New economic development legislation is a boon for Gateway Cities

Testimony written in Support of H. 4529

I offer this written testimony in support of An Act Enabling Partnerships for Growth (H.4529) in the hopes that I can provide information that will be of value as the committee works to position the Commonwealth for a strong recovery. As MassINC research concerns Gateway Cities, I narrow my remarks to provisions directly related to these especially vulnerable communities. However, at the outset, I think it is critical to note MassINC’s support for Housing Choice. We believe these changes are one important step Massachusetts can take to position communities to overcome the long discriminatory past of exclusionary zoning practices.

When the Baker-Polito Administration filed this economic development legislation, it could not anticipate the economic harm COVID-19 would inflict, but the stark disparities between thriving and struggling communities in Massachusetts were readily apparent. The bill prepared by Secretary Kenneally and his team included several new and improved neighborhood stabilization tools designed to counter these challenges at their roots. These provisions will help ensure that Gateway Cities and others communities of color have stable real estate markets so that families can build equity in their homes. They will also protect the local property tax base so that residents have access to essential municipal services. Lastly, these tools should increase demand for housing in our urban communities over time. This will lead to dense infill, which provides for significant expansion of the state’s housing supply, and, in turn, the economic development and revenue growth needed to bring the state budget into balance.

Below I detail the importance of three Gateway City revitalization provisions included in the legislation, offer suggestions for augmenting these provisions, and conclude with a recommendation to add funding to develop a mean-tested fare policy in this jobs package.

1. Neighborhood Stabilization (7004-0065)

The long economic downturn we face will pose a major challenge to the stability of low-income neighborhoods. Therefore, we support 7004-0065 and recommend increasing this authorization to $50 million.

A large body of research shows that neighborhood disinvestment undermines resident well-being. When the older buildings that make up the predominant fabric of our Gateway Cities do not receive the necessary upkeep, challenges arise. Mold, infestations, and lead paint lead to chronic health problems. Neglected wood-framed properties are more prone to catch fire and damage other properties clustered around them. Properties that are not maintained while they are in foreclosure or probate can quickly deteriorate to the point that they lose all economic value. At this point, they sit, dragging down the value of surrounding properties and reducing the municipal tax base.

Whether working through community development corporations or local housing agencies, Gateway Cities know how to intervene early to protect neighborhoods from vacant and blighted properties. However, these communities no longer have adequate CDBG dollars from the federal government to carry out this important work.

To fill this void, the Baker-Polito Administration proposed a $25 million program. The destabilizing effect this crisis is likely to have on vulnerable Gateway City neighborhoods creates even greater need for this new funding stream, particularly if we are to mitigate the racial and ethnic disparities the crisis will exacerbate without appropriate intervention.

Priced-out of Boston’s historic communities of color, the share of black and Hispanic buyers in Massachusetts purchasing in Gateway Cities rose to nearly 6 out of 10 in recent years. Compared to white Gateway City buyers, these families are more than twice as likely to purchase in unstable neighborhoods.

In addition to these funds, I recommend incorporating provisions from An Act Relative to Neighborhood Stabilization (S. 1627) that modernize Chapter 121A and clarify the use of eminent domain powers with regard to smaller properties versus large urban renewal districts.i Adopting these provisions will position communities to acquire properties that have been vacant for years through a more appropriate and efficient process. This will save limited public resources for use repairing homes and returning them to productive use.

2. Housing Development Incentive Program (HDIP)

Created in 2010, the Housing Development Incentive Program (HDIP) is partially working. Over the past few years, more than a dozen Gateway Cities have successfully utilized the incentive to stimulate production. The new housing units are generally located in close proximity to transit, increasing the use of existing infrastructure and reducing congestion and pollution.

MassINC’s analysis of the program shows each dollar in state HDIP funding leveraged approximately 11 additional dollars in private investment. On a per unit basis, the state provided about $20,000. If we assume that these units would not have been produced but for the tax credit, a safe assumption since in many cases these cities had gone decades without a single market-rate housing development, the program clearly provides a large return on investment given the well documented link between housing production, economic development, and state revenue growth.iiHDIP will facilitate reinvestment in Gateway Cities at a much larger scale with the changes H. 4529 makes to the program, namely raising the annual cap to $30 million and preserving unused credits for use in the future.

