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Investigations: Investigative Reports

Money machine

The BRA has paved the way for the new Boston, but some say it's overstepped its bounds

BY: Bruce Mohl
Photographs By: Mark Morelli
Issue: Winter 2010

UPDATE: CommonWealth magazine and Fox 25 Undercover worked together on our special reports on the Boston Redevelopment Authority. For links to the Fox 25 broadcasts, go to Fox Undercover. The BRA also sent out a preemptive-strike press release before CommonWealth was released and Fox Undercover went on the air.

Every time one of the condominiums at Flagship Wharf in the Charlestown Navy Yard changes hands, the Boston Redevelopment Authority takes a piece of the action.

Unit 723, for example, has been sold five times since it first went on the market in 1993, including once by former Red Sox shortstop Nomar Garciaparra. The BRA collected almost 4 percent of the initial sale price and 2 percent every time thereafter, for a total of about $50,000. For all 200 luxury condominiums in the building, the BRA pocketed an estimated $4.5 million in so-called resale payments, an amount that will keep growing as long as the building remains standing and the units keep turning over. In essence, Flagship Wharf is a never-ending money machine.

The resale payments are a unique invention of the BRA, highlighting the agency’s ingenuity and its daring. The resale payments ingeniously promote development by having the BRA take less money upfront for land it sells, leases, or clears for development, which makes it easier for a project to get off the ground. The agency recoups its money over time from subsequent condo owners who not only weren’t involved in the original deal, but may not have been born yet.

The arrangement is daring because it is so similar to a real estate transfer tax, which the BRA doesn’t have authority to impose. The agency inserted language creating the resale payment into the original deed with Flagship Wharf’s developer and mandated that the same language be incorporated in the deeds of all future condo owners. Some of the owners grumble that they are being taxed unfairly, but no one has challenged the payments in court. The BRA, meanwhile, is now collecting resale payments at about 25 properties across the city. The payments rise and fall with the economy, but in good years the BRA takes in $1.3 million.

The resale payments are emblematic of an agency widely viewed as one of the most powerful of its kind in the nation. The BRA can seize property by eminent domain, decide what gets built and where, and hand out economic development grants and loans to businesses, often on extremely favorable terms. The BRA is financially independent, leveraging the projects it oversees and the nearly $1 billion worth of property it owns to fund its $50 million budget.

The quasi-public agency is also unusual in that it operates a lot like a private business. It pays its employees well by government standards, and they work with an entrepreneurial flair rarely seen in City Hall. The resale payments are a good example of that flair. The payments are a smart move for an agency trying to cover its costs and help developers get their projects built. But the fact that the payments go on in perpetuity, tapping owners not part of the original deal, strikes many as unfair, an indication the agency cares more about deals and developers than regular Boston residents.

Sherry Grancey, who has paid resale payments herself as an owner at Flagship Wharf and also listened to the complaints of others as a Charlestown real estate broker, says the fees don’t sit well in the community, in part because none of the money comes back to improve the shipyard but instead goes into the BRA’s coffers.

“At one time I suppose the fee made sense, but now it just keeps going on and on,” Grancey says. “I feel the BRA steps way beyond its bounds.”

Ed Logue’s BRA

The BRA was officially created in 1957, but it wasn’t until three years later, when Boston Mayor John F. Collins hired New Haven city planner Edward J. Logue as director, that the agency became a dominant force in Boston. Logue was fond of saying he didn’t like to generate plans that wouldn’t get built, so he demanded as a condition of his hiring that the city’s planning agency be rolled into the BRA, giving the agency the power to not only seize land by eminent domain, but also to dictate what got built on it.

