April 1, 2019

Prudence & accountability

Three MetroWest communities have attracted three separate biotech firms this year, thanks to tax-break deals totaling nearly $1.5 million, adding to the region's credibility as a biomanufacturing hub along with players like Boston Scientific and Sunovion Pharmaceuticals in Marlborough.

As detailed in Grant Welker's "MetroWest moves" story, Westborough, Hopkinton and Marlborough awarded tax-increment financing (TIF) deals ranging from seven to 10 years to Olympus Corp., Lykan Bioscience and Candela in order to bring in a combined 925 jobs and $37 million in real estate and facilities investments. With the necessary approval from the Massachusetts Executive Office of Housing & Economic Development, these three communities are one step closer to putting another biotech feather in their economic development caps.

Welker's story is a follow-up to WBJ's four-part series in January and February examining the effectiveness of 148 TIF deals awarded by 16 regional communities, which found such efforts are largely fruitful, with a few exceptions. Tax breaks offered with prudence and real accountability can work.

When done right, tax-increment financing deals are a win-win. When a company takes either a vacant or neglected property and invests money into it, the city or town sees an increase in its property tax revenue because the value of that particular piece of property increased. The company benefits from a TIF because it will pay less in taxes out of the gate than the full appraised value of the site otherwise calls for. These community benefits are calculated even before factoring in the added benefits of having more jobs, and therefore more workers, who will tend to buy homes and spend their money locally.

Critics will argue TIFs are not a major reason why a company chooses a certain property over another, and if communities didn't offer those tax breaks, they could eventually get businesses to invest in the property and pay the full amount of taxes. The vast majority of business expansions and relocations go ahead without any special incentives. For communities chasing larger projects, it doesn't hurt to accelerate economic growth a little – and for businesses, you can't get what you don't ask for – as long as the communities aren't promising over-the-moon incentives. New or expanded commercial use does cost municipal governments for fire and police protection, road and other infrastructure expenses, and – if new employees move into town – school expenses. These costs should be factored in when TIF amounts are negotiated so any deal doesn't cause community coffers to be overleveraged.

And companies need to be held to account for their promises. For the space Lykan is moving into in Hopkinton, the town previously gave a TIF to the pharmaceutical firm Lonza in 2007 to bring 300 jobs and $70 million in investment. That deal was decertified after six years once Lonza closed. More recently, GE's change of plans for its new Boston headquarters caused it to return this year $87 million in tax breaks. Making sure both parties fulfill their obligations on any TIF deal is key: Companies should not get the tax benefit when their expansion plans change or fall short.


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