Galvin gets cagier about rehabilitation tax credits

Secretary of State William Galvin’s sphinx-like administration of a $50 million-a-year tax credit program is causing confusion among developers and anger among some lawmakers.

Galvin handed out nearly $16.4 million in historic rehabilitation tax credits in early August. The big winners were the Boston Red Sox, which received $1.5 million in tax credits for the renovation of Fenway Park and adjacent buildings, and mill projects in Chicopee and Lawrence, which each received $1 million.

What was unusual about Galvin’s “Round 13” awards was the high number of rejections. Galvin, who had previously denied only eight tax credit applications by letter since the program was approved in 2003, turned down 19 in this latest round. Most were rejected because additional information was needed, but three were turned down because Galvin said the projects were complete and no longer qualified for tax credits.

Two of the completed projects were Boott Cotton Mills and Hamilton Manufacturing Co., both in Lowell and both built by Winn Development of Boston. Winn executives have been big contributors to Galvin’s political campaign committee, and their company has been the biggest recipient of historic rehabilitation tax credits overall. The third project that Galvin rejected as being complete was Washington Mills in Lawrence, developed by the nonprofit Architectural Heritage Foundation of Boston.

“We’re puzzled by this rejection letter, as are other developers,” said Sean McDonnell, president of Architectural Heritage Foundation. He said his lawyers are reviewing the historic rehabilitation tax credit law, but he believes it is silent on the question of whether a completed project can continue to apply for and receive tax credits.

The goal of the tax credit law is to spur economic development by promoting the rehabilitation of historic mills, theaters, and other buildings. Projects that qualify can apply for tax credits of up to 20 percent of rehabilitation expenses. Since the state program is capped at $50 million, developers must compete for a limited amount of tax credits with no guarantee about how many they will receive.

The program’s structure gives Galvin tremendous political leverage. (See “Preserving Power,” CW, Summer ’08.) Many developers complain the award process is a black box, since Galvin doesn’t publicly disclose the list of tax credit recipients or reveal the basis for his awards. CommonWealth had to file a public records request to obtain Round 13 data as well as information on past rounds.

Galvin’s decision not to award tax credits to completed projects appears to be a change in policy. McDonnell, for example, said his Washington Mills project was put into service prior to Round 12, yet Galvin awarded the firm $500,000 during that round.

Several other projects appear to have received tax credits after being placed in service. The Boston Red Sox have received a total of $15.1 million in tax credits, even though Fenway Park has been continuously open for business. Developer Richard Friedman received $1 million in tax credits on October 16 last year even though his project, the Liberty Hotel in Boston, opened for business in early September.

Developers, many of whom agreed to talk only if they would not be named, say Galvin doles out the tax credits to a large number of projects in relatively small amounts, so it’s not fair for them to be penalized if their projects come on line before they hit the 20 percent threshold. Some developers say they may have to slow down or delay completion of their projects in the future to avoid losing access to the tax credits.

Galvin’s spokesman, Brian McNiff, says the policy on completed projects is not new. He said the Fenway Park and Liberty Hotel rehabilitation projects were not certified as completed when they received their awards. “These projects were not considered in service under the regulations,” he says. Asked how the Liberty Hotel could open for business in September and receive $1 million in tax credits a month later, McNiff said the hotel wasn’t issued its completion certificate until November.

Department of Revenue spokesman Robert Bliss says his agency was contacted by Brona Simon, executive director of the Massachusetts Historical Commission and a top Galvin aide, and asked whether the law requires her agency to deny historic rehab tax credits to completed projects. Bliss said the Revenue Department felt Simon’s interpretation of the law was reasonable, but stressed that any decision was made by Galvin’s office.

“We don’t write the rules for the administration of this, and we don’t tell the secretary how to administer the program or make decisions on who gets funded,” he says.

Controversy over Galvin’s handling of the tax credit program is spurring action on Beacon Hill. Some municipal economic development officials and private developers want to see the annual cap on tax credits raised from $50 million to $100 million, or eliminated entirely. Others are pushing for other modifications.

Rep. David Torrisi of North Andover, frustrated in his own efforts to gather information on Galvin’s tax credit awards, said he intends to file legislation that would move control of the program out of Galvin’s office to an economic development office overseen by the Patrick administration.

“I view the program as an economic development tool rather than a historical preservation tool,” he says.