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November 12, 2012

Tax Breaks Help Fuel Rebound In Marlborough

Marlborough Mayor Arthur Vigeant: “We're very, very, very fortunate. … I don't know if we're going to be able to duplicate this.”

Things were starting to look bleak in Marlborough last year when Fidelity Investments, one of the city's largest employers, announced it would vacate its campus by the end of 2011 and take 1,100 jobs with it.

But this year, the memory of that grim news has all but evaporated in this city of 39,000, which is close to securing its second tax increment financing (TIF) deal with a major employer. The agreements with Framingham-based TJX Cos. and Quest Diagnostics of New Jersey will bring roughly 3,000 jobs to two vacant commercial properties in the next several years.

Mayor Arthur Vigeant said late last month that the back-to-back deals surprised even him.

“We're very, very, very fortunate,” Vigeant said before about 150 business executives and government officials at the city's third annual innovation summit. “We're bringing over 3,000 jobs to the city in the next 12 months. It's been an exciting time. I'm just hoping that people next year don't forget what happened this year, because I don't know if we're going to be able to duplicate this.”

Susanne Morreale-Leeber, president and CEO of the Marlborough Regional Chamber of Commerce, said the recent victories in Marlborough signal the area economy is rebounding.

The city council is weighing a TIF agreement with Quest, a major global provider of laboratory testing services with $7.5 billion in revenue. If it's approved by local and state officials, and Quest moves forward with its 200,000-square-foot lease from property owner Atlantic Management, Quest would consolidate 957 employees from other locations to the currently vacant Hewlett-Packard campus by 2014. It would also agree to create 246 new jobs at the site in the coming years and spend nearly $78 million on renovations and upgrades.

In exchange, the city would give the company a 100-percent discount on its new real and personal property taxes for the first two years, and a gradually decreasing percentage for the remainder of the 15-year deal.

While the Quest deal is in the works, the TJX agreement is complete. Over the summer, the state signed off on TJX's $11-million TIF. The parent company of store chains that include T.J. Maxx and HomeGoods purchased the Fidelity property in the spring for $62.5 million and promises to bring 1,600 jobs to the city, transferring most of them from Framingham and Westborough. The state also pledged $750,000 in tax credits.

Vigeant said he expects TJX to start moving into the building in June. It has pledged to spend roughly $55 million on renovations and furnishings and create 225 new jobs. The company will also keep its Framingham headquarters, which it purchased this summer after inking a TIF deal with Framingham.

Targeting TIFs

While Marlborough has celebrated its recent economic victories, tax incentives such as TIFs have plenty of critics. A number of economists say it's unclear what overall economic benefit the deals provide for the millions of dollars in revenue they give up.

That includes the Cambridge-based Lincoln Land Institute, which issued a critical report this summer on business tax incentives, among the doubters.

Economist Daphne Kenyon, who co-authored the report, said incentives like TIFs and state investment credits are of questionable worth because property taxes often make up a very small piece of a company's expenditures. Decisions on new locations are often decided more by the availability of labor and the cost of energy and transportation. The study also says that companies, in many cases, would probably build or inhabit new locations with or without tax breaks.

“Our general thought is that 90 percent of the time these things don't work or don't really make a difference, but 10 percent of the time, they're OK,” Kenyon said.

Additionally, as more towns use such incentives, their effectiveness wanes, Kenyon said.

“The metaphor we keep using is: If we go to a baseball game and everybody stands up, does everybody see any better? No,” she said.

But for every economist questioning the value of tax incentives, there are more local officials and businesses who praise the deals as strong economic development tools.

Morreale-Leeber, the chamber president, said she has heard both sides of the debate, but thinks TIFs are useful.

“As a realist, a building that is paying a gradual tax increase is far better than an empty building, which pays less tax,” she said. “You have to give a little to gain a lot.”

Tim Cummings, director of operations at the Marlborough Economic Development Corporation — which helped negotiate the two recent TIFs — said economists can sometimes take too high a view of the issue. Cummings said TIFs should certainly be mixed with non-tax-based incentives like training grants and infrastructure improvements, but he said tax incentives can send a message to other businesses that Marlborough is business friendly.

State Incentives Evolving

There is perhaps no single person in Massachusetts who has heard the debate over incentives more loudly than Greg Bialecki, secretary of housing and economic development.

He said economic officials have become more stringent in recent years about what sorts of companies receive valuable investment tax credits from the state. The Economic Assistance Coordinating Council, which Bialecki chairs, now regularly declines to give investment tax credits to companies that are viewed as being unable to “expand the pie,” he said.

The state aims to attract companies that would bring in new money, rather than just shuffle around existing revenue, Bialecki said. And so manufacturers and other exporters are favored over retail or commercial projects.

In the past, the state gave investment credits out automatically whenever a TIF was approved, but it has now separated the two, Bialecki said.

“It used to be a yes-or-no answer,” he said. “There are [now] some cases where a community may want to offer a [TIF] to encourage a company to locate there, but we are less interested, and frankly, it doesn't make as much sense.”

Over the past five years, the state has decertified nearly 100 tax incentive deals with companies that didn't meet their obligations. Towns also seem to be including more clawback provisions in their local agreements.

A more stringent approach by the state could be having an impact on TIF activity, which could see a decrease in 2012 from the 40 deals the state approved last year, Bialecki said.

“Administratively, we're being more forceful about it,” he said. “It turns out it's not free money ... It's an incentive that's matched with required performance and that has consequences.”

Read more

Tax Breaks On Tap In Westborough

TJX Buys Framingham Headquarters For $117M

Quest Diagnostics To Bring 1,200 Jobs To Marlborough

BSX Moving HQ To Marlborough, Acquires Calif. Firm

State Announces New Process For Business Listings

TJX Sales Rise Again In Nov.

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