Himanshu Bhatnagar was looking for a place where he and his wife could move their businesses, a software company and an after-school tutoring center. A rundown building on the west end of Lowell’s Westford Street caught his eye, but its appearance turned him off.
“It appeared very ghostly, so I was not very interested,” he said.
It was 2011, and Lowell was eager to find a solution to the eyesore at 1075 Westford St., which was built only a few years earlier. Bhatnagar decided to work with the city. After six months of talks and working through financing, Bhatnagar bought the property that December.
A generous tax break helped seal the deal: Over 10 years, Bhatnagar would save an estimated nearly $90,000 on his property taxes. In return, he committed to investing about $2.6 million on the property and create about 10 jobs, plus 15 jobs that would be moved there.
Bhatnagar said he’s passed those savings onto his tenants.
“The city backed us when we were taking a risk, and we’re backing them,” he said of the tenants, “when they’re taking a risk.”
The neatly maintained property is now on its way toward reaching capacity. Tenants include Bhatnagar’s anchor business, HB Software Solutions, which has 30 employees, and his wife’s business, Kumon. There’s a hair salon, an ice cream shop, a family medical practice, an Asian restaurant and others.
“We didn’t want to view ourselves as developers,” he said. “I treat every tenant here as our own business.”
Bhatnagar dreams big. He envisions street performers in the parking lot to the side of the building, comparing it to something that might be held in Harvard Square in Cambridge.
“This whole area would become full of life,” he said. “That’s my wishful thinking.”
The tax break Bhatnagar received is one of dozens given out by Lowell area communities in the past 20 years, to smaller property owners and major corporations, such as IBM and Motorola. The results, according to a Sun review of those Tax Increment Financing, or TIF, deals, have been mixed.
Some deals work out well, such as the HB Software Solutions building or IBM’s campus in Littleton. But for each victory, several more deals don’t pan out.
A few agreements have been terminated after businesses failed to meet conditions.
Dracut signed an agreement with 2008 with Tucard LLC, in which the company was to avoid paying property taxes in the first two years, and no more than 10 percent of what it would normally pay within the first five years.
In return, Tucard said it would invest more than $3.8 million, but create only four new jobs. The tax agreement was revoked little more than a year and a half later because the company had not filed annual reporting as required.
Lowell has had five deals decertified, including Motorola, Cable Designs and Manufacturing Corp. and Jeanne D’Arc Credit Union.
Chelmsford also ended a tax deal, with Unisphere Solutions Inc., in which the town had agreed to waive 5 percent of the company’s taxes for 20 years. The company promised to invest $57 million in the property, and hire 250 new workers.
Two years into the deal, the town called it off because Unisphere had failed to meet unspecified terms and conditions of the contract.
When Motorola was looking to add offices in the area, Chelmsford and Lowell both offered tax breaks. Chelmsford offered 5 percent off the company’s property tax bill for 15 years if it moved to vacant space at 300 Apollo Drive.
Lowell was more generous.
The city offered a 20-year deal with tax breaks as high as 60 percent for each of the first three years, and at least 25 percent for the first 10 years. At the time the city offered the agreement in 2006, it estimated the company would save more than $100,000 on its property taxes over the life of the deal.
Motorola signed up, and moved to Cross Point. It promised to invest around $18 million, including renovating spaces it was to lease on six floors in all three towers, as well as creating around 120 full-time jobs.
If the deal seemed promising at the time, it also now shows the risks that communities take in offering incentives. By 2010, Lowell’s deal with Motorola was torn up after the company failed to meet requirements of the deal.
It isn’t just cities trying to reinvent themselves economically, like Lowell, or suburbs striving to attract businesses that can grow their tax bases that offer companies tax breaks.
Boston has granted 140 such agreements, according to a recent report by the Boston Globe. The city has given tax breaks to companies like Liberty Mutual, Marriott and State Street. It gave Vertex Pharmaceuticals a tax break to draw the company from Cambridge, and this summer required the company to pay $3 million back due to a shortfall in hiring.
More local cases show how risky tax breaks can be. Evergreen Solar, for instance, was given $58 million in state subsidies, only to close its Devens plant in 2011.
Gregory Sullivan, former state inspector general, has been warning against the use of tax breaks since at least 2004. That year, he told the state’s commissioner of the Department of Revenue that there was too little oversight of such agreements, that the definition of “economic opportunity areas” had been abused, and that the program needed reform.
Now the research director for the Pioneer Institute, a think tank that advocates for free-market principles, Sullivan is still cautioning against the deals.
“When used correctly, TIFs can work well to foster economic development that otherwise would not occur,” he said, repeating his call for holding companies accountable and limiting agreements to economically depressed areas.
Another opponent is Auditor Suzanne Bump, who told the Legislature in 2013 that it is “impossible” for her office to audit tax deals, which leaves them ripe for fraud and abuse.
Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, said improper breaks can hurt a community, especially those with split tax rates where commercial and industrial property owners pay a disproportionate amount of the tax base.