Brilliant and sometimes brash, Logue came to personify the BRA. Boston in 1960 was stagnant. Logue recruited top professionals to work for him, churned out visionary plans for the city, and used his agency’s power and his own political skills to reinvent Boston. He replaced Scollay Square with Government Center and the new City Hall, redeveloped Faneuil Hall and Quincy Market, and completed the Prudential Center. In 1967, he used his BRA post as a springboard to run for mayor, but he failed to make a strong showing and left for New York

As Boston emerged from the economic doldrums and began to prosper, so did the BRA. In a city where virtually every development deal requires BRA approval, the agency became a powerbroker. In 1993, it dramatically expanded its field of operations, merging with the city’s economic development agency, the Economic Development Industrial Corp. The acquisition gave the BRA the power to hand out loans, to issue bonds, to oversee job training, and to run the city’s Marine Industrial Park.

The BRA today is in many respects the fulfillment of Logue’s vision, an agency with more control over planning and development than any other similar agency in the country. In San Francisco, by contrast, there is an independent redevelopment authority, but planning and economic development are overseen by separate city agencies. Economic development is handled by the mayor’s Office of Economic and Workforce Development, and the city’s planning department is overseen by a seven-member commission whose members are appointed by the mayor and the San Francisco Board of Supervisors.

John Rahaim, San Francisco’s planning director, said his city’s approach is full of checks and balances, but he says the decentralized approach often means his planners are not attuned to what it takes to actually get something built. “The BRA can not only do planning but buy and sell land and make things happen,” Rahaim says. “The disadvantage is the lack of checks and balances.”

The lack of checks and balances became an issue in the campaign for mayor last fall. All three of Mayor Thomas M. Menino’s challengers called for the abolishment of the BRA. They said the agency was too powerful, too focused on downtown, and plagued by conflicts of interest with city planners working alongside those in charge of promoting development.

“We’re going to have a stand-alone planning department that puts the community first when it comes to development,” said City Councilor Michael Flaherty Jr. during his first one-on-one debate with the mayor. City Councilor Sam Yoon, another of Menino’s challengers, said in an interview after the election that the BRA often seems more interested in its own bottom line than the city’s needs. “It’s like the military industrial complex,” Yoon says. “As a beast, it constantly needs to be fed.”

The BRA campaign rhetoric never caught fire with voters, but the accusations so alarmed city officials that they urged Alex Krieger to weigh in. Krieger, a respected faculty member at the Harvard Graduate School of Design and a founding principal of the planning and design firm Chan Krieger Sieniewicz, wrote an op-ed piece about the BRA for the Boston Globe but ended up never submitting it.

In the article, which Krieger shared with CommonWealth, he said the BRA is viewed as “the gold standard” among city planning agencies throughout the country and the world. He praised the BRA’s skill in mediating what he described as the often-conflicting goals of community planning and economic development, and he said the agency deserves a lot of the credit for transforming Boston from a “dispirited and emptying old industrial port to one of the most admired, livable, vibrant, and economically stable cities in America.”

Krieger chalked up many of the complaints about the BRA to those frustrated by the agency’s decisions. “We have all left BRA meetings muttering under our breath, convinced the BRA is the obstacle to progress,” Krieger wrote. “Disagreeing with an action, or inaction, by the BRA does not justify questioning its unique organizational structure or powers.”

Kairos Shen, the BRA’s director of planning, says the agency’s consolidated power is a plus, not a negative, in doing its job. “We can act with less bureaucracy,” he says. “It doesn’t mean there’s less accountability, just that there’s less red tape.”

John Palmieri, the tall, soft-spoken director of the BRA, says that when he arrived at the agency in late 2007, he knew it had a reputation “as being less than open.” He says that characterization is unfair; nevertheless, he has tried to change it, by including more financial information about the agency in its annual report, holding board meetings in the evening rather than during the day, televising the meetings on local cable, and trying to post more information about the agency’s decision-making process online.

Several developers contacted by CommonWealth didn’t question the BRA’s powers, only its willingness to use them. These developers, who asked not to be identified because they often have dealings with the agency, grumbled that current BRA management lacks the vision and the guts to push through projects in the face of opposition from city residents. “On paper, the BRA’s independent,” says one of the developers, “but in reality everything is being run out of the mayor’s office, and that slows everything down.”

