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Library branches won't hang separately: Backers form citywide group to fight for them; will oppose Liberty Mutual tax cut

Members of branch-library friends groups have started a citywide organization to push for enough funding to keep all 26 BPL branches open.

People of Boston Branches was formally organized at a meeting last night at the Connolly library in Jamaica Plain, according to Brandon Abbs, who organized a protest read-in at the Egleston branch on Saturday.

Abbs said in the short term, the group will support an effort by city councilors Chuck Turner and Felix Arroyo to use $3.6 million from a city reserve fund to make up an anticipated deficit that Mayor Tom Menino and library officials say will force the closing of up to ten branch libraries. The group will also fight for more public hearings on the issue; Abbs said group members are concerned about all the private meetings city and state officials are holding on branches without public input. He added the group will "also organize resistance to the tax breaks being offered to Liberty Mutual Group to build new headquarters in downtown Boston."

Abbs said the group will also try to get the city and state to apply for federal stimulus funds for library use. "Over the long term, the group will begin fundraising efforts to protect and enhance branch resources as well as help the Friends organize volunteer programs to assist in the work at the libraries," he said.

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next time. Off to a good start.

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If Liberty Mutual wants a discount of $50M over 10 years to build their building, then I'll do them one better.

I'll give them $53.6M over 10 years in tax relief...if they put up the $3.6M to keep the libraries around. I'll even let them put up a little placard at the entrances in honor of their generosity.

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ONCE AND FOR ALL:

THE CITY IS PROVIDING A $16M PROPERTY TAX BREAK, WHICH IS PROJECTED TO PRODUCE $50M IN INCOME AND OTHER TAXES OVER THE DURATION OF THE $16M BREAK.

I don't understand how people can be against this? If anything, we should be blaming the city government/unions who would rather preserve jobs over core services, and the use of stimulus money in the preservation of said jobs, when in reality we should have used this recession to trim government.

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Yes, because that's how tax abatements always work out...

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a) LibMu will have a profit of $100-150 million BEFORE any subsidies the minute they cut the ribbon on this building based on the cost of the land and current building costs per sf of $200 which includes LEED certified expenses.
b) There is a 15% vacancy rate in the city for commercial offices and office values have dropped like a stone - adding more supply will just hurt other property owners trying to make ends meet, especially those that have LibMu tenants they claim are in neighboring buildings.
c) If we keep building when there is no demand the aggregate value of commercial real estate will not increase and in fact will probably decrease. The result is a shift of tax burden onto the residents who have already seen their taxes double over the past 10 years - you want to make it worse so people start leaving - how many jobs will we lose on account of that.

This is a completely boneheaded idea. If LibMu wants to build - let them - but we shouldn't be subsidizing them to get a few short term jobs when the long term costs could be enormous.

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That sounds like a plan Andrew Carnegie could get behind, Kaz.

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hear that Mike Ross?

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The mayor thinks this is going to be his legacy, modernizing the library or something. The mayor is the problem, this woman was brought in to shut down the branches.

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Stevil, you have no idea what you're talking about. Buildings cost $500 - $600 per square foot to build in the city, so LM would be underwater. You should get the facts before you start spewing nonsense. I still don't understand why no one - especially not the library folks - seems to understand that this is a net gain of $50 million in real estate tax revenue for the city!!! That's a lot of libraries!!! If this group opposes LM's expansion, they should be kissing a lot more libraries goodbye because that $50 million in new tax revenue could be used to keep libraries open! It's not as if the city is writing a $16 million check to LM. Again, get the facts before you take such a strong position against a project that will put hundreds of people back to work in the next couple years alone!

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Here's an independent study that puts the cost of an 11-20 story tower IN BOSTON at $177 per sf as of 12 months ago (should be even cheaper now as people need the work, materials should be less etc). This project also should be even cheaper given that it will be over 20 stories and projects get cheaper as you go taller.

http://www.reedconstructiondata.com/news/2009/04/r...

What are your sources saying this will cost $500 per sf plus? At that rate nobody would ever build anything.

Buildings COST $500-600 in the downtown area - but that includes land, construction/improvements and a profit as long as you didn't buy into the peak.

At that kind of cost, why would you build when you can lease for about $40 per sf even in downtown? Especially if you are only going to expand at a rate of a few dozen people per year.

Bottom line - you build this thing, you add to the glut of office space already available and in the pipeline (8-10 years supply under construction/approved and another 10-12 years under review/proposed according to the BRA annual report). LM may pay $50 mm in incremental taxes, but then surrounding offices decline in value as they pull their employees from leased space, pay lower taxes and the residents end up having to make up the difference.

I repeat - only a bonehead would approve this tax break.

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I won't wade into the argument about construction cost, but this item should be addressed:

At that kind of cost, why would you build when you can lease for about $40 per sf even in downtown? Especially if you are only going to expand at a rate of a few dozen people per year.

