Gateway City economic development leaders huddled on Zoom Wednesday for a call with Sec. Kennealy. The discussion offered valuable insight into how Gov. Baker’s $3.5 billion economic development/ARPA 2.0 bill could sow seeds for growth in these uncertain times. Here are our first impressions of the governor’s final major contribution to economic development policy:

On Getting ARPA Out the Door
The legislation filed by the governor last week allocates the state’s remaining $2.3 billion from ARPA. Under the federal recovery law, the state must commit these dollars by 2024 and expend them by 2026. Sec. Kennealy sees these dates as looming and believes there is little time for delay if state agencies and municipal governments are going to make the deadlines with breathing room to execute well.

To expedite the process, a significant portion of the money goes directly to cities and specific projects named and earmarked in the bill. During the first ARPA go-round, the Baker Administration was criticized for its lack of specificity about its downtown revitalization proposals and the Legislature omitted those funds from the final legislation. This time, the Administration pulled out local projects that are already in pipeline for state funding requests. Sec. Kennealy pointed out that the Commonwealth received $303 million in applications to its One-Stop last year of which EOHED could only fund $89 million. The governor’s bill contains specific projects focused on downtown revitalization that EOHED considers a high priority.

Some may skeptically view these earmarks as a ploy to control the distribution of funds with the clock running out on the administration. Knowing how red tape bogs cities downs, we are sympathetic to any approach that embraces expediency, while also retaining additional pots of money to give the state flexibility to manage unforeseen events. We think the governor’s bill strikes the right balance.

On Downtown Recovery and HDIP
Each Gateway City receives a flexible downtown recovery grant. About one-third of the $108 million total in this line item goes to Gateway Cities. (Ideally, a formula for disbursing these dollars would emphasize commercial vacancy and other indicators of actual need. This would likely lead to a larger share for Gateway Cities. But building such a formula is admittedly very difficult with current data limitations.)

Earmarks for projects in Gateway Cities, including many located in downtowns, receive approximately $259 million. Awarded through the standard competitive process, a significant increase in MassWorks funding ($147 million above what the state has provided recently on an annual basis through the capital budget) could also bolster efforts to stimulate investments in Gateway City downtowns.
However, it is not the ARPA funding, but rather a policy change in the bill that will have the most transformative impact on Gateway City downtowns.

The bill lifts the statutory cap on the Housing Development Incentive Program (HDIP) to $30 million. Long before the pandemic changed routines, Gateway Cities needed to convert underutilized office space to housing to create more vibrant downtowns. HDIP provides the capital to make these adaptive reuse projects economically feasible.

Sec. Kennealy makes a compelling case for the housing production that occurs when the state supports these projects and notes that HDIP has demonstrated that it can cost-effectively stimulate housing production and at a far greater scale than the paltry $10 million annual cap currently allows. We applaud the administration for including (and vigorously supporting) the much-needed HDIP increase. By our projections, an expanded HDIP program could help produce 1,200 housing units annually and drive $3.75 billion in Gateway City investment over 10 years.

Coupling HDIP with the immediate infusion of one-time funding for downtown improvement is a strong foundation. We continue to believe that there is also an urgent need for a sustainable funding source for organizations devoted to stewarding growth in commercial districts. These district management entities can have a huge impact by marketing and programming downtowns and spearheading catalytic projects. Legislation (S. 270/H. 505) filed by Sen. Lesser and Rep. Cabral, co-chairs of the Gateway Cities Legislative Caucus, would create more of these organizations and ensure that they are adequately resourced for the long term. The provisions create a matching fund for district management entities by setting aside 5 percent of the proceeds from online sales tax collections. By integrating this language into the package, the legislature can help ensure that the economic development bill fully supports the recovery and reinvention of downtowns across the state.

On Brownfields
In recent months, Gateway City leaders have expressed concern that the brownfields fund at MassDevelopment has run dry. Access to these predevelopment resources is critical to clean contaminated parcels for housing or commercial redevelopment. The governor’s bill includes only $7 million to meet immediate needs, although Sec. Kennealy acknowledged that a major recapitalization along the lines of $30 million is needed and that EOHED is working on a separate vehicle for that. In the past, recapitalization has come from supplemental operating funds, so Gateway Cities will need the legislature’s help to find the resources necessary to fully fund and shore up this vital program.

On Regional Economic Development
Back in February, we offered some preliminary thinking on how the state could approach the ARPA 2.0 bill. The gist of it was the plan should privilege strategic economic development investments over scattershot spending. Components of the governor’s plan lean in this direction, including $750 million for clean energy investments, $87 million for advanced manufacturing, and $50 million for technology parks. These resources will undoubtedly strengthen the South Coast’s position in the offshore wind cluster, seeding growth in a region that hungers for additional economic activity.

We remain concerned about the western part of the state. Massachusetts must marshal resources for strategic investments in advanced industries in the Pioneer Valley. ARPA funding is a one-time opportunity to do so in a way that makes a bold statement about our collective commitment to the economic future of western Massachusetts. News this week that the East-West rail project is gaining traction is encouraging. Rail is necessary, but not sufficient. Without a serious strategy to stimulate growth in the Pioneer Valley, the line could simply serve as a stronger siphon sucking talent and economic activity into Greater Boston.