Tom Keane, the former city councilor who now heads the Boston Society of Architects, says the BRA has plenty of faults, but he thinks it would be better to fix them rather than scrap the agency entirely. “You know how they say democracy is the worst form of government except for all others?” he asks. “I feel the same way about the BRA. It’s the worst form of development except for all others.”

Off budget and entrepreneurial

During one of last fall’s mayoral debates, Menino fended off the calls for elimination of the BRA by saying that it would be a waste of money to scrap the agency and replace it with a series of city departments. “The BRA is off budget. It doesn’t cost the city anything,” he said.

The BRA doesn’t have a line item in the city budget, but it occupies the ninth floor of City Hall rent free, it administers bond money raised by the city, and it pockets the occasional indirect subsidy. In 2006, for example, the BRA purchased a number of parcels of land in Roxbury from the city for $1, grouped those parcels with others it acquired on its own, and sold all of the land for $2.4 million to the Salvation Army of Massachusetts, which is building a community center. Menino initially required that any proceeds from the sale of the city parcels go to the city’s Neighborhood Housing Trust, but a year later he dropped that requirement and let the BRA keep the money.

In general, however, the BRA is economically self-sufficient. It relies in large part on income from property it leases at the Marine Industrial Park in South Boston and the Charlestown Navy Yard, parking revenues from a lot at Sargents Wharf and a garage in the Marine Industrial Park, one-time development deals, and the ongoing resale payments. It also owns nearly $1 billion of property in Boston, including City Hall Plaza and Christopher Columbus Park.

The agency’s annual report says the BRA took in $58.7 million in fiscal 2009 and spent $65 million, for a loss of about $6 million. It was the second straight year the agency incurred a $6 million loss. The BRA covered the losses by tapping reserves. The annual report said the agency had assets of $35.7 million at the start of this fiscal year.

To return the agency to profitability, Palmieri says he is paring back spending this year to $50 million and eliminating 35 staff positions, a reduction of 12 percent, bringing the total to 258. The annual report says payroll spending will drop to $24 million this year, but that still works out to an average salary per employee of $93,000.

Yoon, the former mayoral candidate, says the BRA’s financial assets make it a cookie jar for the mayor, from which he can dispense financial goodies to businesses with little oversight. “It’s the mayor’s funny money,” Yoon says.

During last year’s mayoral campaign, for example, Menino decided he wanted to give a loan to the Bay State Banner, an African-American newspaper that shut down last July after saying it could not afford to keep operating. A nonprofit affiliate of the BRA subsequently approved a $200,000, two-year, 9 percent loan for the Banner, which resumed publishing in August. The newspaper, which suggested in an editorial in April that it was time for Menino to step down, made no endorsements in the primary or general election.

Melvin B. Miller, publisher of the Banner, says the loan had nothing to do with his editorial stance. He says he never intended to endorse in the primary and decided not to endorse in the final election after Boston’s black community overwhelmingly backed Menino in the primary. “The people had rejected my thinking,” he says. “There was nothing to be gained by endorsing Flaherty.”

The Boston Local Development Corp., which issued the Banner loan, is essentially a bank staffed by BRA employees. It oversees a revolving loan fund staked originally with federal grant money. Between 1999 and 2009, it gave loans to 99 companies, everything from hair salons to laundromats to small biotech firms. Loan terms vary, with some recipients paying hefty interest rates and others paying no interest or principal at all for years. A few of the businesses that received loans have gone

belly up, including C.F. Donovans, a Savin Hill restaurant that attempted to open a second location in Hyde Park with $200,000 in loans from the Boston Local Development Corp. The BRA affiliate is now seeking to recover its losses in court.

The most generous loan of all went to the Boston Children’s Museum in 2007. The BRA gave $900,000 to the Boston Local Development Corp. and told it to loan the money to the museum, which was raising funds for a $47 million renovation. The loan carried a 50-year term at a 1 percent interest rate, with no interest or principal due until the end of the 50 years. “We had a little extra money in the cookie jar then,” says Bob Luisi, the BRA’s director of administration and finance.