If we use the high end construction (+ land, etc.) estimate of $600, they can get a loan that costs $40 a year. If it costs less, as you suggest, then they can pocket the difference between loan and rent. That's why they want to build, because they have long term plans to be in Boston, and long term, it is preferable to have a mortgage than a lease. Also, keep in mind, that location is probably not $40 a square foot right now, but it might be higher than that 10 to 15 years from now.

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Keep in mind if they buy they have huge operating expenses beyond just the loan cost - insurance, taxes (even with the discount still several million a year), operating, security and maintenance so their interest payment has to be a fraction of the $40 for rent.

Again (same as my answer to Thetruth and nothing but the union truth below) - I requested a side by side itemized analysis of the project at the hearing last week. Another neighbor reiterated my request. I sent a request to Mike Ross last night to provide me with a copy of that analysis. Without this the city has no possible way of properly evaluating the project and the necessity of the tax break.

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$3M is nothing, Menino could get it from anybody, including L.M.

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Stevil,

RS Means is the laughing stock of the construction industry - it tries to apply national formulas to localized markets and is totally inaccurate. In any case, those figures are just for the construction costs of a core and shell building, with no regard for exterior appearance/quality, interior buildout, soft costs, land cost, financing costs, public benefits, linkage, mitigation, or any of the other realities of building any building in Boston. If it were so cheap, everyone would be doing it, and no one is. That's why this project is so important for the city.

Your market analysis is way off base too but that's for a different day. If you're really against $50 million in new tax revenue for the city of boston, just say so and stop hiding behind bogus anti-development arguments.

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More above to Henry Alan, but - the problem is that the $50 million (actually about $2.5 million a year) will end up getting paid by the residents. We have a glut of office space (we had 3.5 mm sf of negative absorption last year with 2.2 mm sf of negative absorption forecast for 2010 - at the historic long term average of about 1 mm sf that's 5 years of supply before we get to 5% vacancy and assumes ZERO new construction for five years - talk to Mr. Rosenthal much?). Building adds no net new value and actually probably reduces teh value of surrounding buildings. Liberty testified that they have people in several nearby leased buildings. You build this, you add $2.5 million to the levy and but then you add to the glut, bring down rents which drives down the assessed value of the surrounding buildings that now sit vacant and the taxes still have to get paid. Who pays - the residents. This is a large part of why we used to pay 30.1% of the city's taxes and now pay 37.9% and climbing. If times are so tough liberty can't build this without government help - DON'T BUILD!!!

Run the numbers and show me. If you want to keep it confidential - don't ask for public assistance.

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We are way off the point of this thread, but in my opinion, that street corner is somewhat blighted. Any new construction would likely improve property values. And whether LM has people in leased offices throughout the area doesn't much matter, because they are better off with consolidation. If they can't do that in Boston, they may look to Waltham or Burlington.

But to address your zero sum argument about office space, you suggest that moving x number of people from several smaller leased office suites to a single building will result in vacancies for x number of workers in the formerly leased offices. But that is not what happens. Instead, those offices will seek to attract new tenants by lowering rent, adding amenities, renovating, etc. That will bring more companies to the area. More companies mean more jobs, more retail and restaurant demand, more taxes.

How about this, give LM the tax subsidy, and require them to put a branch library on the ground floor of the new building?

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"lowering rent, adding amenities, renovating, etc."

When you lower rent, add amenities, renovate etc. that reduces the profits of those buildings. I'm simplifying - but the assessed value is based on a multiple of the building's net profits excluding financing so if you do all of those things, the building is MUCH less profitable and therefore MUCH less valuable and therefore their assessed values go down - even with the improvements and new leases. However, the total amount of taxes collected doesn't decrease (if LM builds it actually goes up). The residents have to make up the difference. This is what happened from about 2000-2007. We got a brief reprieve in 2008 and 2009 due to the commercial bubble but that has reversed itself and we only lowered commercial values by about 6% last year when they are probably down 20-30% - meaning it could get a whole lot worse before it gets better. Adding to the glut will not help in a region that has little to no population growth (would be a different story if we had a lot of people moving here. On the contrary they aren't and we have a rapidly aging population - i.e. the population working in downtown office buildings is probably declining - but don't know where to get that stat).

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LOL -- you have to be the only person who would argue that 0.5 +1 < 1. That conforms to the logic you've presented.

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I don't see what you are referring to

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Your complaint is that the vacated offices decline in value, so using my math analogy, what was a value of 1 becomes 0.5. With me so far? Good. Now there is also, to go along with the 0.5, a brand new building, that is to say, a 1. 1 + 0.5 = 1.5. Whereas before, we had a real estate value of 1, we will now have a value of 1.5. 1.5 > 1, therefore, we have a better situation for city tax collection.

