said the buildings now on the parcel are, in fact, blighted because they're in terrible shape after years of disuse.

Maura Burke, a member of the Neighborhood Association of the Back Bay, asked how the city could give a large company a tax break when it's threatening to shut libraries and schools.

Steve Wintermeier of the Back Bay praised the company as a good neighbor, but told the council needs to consider: "Are we encouraging a project that might possible fail, despite the current financial health of Liberty Mutual?" He said Boston already has a glut of commercial office space and is concerned that adding still more space would wind up hurting residents because of the way it would further depress commercial values and force more of the tax burden onto homeowners.

Ned Flaherty said Liberty Mutual is already taking "tens of millions of dollars" in tax breaks on other nearby properties and giving it a break is unfair to other taxpayers. "The only jobs going to be added by Liberty Mutual are the ones they are going to add automatically because they have a business need."

Meg Mainzer-Cohen of the Back Bay Association, however, compared the tax break to coupons supermarkets hand out. In the end, they win, by drumming up new business - and in this case, the city wins, by ultimately bringing in more tax revenue.

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    Comments

    Blighted?

    Filene's is blighted.
    The empty lot where the Gaiety Theatre used to be is blighted.
    The empty lot across from the Paramount is blighted.
    The Ferdinand Builidng in Dudley Square is blighted
    Columbus Center is blighted.
    Parts of Allston are blighted, where Harvard bought up or demolished property and then failed to build anything or re-rent the property.

    But Stuart and Berkeley Streets? I see no blight here. The Salvation Army building may not be the most attractive structure, but it looks solid and occupyable.

    Forget blight, just cut the commercial rate

    We have a high commercial tax rate that can only be abated by blight designations, stimulus projects etc. From this short summary, you can see the ingredients to getting one of these political favors, among them hiring one of the most "connected" lawyers in Boston.

    Here is an alternative vision: have a lower overall commercial rate, which allows growth among the small companies that will never angle for a blight designation. The companies that are going to really grow tomorrow are not visible today. Then you can stop having these fights about height restrictions.

    B-b-but then we won't have as

    By on

    B-b-but then we won't have as many opportunities for graft!

    Is everybody in Boston on the take?

    I have tried to understand it from that point of view and one explanation is that a solid majority of Boston voters live on this kind of thing -- if not as a government employee then as a worker on a government contract. I can't come up with another explanation, I believe people vote for the guy who rewards them economically.

    There is no constituency for making it on our own in Boston, there is just one form of begging or another. What kind of future is that?

    When the city is the 2nd

    By on

    When the city is the 2nd largest employer in the city of course this kind of thing is going to happen!

    Clowns

    By on

    Taken hook, line, & sinker. What a bunch of tools the City Councilors are. Meg Mainzer's deluded, too. What kind of supermarket gives a $50 million coupon to a single customer in the midst of a deep recession?
    Let the budget cuts begin. Which schools and libraries will be first on the choppping block?

    I just learned Ted Kelly

    By on

    I just learned Ted Kelly earns 27 million a year of rate holder's money - and he says public servants are getting paid too much?!

    What an ass.

    The Great American Jobs Scam

    By on

    Someone needs to buy every single city councilor a copy of The Great American Jobs Scam.

    Why the fuck are we giving an insurance company raking in money a 20 year tax break at a time when city coffers are so empty we're having to cut back public safety and education services?

    STOP GIVING CORPORATIONS TAX BREAKS. Or guess what? Your residents are going to get tired of THEIR tax bills.

    You don't get it!

    By on

    You don't get it! Today...these parcels equal NO tax revenue (salvation army is tax exempt). Liberty develops them and asks for a tax abatement = still a HUGE increase in tax intake for the city. OR we can fight them, Liberty goes somewhere else, and Boston ends up with what it has now...nothing. Oh, and those jobs all go somewhere else. Thanks neighborhood "activists".

    It's about jobs

    By on

    Nobody likes giving tax breaks to billionaires. But in this economy, gov't needs to be focused on jobs first.

    The Mayor and Gov are pretty much betting that $2 million/year in tax breaks (which, again, won't be bringing back libraries or schools) will bring in several hundred jobs, and will result in at least that much in tax revenues.

    This is not a huge gov't handout. It's a small tax break over 20 years to help keep jobs here, and it's at a site that isn't bringing in a lot of money now anyway.

    Seems pretty reasonable.