The BRA has also given a total of $1 million over the last three years to Boston World Partnerships, a nonprofit corporation launched by former BRA director Mark Maloney. Maloney, who is taking no salary at the firm, is building an online networking and marketing tool for the city of Boston, leveraging the expertise of current and former Boston business people as ambassadors for the city. Menino and BRA director John Palmieri serve on the nonprofit’s star-studded board.

Palmieri says Boston World Partnerships will help promote the city and attract people and businesses willing to invest here. He says the BRA money was seed money to get the company up and running, and now it has to fend for itself.

“It’s money well spent,” he says.

Resale fees

Revenue opportunities at the BRA come in all shapes and sizes. They vary from one-time payments from developers (Equity Residential paid $2.6 million to the authority in 2006 as part of a “regulatory agreement” covering a West End project) to voluntary payments from building owners ($1 million from the owner of 1 Beacon Street in connection with the transfer of a special tax arrangement) to a 20-year, $18.5 million mortgage (paid by the owner of Rowes Wharf to the BRA in return for the ground lease under the building).

Resale payments are not as big as these revenue initiatives, but they are the most unusual. The payments were the brainchild of Paul McCann, one of the most influential BRA employees in the agency’s 53-year history. He started at the BRA in 1958, worked with Logue during his tenure there, and for much of his career was either the top aide to the director or the acting director. He retired in 2005, but didn’t actually leave until last year, after the Boston Globe reported that he was being paid $162,000 a year as a consultant to the agency — which appeared to violate a state law prohibiting public sector retirees from earning more than their salary prior to retirement.

McCann says he came up with the idea for resale payments as a way of kick-starting development projects. The long-term revenue stream, he says, was merely a way for the BRA to recoup its costs. The revenue stream tends to jump when a condo project first comes on the market; otherwise, the payments rise and fall with the economy. In recent years, resale payments dropped as low as $309,000 in 2003 and went as high as $1.36 million in 2007. They were $650,000 last year, according to BRA officials.

Surprisingly, BRA officials say they don’t keep a list of the properties that yield resale payments, but interviews with agency officials and research at the Suffolk County Registry of Deeds indicate the payments are now collected at about 25 properties across the city. Some are large condo developments like Flagship Wharf, Parris Landing, and the Basilica in the Charlestown Navy Yard; Atelier on Tremont Street; and The Metropolitan in Chinatown. Condos at some of these developments sell for more than $1 million.

Resale payments are also collected on more than a dozen smaller-scale condo developments and homes in Charlestown, the South End, and Roxbury. Some of these projects were built on land that originally belonged to the BRA, but many involved parcels that were sold by the city years ago for a pittance, with the restriction they remain open space. The BRA removed the restrictions so the land could be developed.

It’s not unusual for an agency like the BRA to charge top dollar for land it sells to a developer or for eliminating land restrictions that bar construction. After all, the agency represents the public and is selling a highly valuable commodity to a developer who is out to turn a profit. But the BRA’s resale payment changes the dynamics of the transaction to the benefit of the developer. Instead of charging only the developer for land or the right to build, resale payments shift a significant portion of the tab on to future owners.

The BRA has no handbook on resale payments. The terms, for example, are not standard from one project to the next. In most cases, the BRA collects 4 percent of the gross sale price when a developer initially sells a condo unit and 2 percent on all subsequent sales. But on some projects the BRA takes less. At Atelier, the Ronald Druker building on Tremont Street, the BRA took nothing when the developer initially sold a condo unit, collected 1 percent on the first resale, and collected 2 percent on subsequent resales. BRA officials say resale payments vary based on what the developer is putting into the deal.

“It’s basically whatever the market will bear,” says Lawrence DiCara, a real estate attorney with Nixon Peabody LLC and a former city councilor. “The city gets whatever it can whenever it can.”