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first - for every dollar you lose in rent, the assesed value goes down by about $1.5 because if you lower the rent by x% the profit margin goes down even faster (I assume 33% in operating costs). So for example, let's say LM has 1000 employees scattered across 10 buildings in the Back Bay that they are going to consolidate in their new office. Now they pull everyone into the new building so each of the 10 buildings to attract new tenants has to lower rent by 7%. That decreases the assessed value of each building by 10.5%. So now you have a new building (say plus 100%) but you have loss of value of 105% across the Back Bay - and I'm not even accounting for the fact that ALL buildings will probably have to lower rent by a similar amount as prices are relative in a fairly commoditized market. Thus 100-105=-5. The net new taxes have to be made up by the residents - and then some. This is true because the total commercial assessed value = total rent less total operating expenses divided by the cap rate. There are only three ways to increase commercial assessed valuations - lower the cap rate which is already at relative historic lows, lower expenses which is unlikely due to inflation, fixed costs etc. or raise aggregate rents. My scenario assumes no net new tenants for two reasons a) nobody is going to ever decide to locate in Boston due to low prices of commercial office space and within reason office rental rates play an extremely minimal factor in where to locate and b) if you do attract new companies, where do these new employees live because we are not building moderately priced housing in the city or the burbs - eg - Boston has increased total housing units by only about 1% since 2000.

Bottom line - to make this work you can't just cannibalize from Boston or even the region (suburban landlords can lower rent too if Boston starts getting too attractive). You have to increase either the population or the percentage of population that works in office property in the city (or both) and LM building a new building accomplishes neither (keep in mind they are only promising to hire 40-60 new people a year with no penalty for failure - but they are relocating about 1000 to the new building when complete). If this building makes any difference whatsoever, it won't be for at least 10-15 years.

With the exception of a very brief two year bubble in FY 2007/2008, recent history has proven that this is exactly what happens in Boston without population growth.

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The problem now is that you are using invented numbers to bolster your argument. Admittedly, mine are made up, too. But the larger point remains, we are taxing more property if a new building goes up, not less.

Using your figures, what if it's 9 buildings, instead of 10? Then we'd have a 5.5% increase in receipts. Or what if an unrelated but nearby building is able to raise its rent due to the cool restaurant/bar that opens on the ground floor of the liberty mutual building? It's all speculation. My company leases in a building near this location. My sense is that more class A in the neighborhood will lead to higher rents down the line.

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Commercial office rents were stagnant for most of the decade lagging even low inflation. They crept up from '06-'08 due to what now appears to be a significant bubble. 2010 assessments are about the same as 2008 and we probably have to bring down assessments another 20% or to a point equivalent to 2006 levels (class A rents were about $43/$44 in 2006 and they are about $48/49 now forecast to go down by 10% this year i.e. - back to 2006 levels - expenses, especially fuel, have increased). We have 15% vacancy downtown (even more in the burbs) and literally tens of millions of sf of office/institutional space approved in the pipeline. Where is the demand going to come from for all this extra space...and when? And in the meantime if we get back to 2006 commercial valuations and residential remains flat it means residential property taxes go up by 31% in the next two years alone on top of already doubling in a decade as we've discussed. At some point the straw breaks the camel's back and people start heading for the hills (I personally know a few doing that now). The alternative - a further lowering of residential values to push taxes back onto the commercial sector - could be worse.

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But there are so many other factors that need to be considered. When a major company wants to build a nice office building somewhere, the impact on the neighborhood can't be measured in numbers. A nice building might bring other "nice" buildings with it (stores, resturants, retail).

I think the City should want to attract companies and should be able to negotiate tax rates with them. As long as they have economic intrests of the city in mind like you do, I don't think giving LM a tax break is as bad as your numbers make them out to be.

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That's exactly what I'm talking about. It's not trading this for that (hence my labeling Stevil's analysis as zero sum). It's additive, even if certain values are diminished. The larger picture is a bigger pie, despite some reshuffling of the slice sizes.

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What will L.M.'s commercial property rate be with the tax break? How much are they going to pay per foot?

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The city council has to vote on two points - a) is it blighted? - the neighbors themselves argue no (it's vacant and dirty because LM is letting it run down on purpose to get the blight declaration - sound familiar Filenes fans?). The BRA argues yes - but apparently they declare everything blighted if they want it to be. b) Does liberty mutual need this to make the project financially viable. The city council has no idea because LM has not provided any evidence other than Larry DiCara (their lawyer and former city councilor) says so. It takes more evidence for a senior to get a deferral of a few hundred dollars on their taxes (application, tax returns, asset statements etc. etc.) than they are requiring of LM for a break of tens of millions of dollars. And if we give it to them how long before Druker at Arlington and Boylston, Hynes/Vornado of Filenes/NY blight fame, Boston Properties for their two projects at the Pru and Rosenthal for his air rights project come running for government assistance. Oh and then Chiofaro will sue you for discrimination if he doesn't get a break because he's on the naughty list!

This is a dangerous precedent.

As for the break - they own 75 Arlington and 10 St. James tax free (they have a 121A). In addition this project gives them a gradual reduction in discount over time. I believe 50% the first few years, then 40%, then 30% etc. Heavily front loaded over the first 5-10 years.

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Well there's your problem. We have the shortfall now because they and others like them have skated out of paying taxes on past projects. By giving them a pass on this one, we're screwing the city of the future, like the people who gave them the original break screwed us.

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