Preserving power

Secretary of State William Galvin is running a $50 million-a-year state tax credit program like a personal fiefdom. He decides which developers receive historic rehabilitation tax credits from the state and how much they get, using a selection process that creates uncertainty for developers and maximizes his political clout.

What’s most startling is that Galvin, whose office oversees the state public records law and is supposed to promote transparency in government, has resisted attempts by lawmakers and developers to find out who is getting the tax credits. In other states with similar programs, the information is readily available. But here in Massachusetts, Galvin acts as if millions of dollars in state tax credits are no one’s business but his own.

James Igoe, president of Preservation Massachusetts, a nonprofit Boston organization that spearheaded legislative approval of the historic tax credit program in 2003, says information on who was receiving the tax credits dried up after the first round of awards. Frustrated, Igoe two years ago sent Galvin a letter asking for a breakdown of the awards, saying the information was needed for his organization to effectively lobby on behalf of the program.

“Is there a specific issue surrounding these allocations that does not make them public record?” Igoe asked.

Galvin never responded, but Igoe subsequently bumped into one of the secretary’s top lieutenants and was told the information would not be forthcoming. “There was no explanation why,” Igoe says.

CommonWealth encountered the same resistance from Galvin’s office. In April, Galvin indicated he would quickly provide data on the tax credit program and have Brona Simon, executive director of the Massachusetts Historical Commission, sit down for an interview. But weeks later Galvin’s spokesman was still having difficulty coming up with a full accounting of the tax credit awards and said Simon does not do interviews.

It took nearly two months to obtain a complete list of the tax credit awards, and then only after filing a public records request for the information. Although Galvin’s office urges government officials to waive any fees associated with providing access to public records, Galvin’s staff charged CommonWealth close to $300 just to look at four tax credit applications.

Rep. David Torrisi of North Andover, a big supporter of historic tax credits, says it shouldn’t take a public records request to obtain the information from Galvin. “He has a reputation as being a controlling individual, but this is all public information,” Torrisi says. “Myself and many of my colleagues are getting frustrated with the program and the way it’s being administered.”

The program is structured in a way that gives Galvin tremendous political leverage. He controls $50 million a year in tax credits that can mean the difference between a development deal working or not. It’s the type of power that gives him a high profile at ribbon cuttings across the state and explains why his $2 million campaign account is sprinkled with contributions from developers and construction officials.

The records obtained by CommonWealth indicate Galvin has steered $13.6 million in tax credits, or nearly 8 percent of the $178 million awarded through March, to the Boston Red Sox for renovation work at Fenway Park and adjacent buildings owned by the club. The Red Sox, who sell out Fenway every night, plan to seek $26 million more in tax credits.

The second-biggest recipient of the historic rehabilitation tax credits is the Liberty Hotel, a luxury inn fashioned out of the abandoned Charles Street Jail in Boston. Developer Richard Friedman, a big donor to Galvin’s campaign committee, received $9.1 million in tax credits.

Perhaps the biggest winner under the state tax credit program is Winn Companies of Boston, which has received tax credits worth more than $28 million for eight different projects in Boston, Lowell, Lawrence, and Springfield, including the Baker Chocolate Factory in Dorchester and Malden Mills in Lawrence. Arthur Winn, the head of the company, is a big donor to Galvin, as are several members of his family and many of his employees.

Overall, Galvin has awarded tax credits to just under 100 projects. A third of the money has gone to Boston projects, and another third has been split among projects in Lowell, Lawrence, Haverhill, and New Bedford. The average total award per project is $1.8 million, but many receive far less. The Red Lion Inn in Stockbridge received $500,000, a restaurant in Montague received $49,000, and one New Bedford project received $4,600.

As CommonWealth went to press, Galvin was approximately two weeks overdue in releasing his most recent round of tax credit awards, identified as “Round 13.” Several developers, nervous about the financial viability of their projects, said they were hearing rumors that Galvin was simply not going to issue the awards. Galvin’s spokesman, Brian McNiff, told CommonWealth that he does not comment on rumors. Asked directly if Round 13 was going to be issued, McNiff cryptically responded: “What comes after 12?” McNiff declined to provide additional information.

A black box process

Massachusetts lawmakers approved historic rehabilitation tax credits as part of a general economic stimulus bill in 2003. Patterned after similar programs in states like Rhode Island, North Carolina, and Maryland, the goal was to spur economic development by promoting the rehabilitation of historic mills, theaters, and other buildings.

