Worcester’s Business Tax Breaks Create Jobs - and ‘Inequity’

Friday, June 08, 2012

Walter Bird Jr., GoLocalWorcester Reporter

Tax incentives in Worcester have helped attract new companies and encouraged established businesses to expand. They have created jobs, but there is concern that the new jobs are coming at the expense of existing businesses.

Existing Businesses On Their Own

“You’re not offering them to existing businesses,” said Roberta Schaefer, president and CEO of the Worcester Regional Research Bureau. “They’re paying the full freight. You’re saying all you people here, you don’t get any break. It’s business as usual for you.”

The breaks are offered in the form of tax increment financing, or TIFs, a program started under former Gov. William Weld in the 1990s. There were, as Schaefer noted, originally intended for cities just like Worcester to give them a competitive advantage in encouraging business investment.

“But now the state is allowing most communities to use TIFs,” said Schaefer, singling out the affluent town of Wellesley as an example. “Wellesley doesn’t need TIFs to attract business.”

Dual Tax Rate

Cities and towns such as Worcester that adopted a dual tax rate and created a disparity between residential and commercial-industrial property taxes saw they could benefit mightily from TIFs.

“That was the first mistake,” said Schaefer. “Instead of eliminating (the dual tax rate), they’re offering TIFs. You’re compounding the problem. It doesn’t give Worcester any leg up.”

The city is making inroads on returning to a single tax rate, having lowered the commercial-industrial tax rate in consecutive years, while simultaneously raising residential taxes.

A Positive Sign

There is evidence, however, that TIFs have had a significantly positive impact on the city. There are currently 23 active TIF agreements in Worcester, all in various stages. Some were just awarded and have not even started, such as the cancer center at City Square that will be part of Saint Vincent Hospital and Vanguard Health Systems. The TIF goes into effect in July 2013 and will run 15 years, expiring in 2028.

The existing Saint Vincent Hospital, on the other hand, is nearing the end of its TIF agreement, which runs out in June 2015. Like all other companies operating under a TIF, the hospital was required to provide a certain number of jobs. It estimated at the start of its agreement that 55 full-time and 41 part-time jobs would be created. Those estimates, according to an urban case study, were far exceeded. There have been 117 full-time and 215 part-time jobs created to date.

Hanover Theatre, on Main Street where the old Showcase Cinemas used to attract moviegoers, entered a TIF agreement in 2008, promising 10 full-time and 31 part-time employment opportunities. Like Saint Vincent, Hanover has three years remaining on its deal. According to Troy Siebels, the theatre’s executive director, its projections have already been exceeded, with 16 full-time and 22 full-time equivalent jobs provided. There are also more than 200 part-timers, he said.

TIFs Are Needed

With the theater now a well-established attraction that has been praised globally, it is hard to imagine the Main Street landscape without it, yet Siebels said without a TIF, there is little doubt as to what would have happened.

“I don’t think so, no,” Siebels said when asked whether the theatre would have opened without a tax break. “It would have been in the neighborhood of $400,000 for taxes. I don’t think it would have happened at all. It enabled us to do something we wouldn’t otherwise have done.”

Taxes Prohibitive

The same fate likely would have befallen Saint Vincent, which was relocating from its old and outdated quarters on Vernon Hill, according to Craig Blais, president and CEO of the Worcester Business Development Corporation.

“I don’t think we would have been able to get Saint Vincent’s Med City here, at least not as big, without a TIF,” Blais said. “When Med City went for-profit, the taxes would have been prohibitive.”

Blais’s perspective is a unique one, since he is the former director of economic development in Worcester and helped negotiate many of the current TIFs, including Saint Vincent’s.

“They are an effective tool,” Blais said. “In an area with a split tax rate, it levels the playing field.”

Government in the Way

Schaefer disagrees. In fact, she believes TIFs accomplish just the opposite.

“There’s always inequity in the way these things are administered. The fewer of these things, the better. We need to have a tax system that is a level playing field.”

Handing out tax credits to the film industry and green energy programs ultimately proved to be a losing proposition, according to Schaefer, who believes the government “should not be picking winners and losers. That’s the bottom line.”

Not a Waste of Money

Blais said he is not unsympathetic to businesses that derive no benefit from TIFs.

“I truly understand their pain,” he said. “And I would agree that the tax rate plays a large role and also your assessed value. But I’m more of a person who believes … you’ve got to keep expanding your base always. I think it improves the overall economy of the city. It’s not perfect, but it’s a great tool to go out and attract new business.”

Siebels has heard the critics and naysayers who believe TIFs are a waste of tax dollars.

“I don’t think the city is throwing away money,” he said. “This was a boarded up building. Now it is providing a key benefit to the city.”

Building the Base

Business owners who are stuck paying high taxes while their neighbor might be enjoying the breaks from a TIF have a valid concern, according to Dick Kennedy, president and CEO of the Worcester Regional Chamber of Commerce.

“Certainly, people who’ve been here a long time deserve to be successful,” he said. “I hope they would understand that in order to make a (business) move in this economy, there’s a need to make TIFs available. I think it’s a question of trying to build a business base.”

Single Tax Rate

Schaefer, however, sees the need to do away with TIFs and move in a different direction.

“We’re raising problems with these things,” she said. “Are they going to be eliminated? Is the Legislature going to vote them out? Probably not. There probably has to be a whole series of things that would have to occur to eliminate them. That’s why we’re arguing we have to go to a single tax rate. There has to be some way of phasing in a single tax rate.”

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