Calling for reform and progress in the Commonwealth’s Gateway Cities
Last week’s hearing on charter school legislation drew large crowds to Beacon Hill and demonstrated the energy surrounding the topic of education reform in Massachusetts. Another hearing of great importance will take place next week at the State House. On Wednesday morning the Joint Committee on Revenue assembles to review the Gateway Cities economic development bill (H. 2702). While this legislation has attracted little notice so far, the innovative ideas it advances have the potential to rebalance growth and development in the Commonwealth in ways that could benefit residents throughout the state. Anyone with an interest in Gateway Cities, particularly those who understand how anemic our current policies are with respect to these key regional economic hubs, should schedule time out next week to attend the session. If you can’t make it to the hearing, a letter to the committee in support of the bill can be equally powerful.
Arguments for this legislation are many, but they begin with three basic themes:
- Gateway Cities are assets to the Commonwealth’s long-term competitiveness. As MassINC and the Brookings Institution articulated in a 2007 report, these 11 cities have excellent location and infrastructure; their history and architecture give them a desirable quality of place; and relative to other parts of the state, they are affordable. Gateway Cities are also disproportionately home to young residents, human talent vital to the future Massachusetts workforce.
- Current policies have not provided the tools Gateway Cities need to transition from manufacturing to the Commonwealth’s 21st-century economy. This legislation better aligns housing and economic development policies to generate growth in communities that drive regional economies across the state.
- Now is the right time to do Gateway Cities legislation. Resetting housing and economic development policies so they maximize return on taxpayer investment will create jobs and help Massachusetts emerge from this deep recession stronger and more competitive. These cities are key regional business centers that provide jobs for both city residents and those living in surrounding communities. In the short term, catalyzing reinvestment in Gateways will assist construction trades just as the current pipeline is expected to slow. The long-term boost will come from stronger, more competitive, more productive job centers.
Ins & Outs of the Bill
Economic development provisions. The bill addresses two flaws in the tax advantage the state currently provides companies that locate in older urban areas (known as the Economic Opportunity Area Tax Credit (EOA)).
First, it re-establishes an incentive to companies that choose Gateway Cities. Over time, the number of communities designated as Economic Opportunity Areas has expanded dramatically, which means the designation no longer provides an advantage to companies that locate in redeveloping cities. The bill creates appropriate incentives to companies that choose Gateway City neighborhoods with higher initial costs (due to older, difficult-to-reconfigure buildings, environmental remediation, untested markets, and other factors).
Second, it makes the tool more flexible. The current EOA credit is also flawed in that it does not help cities diversify their economies. Credit is only given to companies that make capital investments (i.e., manufacturers). No incentive is available for companies seeking leased office space. The bill creates a more flexible tool by providing businesses with a credit for each new job they create in Gateway Cities.
These provisions are very much along the lines of fixes we proposed in a policy brief last year that outlined the flaws in the EOA credit and offered potential solutions. While our recommendations also included a call for much greater transparency and cost-benefit analysis, steps can be taken administratively to work toward these goals.
The bill’s economic development provisions will also improve the state’s Historic Tax Credit, a powerful tool that could provide even greater impact with some limitations removed. Efforts to restore historic buildings are currently supported by both a 20 percent federal historic rehabilitation tax credit and a 20 percent Massachusetts state historic tax credit. The additional state contribution is critical for difficult to finance projects, deals often found in redeveloping cities. By making these projects viable, state funding draws the federal investment. The problem is the Massachusetts credit is currently capped at $50 million annually. Instead of selecting fewer projects, it is doled out in installments, which creates uncertainty that makes it difficult to use for already complex Gateway City projects. The bill would uncap the state credit only in Gateway Cities. This would give developers willing to take a chance on revitalizing neighborhoods with greater certainty of the state’s support.
Housing provisions. The bill also includes very important housing provisions that will fundamentally redefine housing revitalization in Gateway Cities by giving assistance to mixed-income redevelopment projects. (Currently, the state only supports affordable housing projects, which is not generally an effective catalyst for residential reinvestment.)The bill would also add Massachusetts to a growing list of states that offer historic tax credits to homeowners. This would give families incentive to invest their time and energy restoring Gateway City homes, historic proprieties that represent a unique asset these communities cannot afford to lose.
Ben Forman is the senior research associate at MassINC.