Lawmakers initially capped the amount of tax credits that could be handed out in a year at $10 million, but after rave reports from mayors began pouring in, the cap was raised to $15 million in 2004 and bumped up to $50 million in 2006. Former Gov. Mitt Romney vetoed the increase to $50 million, calling it “pork,” but the Legislature overrode his veto with only one dissenting vote.

Business tax incentives are on the rise in Massachusetts. According to the liberal-leaning Massachusetts Budget and Policy Center, the total cost of the state’s economic development tax expenditures — the revenue either paid out or foregone by offering tax breaks to companies — is expected to hit $1.5 billion this year, an all-time high.

Tax credits are the most lucrative type of incentive. They can be used to reduce dollar for dollar the amount of state tax owed. But some credits, including the historic rehabilitation tax credit, the film tax credit, and new credits just approved for life science companies, have an added advantage: They can be sold to other taxpayers to generate cash. (See “Subsidizing the Stars,” CW, Spring ’08.)

Tax credits have the same fiscal effect as an appropriation, but they don’t show up in the state budget and as a result get surprisingly little scrutiny on Beacon Hill. Galvin has never attempted a financial analysis of the historic tax credits, or provided tax credit information to someone else so they could do one.

The Massachusetts program piggybacks on and works in tandem with federal tax incentives administered by the National Park Service. The two programs use similar criteria to determine if a project qualifies. According to a Galvin handout, eligible projects must produce income, must be owned at least partly by a for-profit entity subject to Massachusetts taxation, and must be listed in or eligible for listing in the National Register of Historic Places, the nation’s official list of cultural resources worthy of preservation.

The state and federal programs differ in two key respects. The total amount of credits available in any one year under the Massachusetts program is $50 million, while there is no cap on the amount of credits available under the federal program. The federal program also guarantees a credit equal to 20 percent of qualifying rehabilitation expenses, while the Massachusetts program merely states that a project can receive credits of up to 20 percent of qualifying rehabilitation expenditures.

The structure of the Massachusetts program means developers have to compete for a limited amount of tax credits with no guarantee about what they will receive. The uncertainty is the No. 1 complaint of developers participating in the program.

“The federal credit is automatic; the state credit is not automatic,” says David Levey, executive vice president of Forest City Residential of Cleveland, which is rehabbing the Hamel Leather Co. building in Haverhill. “There’s a different level of risk with the state because you don’t really know if you’re going to get it.”

The legislation creating the historic tax credit program gave responsibility for awarding the credits to the 15-member Massachusetts Historical Commission. But Galvin, the chairman of the commission, makes the awards personally. Several members of the commission say they play no role in the award process, and a public records request for commission deliberations on tax credit awards turned up nothing.

What’s puzzling to many developers is how Galvin decides which projects receive tax credits and how much. State regulations set out nine criteria for awarding the tax credits — including geographic diversity, economic impact, financial need, the potential for loss of the building, and whether the project creates affordable housing. But just as Galvin doesn’t announce his selections, he also doesn’t explain how he makes them.

“It’s a black box process,” says one developer who asked not to be identified because he was concerned Galvin might retaliate against him. “No one knows what Galvin is looking for. A bit of transparency would help.”

Another developer who has gone through the tax credit application process says no one should be surprised at the way Galvin hands out the tax credits. “He administers the program like a politician,” the developer says. “Nobody can really begrudge him that. He is a politician.”

Playing Santa Claus

The historic rehabilitation tax credit program literally fell into Galvin’s lap. Aides to then-Senate President Robert Travaglini inserted the program into a 2003 bill and located the program at the Massachusetts Historical Commission, which was already working with the National Park Service in administering the federal tax incentives. The fact that the historical commission was overseen by Galvin, a Democrat, was seen as a plus, since lawmakers didn’t want to give control of it to Romney, a Republican.

Developers say Galvin did not appear overly enthusiastic about the tax credit program initially, but that changed once he began to see its political potential. The program lets him play the role of Santa Claus, delivering tax credits for projects around the state. He was front and center at the opening of the Liberty Hotel and has also appeared at ribbon cuttings in Fitchburg and New Bedford.