“The trick is to protect the interests of the city or town sufficiently that it is a good use of public dollars while at the same time making the incentive package attractive enough so that investments actually occur,” McAnneny said.
Michael Goodman, executive director of the Public Policy Center at UMass Dartmouth, said the state tax-credit program has undergone “significant reform” and is more effective than it was a decade ago.
For so-called Gateway Cities like Lowell and Lawrence, a TIF can be “a tool in the tool kit” to attract businesses, said Goodman, a member of the state’s Economic Assistance Coordinating Council, which reviews TIF proposals. He stressed that he was not speaking on behalf of the council or state.
Many other TIFs given out in the past 20 years have brought private investment and new jobs. Several companies exceeded the commitments with their host community, according to annual updates filed with the state.
In Littleton, IBM invested nearly $68 million, more than triple its original commitment. In Chelmsford, Hittite, recently taken over by Analog Devices, has grown to 355 workers, and has invested nearly $50 million, five times more than expected.
Some were more mixed.
Circle Company Associates in Chelmsford said in 2009 it would “create and maintain” 330 jobs and invest about $8.9 million. As of fiscal 2014, the company has invested $9.3 million but had 230 workers, according to their filings with the state.
In many other cases, determining whether companies fulfilled their obligations can be very difficult. Many TIFs signed by Lowell had no corresponding records at the state, including American Stonehenge Realty, Dutton Associates and Gateway Center.
In other cases, information provided by a community and from the state were inconsistent.
In one instance, Billerica said it gave Parexel a 13-year deal in which the company would retain 550 jobs. But state records showed the deal was for seven years, and that Parexel would retain 212 jobs.
Tax breaks are sometimes used to attract a company from simply a town or two away.
Earlier this year, Lowell stole Metrigraphics, a mechanical-component manufacturer, from Wilmington, where it had its headquarters. Metrigraphics said it will invest about $5.5 million to renovate the space it will occupy and about $4.7 million on machinery and equipment. It will also move 76 full-time jobs in September and create 29 new full-time jobs.
Sullivan said, the former inspector general, criticizes such deals. He said poaching a businesses may help a community, but does nothing to generate new jobs or help taxpayers statewide.
Lowell drew the company to the former Wang Laboratories and M/A-Com Inc. building on Pawtucket Boulevard by offering a $1.3 million tax break over 13 years.
Those incentives were critical. Wilmington, along with Tyngsboro, has never offered a TIF.
Wilmington has been approached by businesses seeking TIFs “but has been very reticent,” Town Manager Jeffrey Hull said.
“The combination of location, relative affordability, well maintained infrastructure and responsiveness on the part of the community development team to companies interested in locating in Wilmington has not necessitated use of TIFs,” he said.
The town is always willing to consider a TIF proposal, Hull added, but is mindful that any existing company could ask “why not us?” if a new company were to be given a tax break.
Dracut, having decertified two tax breaks, tried again. Town Meeting this year approved agreements for two unusual recipients: a 78-unit assisted-living center on Arlington Street, and a doughnut shop, Heav’nly Donuts, on Merrimack Avenue.
Lowell’s previous tax breaks before the two given this year resulted in $192 million in investment and 688 jobs, according to figures provided by the city.
The newest TIF from Lowell requires the city to potentially forego more in tax revenue than all of those other deals, but it should also result in a larger private investment than all those deals combined.
Markley Group, which plans to open a cloud-computing center this fall at the former Prince spaghetti factory, said it will hire 100 workers and spend $200 million in the next 20 years. The city will forego an estimated $77 million in tax revenue.
“It might sound like a big (tax break), but it actually increases revenue,” City Manager Kevin Murphy said, referring to an estimated $12 million extra the city will make off property taxes at the site over the term of the deal.
Markley also will help lead a transformation of the city economy, Murphy said. “We’re not a mill city anymore. We’re an innovation hub,” he said.
In the Lowell area, no deal may be more generous than what Lowell once gave Market Basket in 1995. Market Basket would pay no property taxes at all for 10 years if it invested about $2.89 million on a new grocery store at Broadway and Fletcher streets, on a site where the city had Department of Public Works operations.
Companies receiving tax breaks are typically obligated to fill a certain number of jobs. Market Basket had no such obligation.
The Cross Point towers complex has received multiple tax breaks for tenants following the 1992 bankruptcy filing of the former Wang Laboratories, which built the space.
A few years later, the city certified the property as an “economic opportunity area” and granted several TIFs, including a 10-year agreement to help progress on a renovation of the property after Wang left. Even a childcare center, the Little Sprouts Child Enrichment Center, was given a tax break.
After Wang’s demise, the city was anxious to attract new tenants. Wang’s bankruptcy itself was an example of the risk communities take with companies. The Lowell Development and Financial Corporation loaned $5 million to Wang in 1979, just after the company moved its headquarters to the city.
Wang still owed more than $3.2 million on the loan by the time it filed for bankruptcy, according to city documents.
Follow Grant Welker on Twitter and Tout @SunGrantWelker.
