Big Developers Scam Tax Subsidy Meant for Low-Income Housing

Many of Boston’s biggest and most profitable developments enjoy decades-long property tax exemptions under a state law, Chapter 121A, created in 1945 to subsidize affordable housing in distressed areas.  

Chapter 121A was amended in 1960 to apply also to commercial and luxury housing projects on sites the Boston Redevelopment Authority declares “blighted.”  Only about three dozen large projects have received 121A tax agreements, but they have – and will continue to - cost us hundreds of millions of dollars. 

Most of these 121A tax exemptions are fraudulent because the BRA’s blight declarations are false.  The developers’ 121A applications plead “blight,” yet boast of the favorable market and ideal location for the project.  

But they are also fraudulent because they are structured to evade the requirements of the statute, vastly increasing the tax loss to the city. 

Under Chapter 121A, projects pay, instead of normal property tax, an annual state excise tax, which goes back to the City.  (An additional payment directly to the City may also be negotiated, but it is minimal.)   The excise tax consists of 1 percent of the City-appraised fair market value (normal commercial rates are around 3 percent) and 5 percent of the project’s gross income.  But the City colludes with the developers to manipulate the information used in the formula.  Although each 121A agreement is tailored to suit the developer, the general idea is as follows:

·       The Mayor’s Assessing Chief ignores the project’s fair market value and sets a property valuation calculated to yield the developer’s desired excise tax. 

·       The BRA and Mayor allow the developer to create a multi-corporation structure to hide the income.  The 121A corporation owns the land, but leases it to an “affiliated entity” (the same people) which builds and operates the project and collects rents from the real tenants.  Only the one-hand-to-the-other land lease payments from the affiliated tenant count as the 121A’s taxable gross income, and are adjusted to yield the developer’s desired excise tax.

Further, Ch. 121As are “limited dividend corporations”; profits over 8 percent must go to the City, up to the level of normal property taxes.  The multi-corporation structure hides these profits - and if they do somehow appear on the 121A’s books, the corporation keeps them in a “reserve,” to pay back investors for years when profits fall below 8 percent; this violates the statute, which allows that excess profits pay back previous shortfalls, but does not allow retention of excess profits in anticipation of shortfalls.   The Mayor and the BRA never even ask about excess profits, and have never collected any.

One of the recent 121A projects is the Landmark Center, built in in the Fenway in 1997, which is about to be massively expanded.   Billionaire developer Jeremy Jacobs was granted a 121A tax break for building the new Boston Garden (now TD Center) 18 years ago, and another 121A was just approved for the billion-dollar three-tower project on the old Garden site in which Jacobs partners with Boston Properties.   Other 121A projects include the Prudential Center, Post Office Square garage, Christian Science Center, all three Commonwealth Flats seaport towers, Harvard’s Medical Area Total Energy Plant (MATEP), One Beacon Street, Marriott Hotel Long Wharf, Genzyme Allston Landing, New Boston Food Market, the Devonshire tower, Lafayette Place Mall in Downtown Crossing, and One Summer Street (Macy’s).

Astoundingly, the actual amount of tax revenue lost to a 121A project is never documented - not before it is approved, not while it is ongoing, and not even after expiration.  Only the developers know how much they are taking from us; the Mayor’s recent announcements of “$7.8 million” tax breaks for three new projects are deceptive.  Past audit efforts by the Boston Finance Commission were stonewalled.  The City Assessing Chief has never calculated the true fair-market value of any 121A project, and refused a direct City Council request to do so in 2003, claiming the data are not available - although 121A agreements require developers to provide access to their financial records.  

These 121A projects make a mockery of the tax system with which the rest of us must comply.  They undercut the city’s tax base and shift the burden to residents and small businesses.  Many City services - including, ironically, support for affordable housing - are starved for funds. 

All 121A applications should be put on hold and an independent audit performed on the existing and expired commercial/luxury-housing 121A projects.   The audits will confirm what preliminary investigation shows:  Affordable housing should be supported in other ways, and Chapter 121A should be eliminated.

Chapter 121A agreements require the Mayor’s signature.  Mayor Thomas Menino has happily signed away our money for 20 years.  If we want to stop this looting of our treasury, we have to say so – immediately - to our new Mayor, Martin Walsh.

An earlier version of this article ran in the Fenway News.