The competition for a limited supply of tax credits means local politicians and developers are constantly trying to curry favor with Galvin, boosting his political power and his campaign war chest. Galvin has magnified that power by handing out the tax credits in relatively small increments, an approach that spreads the aid around and keeps the developers constantly reapplying for more.

“This has been a bonanza both financially and politically for the secretary’s office,” says one Beacon Hill political operative familiar with the program.

Winn Companies, which has received the most tax credits overall from Galvin, is a big political supporter of the secretary. Arthur Winn, his son Gilbert, his two daughters, and one of his sons-in-law have given a total of $9,000 to Galvin’s campaign committee. The donations have been well coordinated, with checks coming in each year on the same day. Galvin has received $16,300 from other officials at the Winn Companies and employees at architectural and construction firms working on Winn projects.

Friedman, the well-connected developer of the Liberty Hotel, has donated the maximum $500 to Galvin every year since 2004, when the hotel received its first award of $3.6 million in tax credits. Other employees at Friedman’s firm, Carpenter & Co. of Cambridge, have donated a total of $8,000 since 2004, and another $4,500 has come in from employees of other firms working on the project, including the architect and the construction company.

When the Liberty encountered cost overruns last year and Friedman asked for more tax credits, Galvin responded with an extra $1 million, bringing the hotel’s total to $9.1 million. In a letter to the Massachusetts Historical Commission, Friedman predicted that the state would be amply compensated. He said the hotel, where rooms start at $550 a night, would generate $39 million in state income, sales, and hotel taxes during its first 12 years of operation.

Galvin also benefited politically when he awarded $5.1 million in tax credits to the developers of the Poli Palace in Worcester, which has been renamed the Hanover Theatre for the Performing Arts. The theater sold its tax credits to utility giant National Grid, netting the theatre roughly $4.5 million in cash that could be plowed back into the project.

Troy Siebels, executive director of the Hanover Theatre, says he was frustrated with the uncertainty of not knowing whether the project would receive the tax credits it needed. But he says the tax credits were a great economic development tool. “We have brought 50,000 people through the doors in a downtown that hasn’t seen that kind of traffic in 30 years,” Siebels says. The renovated theatre has also spurred development of restaurants and shops in nearby buildings, he says.

Siebels says Galvin didn’t come to the opening of the theater in March, but he says many people in Worcester went to see the secretary when Galvin held fund-raisers in town. “We actively called all the members of our board to support him,” Siebels says. At one event on Oct. 27, 2005, Galvin received $7,200 from Worcester residents and people with direct ties to the theater.

Saving Fenway

Fenway Park was at a crossroads when an ownership group led by John Henry and Tom Werner bought the Red Sox in 2002. The previous owners had decided the park was so small and rundown that it needed to be replaced. Henry and Werner weren’t convinced. They commissioned a study of Fenway that found the ballpark was structurally sound but in need of significant repairs. Bathrooms were antiquated. The park was not up to modern safety codes and didn’t comply with the Americans with Disabilities Act. Water had penetrated many areas of Fenway, and the steel supports for the exterior wall of the left field Green Monster were “substantially deteriorated due to standing water at the column bases,” according to the Red Sox application for tax credits.

Henry and Werner ultimately decided to save Fenway and expand it. They set in motion a multiyear, $267 million renovation of the ballpark and two attached buildings the club owns. The club said the only outside funding for the project would come from federal and state tax credits. Janet Marie Smith, senior vice president for planning and development for the Red Sox, said the state tax credits came along at a convenient time. “It was very fortuitous for us,” she says.

The team applied to the National Park Service in 2005 to have Fenway and the two adjacent buildings placed on the National Register of Historic Places. Preliminary approval came in early 2006. Fenway, completed in 1912, is the oldest of all current Major League Baseball stadiums, followed by the Chicago Cubs’ Wrigley Field, which opened two years later.

Dan Wilson, a founding member of the group Save Fenway Park!, says Fenway and Wrigley are the last of a dying breed. “They don’t build ballparks anything like this anymore,” he says. “They build stadiums today, not ballparks.”

The Red Sox application for state tax credits includes many glowing testimonials, including one from Sen. Edward Kennedy in which he notes his grandfather, then-Boston mayor John Fitzgerald, threw out the first pitch on April 20, 1912, the park’s first opening day.

