Affordable Housing Institute : US

“None shall pass …”

 

In Scandinavian literature, trolls live under bridges, preying upon those who have to pass.  For this story, bridges make a good metaphor – everyone has to use the bridge to cross the river, and everyone is happier to be on the other side; meanwhile, the troll lurks below, having done nothing to build or maintain the bridge but yet extracting a price for his quiescence.   

 

When it comes to bureaucracy and administration, we smugly imagine that trolls exist only in emergent countries –

 

 

– but if this story from MassInc’s excellent monthly CommonWealth is remotely accurate, we have our very own troll in state government, and his name is William Galvin:

 

Believing in transparency in government … except when he’s the one giving out the money

 

Secretary of State William Galvin is running a $50 million-a-year state tax credit program like a personal fiefdom.  

 

I allow you to allocate this $50 million annually any way you want

 

Personal resource fiefs are so contrary to standard good-government principles that, when I started reading this article, I couldn’t believe such a state could exist here – especially as the problem can be solved administratively with procedures that are already well known, and used elsewhere in the state.

 

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.

 

“Clout is when what I say goes.”

 

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.

 

‘Startling’ isn’t exactly the right word, as author Mohl well knows; nearer the mark might be ‘hypocritical,’ ’self-aggrandizing,’ or ‘outrageous.’

 

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.

 

Unless you want state historic tax credits, that is

 

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.

 

For  historic preservation, against opacity

 

“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.

 

It’s pretty evident why: Mr. Galvin has discovered that as long as he is the troll, the world beats a path to his door, and does what he chooses.

 

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.

 

Fifty million in tax credits is worth about $45 million in cash.  Mr. Galvin appears to be sole arbiter of who gets $45 million of the Commonwealth’s money. 

 

You want the state tax credit?  Be very, very nice to me.

 

These state-level historic tax credits work just like the Federal historic tax credit, except in their amount.

 

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% of qualifying rehabilitation expenses, while the Massachusetts program merely states that a project can receive credits of up to 20% of qualifying rehabilitation expenditures.

 

Qualifying buildings get a dollar-for-dollar rebate on their state income taxes for a portion of the expenditures they incur to undertake a historic renovation.

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.)

 

Fenway Park got a large slug of this money.  So did numerous developers.

 

The Monster’s historic, the seats aren’t

In the abstract, historic tax credits make tremendous sense.  They’re a form of soft equity that offsets a portion of the increased costs of doing a historic rehab, turning struldbrug buildings into revitalized community assets.  As I wrote three years ago:

 

England abounds in a history made visible in the nation’s spectacular panoply of historic structures.  Many of these are the nation’s treasures and wonders, sites and sights that bring the past to life.  Away from the ticket kiosks, groomed lawns, and raked gravel walks up to stately homes, one also finds in England another kind of historic structure, the struldbrugs.

 

This breed of struldbrugs was peculiar to their country….  I freely own myself to have been struck with inexpressible delight, upon hearing this account.

 

Larry Niven’s Pak protector, the closest visualization I have found to a struldbrug

 

Struldbrugs are buildings that though listed, are not being saved – unimproved, they still empty, aging, decrepit, vandalized if not ringed with concertina razor wire, by their listed status protected against everything … except the struldbrug’s curse: functional senility brought about by funding drought.

 

The gentleman to whom I addressed my discourse said to me, with a sort of a smile which usually arises from pity to the ignorant….

 

In economic terms, English historic listing is no blessing but a curse that only increases costs:

 

 

Yes, my gentle reader cries, but in exchange for accepting these burdens, listed historic properties receive substantial economic benefits from government.  “What economic benefits?” the traveler asks mildly. 

 

There settles an embarrassed silence. 

 

You can’t tear it down, and you can’t afford to preserve it

 

Such reasoning led Massachusetts, five years ago, to enact a state tax credit.

 

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.

 

Through a quirk of administration (and, it must be said, absent-minded legislative drafting), this pot of money is now controlled exclusively by Mr. Galvin.

 

“Mine, mine!  All mine!”

 

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.

 

When you want to cross the bridge, you have to pay the troll.

 

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.

 

The Massachusetts Historical Commission studying the proposals

 

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

 

Secretary’s office dead ahead

 

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.”

 

The legislation’s original sponsors have become mightily disillusioned with its administration, and are proposing radical solutions:

 

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.

 

It’s pretty remarkable that a program’s chief administrator would be lobbying not to increase it.

 

“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.”

 

Having developers compete for a finite pool of resources has proven effective in numerous contexts, such as the LIHTC, provided the allocators follow a straightforward transparent process:

 

1. Publish a set of criteria that will make proposals desirable.

2. Hold an open application for proposals.

3. Score every proposal according to the criteria.

4. Pick the highest scoring proposals.

5. Publish all the scores.

 

Do those five things and you have an open, transparent, effective process.

 

And eliminate the trolls

 

Do none of them and you have a troll.

 

Secretary, and proud of it

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