July 25, 2007

[Note: In this letter sent to legislators, a longtime community activist, Shirley Kressel, states her concerns with Chapter 40T. – Ed ]

Senator Mark Montigny
Representative Flynn
Co-Chairs, Committee on Bonding, Capital Expenditures and State Assets
Copies to Committee members, legislative leadership and my district legislators via e-mail

Re: S 146, H 159, “Special Development Districts” creating MGL Chapter 40T

Dear Senator Montigny and Representative Flynn:

The above-referenced bill, now before your committee, would allow developers to establish “Local Improvement Districts,” new private governments — “bodies politic” — within our cities and towns.

The ostensible purpose of turning private developers into public entities is to empower them to issue tax-exempt bonds for “public infrastructure” for their projects, in order to spare the bond cap, or bond rating, of the host municipality.

The bill’s proponents portray the District as a simple self-taxing development area. However, developers may draw the District boundary to include up to 20% unwilling owners whom the developers may indenture as bond-payers. Further, the bill lets the developers increase the taxes on that 20% if they themselves default. Tenants on the land would have no notice, and no voice in any decision, though their rents will certainly be raised to pay the owners’ bond obligations. Public land can be included in Districts, in this year’s version of the bill, but its owners (we citizens and our elected governments) do not count in the 80% approval threshold for establishment of the District.

The District taxation is exempted from Proposition 2 1/2 tax limits, making this bill a stealth override.

The bill is a vehicle for “taxation without representation.” Your constituents will recognize it as a property tax increase, imposed unpredictably and without limits on unwitting and unwilling home and small-business owners without a popular vote.

The bill also defines “infrastructure” very loosely, to include parking garages, shuttle bus systems, performing arts centers, sports and recreational facilities, and other not-so-public works. Large-scale developments will take advantage of 40T to build with tax-exempt bonds — and own and operate free of all taxes — many revenue-producing recreational and arts facilities, parking garages, private shuttle buses, etc., as well as common-area services and amenities and project landscaping.

The bill is carefully written to let real estate developers enjoy virtually all the powers of government — but operate exempt from many of the accountability, transparency, labor, bidding and other public protection laws that keep abuses of governmental power in check. Indeed, the law provides that the District can “acquire” infrastructure built privately, inviting a complete end-run around the public construction laws, including construction labor protections provided strategically (and successfully) to gain the support of the powerful building trades.

This year’s bill does not explicitly grant the Districts eminent domain; last year’s version did, conditioned on local municipal approval. But under Chapter 79, it appears that a District, defined by the bill as “a body politic and corporate and a political subdivision of the commonwealth,” would automatically have eminent domain power:

CHAPTER 79. EMINENT DOMAIN
Chapter 79: Section 2. Officials authorized to exercise eminent domain

Section 2. Where no other provision is made by law, a taking of land by eminent domain by or on behalf of the commonwealth shall be made by the governor and council, a taking by or on behalf of a county by the county commissioners of such county, a taking by or on behalf of a city by the aldermen, a taking by or on behalf of a town by the selectmen, a taking by or on behalf of a district by its prudential committee and a taking by or on behalf of a private corporation by its board of directors.

Districts can also receive property taken by the city by eminent domain and given to them, exempt from Chapter 30B as “intergovernmental agreements,” free from risk of lawsuit.

Letting private developers actually become indefinite governments over unlimited lands is a very extreme way to get infrastructure built. The bill grants powers far beyond those needed for the ostensible purpose, and presents some very clear (and many implied) dangers involved in giving a developer his own governmental fiefdom.

Your own experience with development issues should bring to mind some very alarming scenarios. Proponents paint neighborly scenarios of “let’s build a sewer together,” or some well-meaning developer who needs a road to build his plant, but the law is tailored to support large-tract developments, mini-cities/towns where most of the construction cost will be in common areas; everything but the actual living rooms, office cubicles, or shop floors will be bonded tax-free. As mentioned above, many of those improvements will be in privatized use and many will be profitable but, as property of the District de jure (and the developers de facto), operated tax-free.

Think about current development issues in your districts, and the potential for 40T use and abuse.

Think about all the big projects that overreach and fail. Example: For the now-collapsing NorthPoint mini-city project in Cambridge/Somerville/Boston, the Legislature had approved MassDevelopment bonds for $130 million — guaranteed by the value of the NorthPoint land. Today’s Boston Globe reports that the land is being sold, after a spate of lawsuits among the partners for non-performance. What will happen to the bonds? What will happen to the approved project plans? Chapter 40T will encourage developers to undertake much riskier projects than they would under the discipline of private lending markets. Such failures are disruptive to development markets and to community planning, and waste public and private resources, with no clear responsibility or accountability.

At the very least, 40T amounts to taxation without representation. But it is potentially much worse, a big step in compromising the integrity of the public sector in favor of privatization. I truly can’t imagine that our elected servants would enact this kind of legislation – government of, by and for developers. Yet, it nearly did, last year. And it on June 25, 2007, it was reported favorably out of the Committee on Community Development and Small Business.

It’s very hard to “tweak” this bill because it’s so fundamentally mis-structured. We need to go re-think what is the problem we are trying to solve, and to what problem this bill is really a solution.

Either the Districts should be formed as real governments with all the regulations and public protections constraining real governments. In this case, it won’t give the developers and bankers all the financial and regulatory advantages they seek, and they will resist. And would you want an unlimited number of sub-governments competing with our existing constitutionally created governments, and distorting the private development markets with unfair competition practices – just to evade municipal bonding?

Citizens and taxpayers will be bowing to two different governments over their back yards. And when they reach their tolerance point for taxation, they will demand tax relief from their municipalities and let their public services decay, resulting in a sure exodus of businesses and workers/residents.

Or more appropriately, the Districts should not be governments at all. Developers who want to self-finance bonds for truly public infrastructure improvements (i.e., public roads and utilities) on their sites should petition the State to form a betterment district under MGL Ch. 80. If the bond rating or cap is the issue, we should be searching for a way to deal with that issue alone.

• Elected, accountable public officials must remain in control of betterment assessments because THEY ARE A TAX INCREASE.
• Elected, accountable public officials must remain in control of tax-exempt funding, because IT IS A TAX INCREASE on the citizens who will have to make up for the bond-income tax loss to the government.
• Elected, accountable public officials must remain in control of bonded District facilities which can operate at a profit, exempt from income and property taxes, further INCREASING THE TAX BURDEN on existing taxpayers.
• And elected, accountable public officials must remain in control of public infrastructure, to be sure it fairly supports the greatest number of public needs and not just the profits of a particular developer, and to prevent harmful environmental impacts on the municipality and the region.

We need to hold this bill in study, pending a disinterested, independent legal and financial analysis of the implications and risks of this new world of private development governments – indeed, even the constitutionality of its basic provisions should be reviewed.

Based on my own review, I believe this bill should be abandoned altogether, and the legislature, with the Administration, should make a fresh effort to quantify and solve the narrow problem of infrastructure bonding with the least possible change to our existing laws. The principles of public-sector integrity without privatization, fair playing field for all private developers, tax protection for private property owners, and adherence to community plans and environmental protections should be part of that planning.

I look forward to your consideration of these issues in your thorough examination of the bill.

(signed)

Shirley Kressel