“He often regaled us about the occasion,” Kennedy wrote. “Millions of fans throughout Red Sox Nation have similar feelings and memories about Fenway Park — its importance in the history of baseball, and its cultural, social, and architectural significance for the city of Boston and our Commonwealth.”

What qualifies as historic rehabilitation at Fenway Park can be complicated. Smith says putting seats atop the Green Monster did not qualify because the seats weren’t part of the original park design. But work to shore up the 1934 left field wall so that seats could be added did qualify, she said. Of the $6.8 million cost of the Green Monster renovation, $1 million qualified as historic rehabilitation for tax credit purposes, Smith says.

Of the $267 million total renovation cost, Red Sox documents indicate roughly $200 million will qualify as historic rehabilitation once work is completed over the next few years. That means the club will qualify for roughly $40 million in federal tax credits and be eligible for up to $40 million in state tax credits. Galvin has awarded the club half of the tax credits for which it is currently eligible.

In a brief interview before he stopped talking to CommonWealth, Galvin indicated that the Red Sox had not received all the funding they were seeking. “As a commercial enterprise, they’re pretty flush,” he said.

Red Sox officials, who have not donated any money to Galvin’s political committee, say they will continue to file applications for state tax credits. Smith is not troubled by the image of wealthy team owners applying for the credits. “It would be foolhardy not to use the incentives they give us,” she says.

Wilson of Save Fenway Park! says the tax credits are a great deal for the state. He says state and local officials were considering investing hundreds of millions of taxpayer dollars in a new ballpark, but Henry and Werner are fixing up Fenway at significantly less public cost.

The problem, says Wilson, is that the existing tax credit program forces the Red Sox and developers of other historic sites to compete against each other for a limited number of tax credits, a process that yields winners and losers. He says if the tax credit cap were raised or eliminated, the competition would subside.

Rep. Robert Koczera of New Bedford, who filed an unsuccessful amendment during the recent budget debate to increase the tax credit cap to $100 million, says the historic rehabilitation tax credits should be used primarily for economic development in mill cities like his. Told that the Red Sox and the Liberty Hotel have received the most tax credits so far, Koczera said he didn’t think shoring up the Green Monster was the best use of state tax credits.

“The salaries they pay players at Fenway Park and the success of the team is great, but I think historic tax credits should be focused on greater benefits to the public good,” he says. “The tax credits should be used in areas that are blighted.”

Mayor Scott Lang of New Bedford says Galvin has been good to his city, but Lang says there are four mills that could be redeveloped if the $50 million cap on the historic rehabilitation tax credit program were eliminated or significantly raised. “The ceiling is working against us,” he says. “There’s only so much money so everyone only gets a tiny piece.”

Roughly half of all states offer historic tax credits. Like Massachusetts, many states cap the amount of credits that can be issued each year. Others, including Connecticut, Maryland, and Maine, cap how much each project can receive. There are also many states like Missouri, North Carolina, Virginia, and, until recently, Rhode Island, that place no cap on the amount of credits that can be issued.

Edward Sanderson, executive director of the Rhode Island Historical Preservation and Heritage Commission, says he issued $4 million worth of historic tax credits in 2002, a number that rose to $66 million last year. He estimates the total cost of the program will rise to $468 million by 2012, leveraging $2 billion in private investment.

“The problem is that it is too successful,” says Sanderson. “The whole program got bigger than anyone anticipated.”

Grappling with a budget deficit, Rhode Island officials put their historic tax credit program on hold in April, agreeing to fund projects already in the pipeline but refusing to accept new ones. Sanderson says research indicates a fifth of the cost of the credits is recouped during the construction phase in the form of new payroll and other taxes. The remainder of the cost is recovered over time, often in the form of local property taxes, as buildings are returned to productive use. Overall, new tax revenues equal 110 percent to 120 percent of the cost of the tax credits, but the payoff comes over a 20-year period, he says.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Torrisi, the state representative from North Andover, filed an amendment during the recent budget debate to eliminate the cap on the historic tax credit program. The amendment was defeated, and Torrisi says he learned that Galvin was working behind the scenes to oppose the measure. Torrisi said he thinks Galvin’s opposition was driven by self-interest, since a program with no cap would reduce his influence.

“He’s in a position of power where he gets to distribute the funds,” Torrisi says. “When there’s a smaller pool of funds out there, it makes him more powerful.”