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Testimony of Eli Beckerman,
To the Joint Committee on Bonding, Capital Expenditures and State Assets:
Thank you for the opportunity to testify at the February 13th hearing on H159/S146 (Chapter 40T), and thank you for the thoughtful questions and statements made regarding this bill’s potential impact across the Commonwealth. The implications of Chapter 40T go far beyond its ostensible purpose of providing a new funding mechanism for public interest projects, and it is essential that those implications be carefully understood if the bill is ever to be considered.
Chapter 40T seriously undermines local democracy by creating government-like structures without critical public interest protections such as transparency, accountability, and public participation in decision-making. While justified by proponents as a new tool for addressing of public infrastructure needs, the more likely effect of 40T will be to shift tax and infrastructure priorities from public needs to private needs.
The bill itself is far from straightforward, but it is clear that the combination of granting governmental powers to private taxation authorities while weakening key public oversights and safeguards sets the stage for unforeseen and unpleasant consequences.
Chapter 40T allows a single vote by a municipal board to create a new “body politic” controlled by an unelected developer-selected panel whose vote is thereafter substituted for that of the voters in the district on key matters1. Nowhere else in Massachusetts law is such a fundamental and irrevocable change in governmental structure achievable by a single vote of a single board. This single vote would in effect override a whole spectrum of existing rights and statutes. The single vote would confer broad authority to tax and to exercise unprecedented exemptions from democratic, public interest, consumer, homeowner, worker and investor safeguards. Once the vote is taken, the LID is guaranteed to exist for 40 years without any provision for repeal.
The unelected panel, selected by developers and major landowners, would tend to have personal financial interests in its infrastructure projects, yet would be explicitly exempted from oversight by the Department of Revenue2, public records law3, prevailing wage standards4 for service contractors, and laws governing public construction5, civil service6, conflict of interest7 and more. This clearly sets the stage for abuse.
Many Massachusetts communities are already struggling with the impacts of overdevelopment and with high property tax burdens. Chapter 40T makes their problems worse by replacing public tax priorities with the tax priorities of a private for-profit developer that may not even reside in the community. Homeowners and tenants may find themselves forced to subsidize private, for-profit ventures they oppose, and that adversely impact their quality of life and the environment. District assessments are imposed on top of other property tax burdens, making it even more difficult for communities to ensure that townwide needs are met.
Chapter 40T also allows a developer’s risks and cash flow problems to be handed off to the unlucky homeowners in the development district, who would be required to pay spiraling assessments to pay off the bonds. We’ve seen the pain and distress that resulted from the nationwide savings and loan scandal, and the subprime lending foreclosures. Chapter 40T is forged from the same mold – a scheme to burden real estate with debt in order to generate profits for bond lawyers and developers. It’s a chance for the Massachusetts Legislature to get in on the ground floor of the next financing debacle. We should be reluctant to start down that road.
40T benefits politically influential developers because it would give them huge financial advantages in the real estate market – such as the ability to issue tax-exempt bonds to fund part of their development costs. It would also free them from many regulatory constraints and allow them to fashion bylaws and assessments to benefit their project and, in some cases, put competitors at a disadvantage. It should be noted that Chapter 40T was largely written and promoted by bond lawyers, who would stand to pocket large commissions for overseeing the bond issues under the law. Their financial success is assured when the bonds are issued. Their perception of acceptable long-term risk is not necessarily consistent with that of the community.
California has been cited here because of their experiment in using special assessment districts (called “Mello-Roos districts”) to provide a revenue stream for public infrastructure such as schools, roads, and sewer systems. But Chapter 40T is much more open-ended and ambiguous. Chapter 40T doesn’t allow construction of public schools and libraries as a purpose8. Chapter 40T is lacking many protections afforded by Mello-Roos, such as the mandatory cap on assessments, the requirement for 2/3 voter approval, the annual setting of the assessments by a municipal body, and disclosure requirements.
Lastly, 40T would open a new era of “taxation without representation” – and history shows that we in Massachusetts believe firmly in the principal of taxpayer consent. Only 80% of the landowners9 are needed to create the District — which means it’s possible for 20% of homeowners in a District to be forced into a District against their will. And tenants will have no say whatsoever, but will be saddled with higher rents to pay for infrastructure improvements such as sports stadiums or parking garages they do not use or want. Under 40T voters don’t get to approve the creation of the District, the makeup of the prudential committee, the tax increases, or the proposed development, and the limits imposed by Proposition 2 1/2 simply vanish.
While 40T is being sold on all of the opportunities it will open up, it is truly a disempowering and dangerous bill and we hope that the wisdom of your committee will see it removed from the dockets without further consideration.
1. Sec. 3d.
2. Sec. 5a: “The infrastructure assessments established by the assessing party shall not be subject to supervision or regulation by any department, division, commission, board, bureau, or agency of the commonwealth or any of its political subdivisions, including without limitation, the municipality…”
3. Sec. 9: “…the local improvement district’s receipts, expenditures, disbursements, assets and liabilities, which shall be open to inspection by any record owner of land within the development zone, or duly appointed officer or duly appointed agent of the commonwealth or the municipality.”
4. Sec. 3d(6).
5. Sec. 3d(6).
6. Sec. 3d(6).
7. Sec. 10.
8. Sec. 1.
9. Sec. 2b.