    That's the issue I'm wrestling with

    By on

    The city is not just writing a check to Liberty Mutual for $16 million - it would reduce the amount of taxes the company pays by that amount over 20 years. I get they're an uber-profitable company and this is a drop in the bucket to them, but at the same time:

    The city now makes $40,000 a year in taxes on the taxable piece of the land. With a $300 million building there, it would bring in a lot more, even with the tax reduction. Why is this a bad thing? Are we expecting somebody else to build a comparable non-abated project there?

    As I said in my testimony

    By on

    (and thanks for covering this) -

    a) we can't just give them this in the dark - part of the public process should be providing a "with" and "without" analysis and see if they truly need the discount to make this happen. Back of the envelope to be sure -but think about it. They bought the land for $30 million and it costs about $200 per sf in Boston to build a LEED certified project of this height. That means it will run them $150 million to construct this project (unless they want to gild the whole thing in gold). Even in this depressed market I am estimating a brand new class A office tower in the back bay sells for about $400 per sf which makes the whole thing worth about $240 million or maybe up to $300 million the second they cut the ribbon. Why should the city be subsidizing THAT (we essentially hand them $100 million just with the zoning variance assuming that is granted).

    b) LibMu stated that they have people in leased space all over the Back Bay - if they build and occupy this they simply move people around - they don't increase any net demand. If they give up their space they occupy around the back bay and move into their new building they just decrease the demand for that space, drive down rents, which drives down the value of their building which drives down their taxes which then have to be paid by the residents. Per my testimony - total residential taxes in 2000 were $260 million. Total residential taxes in 2010 are $555 million. Even after netting out the 1.5% increase in total number of househoulds over that time on average residential taxes have doubled.

    Can we afford to do that again over the next 10 years?

    A couple of other interesting points that came up - they have increased the number of jobs in Boston by 745 employees just in the past 5 years - promising 600 new jobs over 20 years sounds like they can do that without even breaking a sweat. And if we are talking Bostonians working there - it's about 8 jobs a year based on their stated number of 25% boston residents.

    Again - job one is to get a fully vetted Lib Mu with/without analysis on the table as part of the public record. If they want confidentiality - don't ask for public money.

    I agree with this much...

    By on

    ...there should be benchmarks associated with the tax breaks, and a clawback provision if Liberty takes the breaks and adds no workers, or the city/state sees no real benefit.

    Benchmarks, yes/clawbacks, no

    By on

    If they don't meet their goals they lose the break. Only a few problems:

    -The breaks are heavily front loaded so you don't lose much if you can meet the goals for say 5 years and then lose it.
    -The only way to lose the breaks is to go through a very time consuming and cumbersome decertification process (I don't believe this has ever happened at least in boston)
    -It's almost impossible to track. Brenda (something) from the BRA said that JP Morgan and Beal Co. that got a TIF a few years ago are ahead of their goals for their TIF in South Boston. However, I asked her afterward if that were just that location or citywide. She thought it was just that location. In the meantime JPM closed all or a large part of their offices at 1 Beacon (where my wife used to work for JPM) and moved a lot of people over to the Seaport. But based on the way they track this, it counts for new employees - it's really just a big shell game which is what we are afraid of. (LM already gets a 121A tax exemption on 75 Arlington and 6-10 St. James so theoretically they could move all their employees into these three buildings, own $1 billion in real estate and pay about $2-3 million a year to the city. Fully taxed it would be almost $15-20 million.

    Big Business loves Boston real estate

    Big Business loves this situation:
    1. High taxes on competition: newly emerging businesses could never get this kind of tax break, and would never connect with the bankers who will finance such a building.
    2. A profitable opportunity for them because they can buy politicians: the height variance, deals with the federal government, and deals with connected builders and developers. Modern patronage.
    3. No need to innovate: an insurance company for God's sake... innovation to them is getting bought by the government. These are not jobs of the future.
    4. High unemployment so less competition for employees.

    So this is bad, because it is the persistence of a Big Business culture that is shrinking, at the expense of an emerging business culture that will thrive. Look in the rear-view mirror, you will see 100 similar deals, which have brought the city to this weakened state where we can't survive a downturn.

    Today's Globe has

    By on

    a great, timely story about these types of tax incentives, most of which have proven to be a total bust. Maybe some of these gushingly supportive City Councilors will read it.

    Written in stone?

    So why are these multi-year deals written in stone? Why can't they be contingent on the other side keeping their part of the agreement?