Sometimes the BRA doesn’t even abide by the terms it originally negotiated. Flagship Wharf’s developer, for example, was required to pay the BRA 4 percent of the gross sales price on the initial sale of condo units. But when both the developer and the BRA encountered financial difficulties in the early 1990s, the BRA agreed to accept less than 4 percent in return for a lump-sum advance. The lump-sum agreement was not filed with the Suffolk County Registry of Deeds and BRA records are incomplete, but it appears the authority accepted somewhere between $1.3 million and $2.1 million, well below the $2.8 million the agency would have received had it waited for each unit to sell, according to an analysis of Flagship Wharf condo sales by CommonWealth.

When its finances are tight, the BRA also negotiates advances on its resale payments with developers. According to agency officials, Kensington Investments, the designated developer of a major residential project on lower Washington Street that has yet to break ground, agreed to pay the BRA a total of $350,000 last year as an advance against future resale payments. Kensington and the BRA worked closely on the Washington Street project, fending off legal challenges by opponents.

Kevin McCrea, a strong BRA critic who ran for mayor last fall, told the Boston Globe during the campaign that he bid on a BRA project in 2002 to rehab rowhouses in Roxbury. He finished the project successfully but failed to win subsequent BRA contracts. He became convinced, according to the Globe story, that development deals were “all about who you know not what you know.”

McCrea’s 2002 deal in Roxbury involved resale payments. Records indicate he paid the BRA $20,000 for two three-story brick rowhouses on Highland Street. His construction company agreed to rehab the rowhouses and turn one of them into three condos — two units to be sold at market rates and the other designated as affordable housing. As part of his agreement with the BRA, McCrea agreed to pay the agency 4 percent of the initial sale prices, while future owners of the market-rate units would pay the authority 2 percent. Registry records indicate McCrea sold the three units for a combined $674,000, of which 4 percent, or $27,000, would have gone to the BRA.

McCrea declined comment, saying he was too busy.

Developer Edward Fish was exposed to resale payments while building the Metropolitan in Chinatown. He apparently liked the approach so much that he included resale payments as a deal sweetener in the winning bid he submitted to the Massachusetts Turnpike Authority to build the Nautica condo complex near the Charlestown Navy Yard.

Fish did not return repeated phone calls, but a spokesman for the Turnpike Authority said the resale payment has worked well. “At first glance, it seems a little weird, but we found it very interesting,” the spokesman said, adding that resale payments are now being incorporated into other projects. The MBTA is also starting to push for resale payments on some of its projects.

Shirley Kressel, a Back Bay resident and one of the BRA’s harshest critics, says the resale payments are more than a little weird. She describes the BRA as a “giant tapeworm” gobbling up revenues wherever it goes and likens the resale payments to the fees Southern plantation owners would charge sharecroppers. “We’re like a big plantation for the BRA,” she says.

Barry Scheer, a Boston attorney who reviewed the legality of resale payments several years ago on behalf of several clients living at Flagship Wharf, says he believes they are an illegal tax. “It’s a tax that wasn’t properly ever put before the Legislature,” he says. “I think it could be attacked successfully.”

Scheer’s clients never followed through, so the case was dropped. McCann, the former BRA official, says he recalls talk of a lawsuit at Flagship Wharf. He says he met with the condo association to discuss resale payments, after which talk of a lawsuit subsided. Several owners at Flagship Wharf said the potential cost of a lawsuit deterred them.

Another Boston lawyer familiar with resale payments says the BRA is able to assess them only because it’s a

governmental agency. “Think about it,” says the lawyer, who asked not to be identified. “If this fee is legal, then why aren’t private developers sticking the fee in their condo deeds and setting up a revenue stream that will come in to them forever? I don’t think it passes constitutional muster.”

Kevin Morrison, the BRA’s legal counsel, says the resale payments are legal. He cites a state statute that say a redevelopment authority like the BRA can enforce restrictions and controls in a deed even if the agency no longer has any title or interest in the property.

“There are always people who say things are illegal,” Morrison says. “If there’s a challenge, we’ll deal with it.”

 


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