However, it is important to recognize that HDIP is unique in that it provides public subsidy to private development. This is entirely appropriate in the rare circumstances where market conditions resulting from decades of disinvestment call for stimulus. However, as the program increases in scale, it is vital to incorporate strong protections. The committee should add requirements that DHCD produce an annual report to the Governor, the chairs of the Joint Committee on Ways and Means, and the chairs of the Joint Committee on Housing.iii

The current fiscal challenges facing the state should not deter us from making these statutory changes to HDIP. Awards will not be claimed for several years due to the lengthy time to permit, construct, and lease-up new residential developments, and the administration can limit project approvals as necessary. Gateway Cities often miss the opportunity to draw investment in real estate cycles because markets must heat up before developers take an interest in long overlooked areas. Then projects must queue up for programs like HDIP and state historic tax credits. All too often the real estate cycle comes to an end and projects are abandoned before these resources become available. Making these changes now will put Gateway Cities in a much better position to draw investment early in the recovery.

3. Transformative Development Initiative (TDI)

The Transformative Development Initiative created by 2014 economic development legislation has become a national model for coordinating state and local efforts to stimulate revitalization in strategically targeted areas. The program was intentionally designed to provide a flexible set of resources and interventions tailored to the unique needs of each district. However, the authorizing legislation requires MassDevelopment to have a controlling interest when making equity investments in projects. This constraint has proven to be a major barrier to deploying resources most effectively. H. 4529 would address this flaw, positioning MassDevelopment’s TDI program to have even greater impact, working in tandem with HDIP and the Neighborhood Stabilization program.

4. Affordable Housing Near Transit (7004-0059) and Means-Tested Fare Policy

We strongly support the production of affordable housing near transit. However, it is critical to recognize placing income-restricted housing near transit reduces ridership and revenue for transit agencies if the occupants cannot afford to regularly make use of the service, as is currently the case. In the spirit of offering new ideas to help the committee tailor this legislation to address the COVID-19 economic downturn, we recommend incorporating means-test fare policy for commuter rail in this legislation.

MassINC research shows that there are currently more than 6,000 affordable housing units within walking distance of commuter rail stations in 12 Gateway Cities with current service or slated to receive service via the Southcoast Rail expansion. Further, MassINC surveyed the residents of a handful of these properties and found that very few ride the trains. Most identified the high cost of fares as the largest barrier.iv

Gateway City residents typically have unemployment rates double the state average. A “spatial mismatch” between where low-income residents live and where growing job centers are located helps explain this labor market problem. Recent MassINC polling shows that approximately 45 percent of Gateway City residents are presently unemployed or furloughed. This makes it more critical than ever to expand access to employment opportunities.

With far fewer more affluent residents riding commuter rail, the system has ample capacity to carry low-income riders. Last year, the FMCB asked the agency to develop a means-tested fare policy, but Secretary Pollack has repeatedly argued that such a program would require additional dedicated resources from the state.

Providing a means-tested fare to Gateway City riders would likely generate net new revenue for commuter rail operations, as these residents are not currently producing significant revenue for the system. However, the agency would likely incur some startup and administrative costs. Including funding for these expenses and directly the MBTA to provide a means-tested fare for commuter rail riders for the next 24 months would meet the goals of increasing access to employment and place the agency on a trajectory for ensuring that residents of affordable housing near transit are actually able to make use of the service long-term.

Thank you for this opportunity to submit testimony, and for all of the public service that legislators and staff are providing on behalf of our commonwealth at this especially challenging time.

Respectfully submitted,

Benjamin Forman Research Director MassINC

i. After S. 1627 was filed in January 2019, the Massachusetts Association of Community Development Corporations worked with prop-bono legal advisors and a coalition of groups to improve the language. I recommend the committee review this revised language, which has been more carefully vetted by a number of key stakeholders.

ii. See Tracy Corley and Andrés Paxton-Martin. “Combining HDIP and OZ for Transformative Transit-Oriented Development in Gateway Cities” (Boston, MA: MassINC, 2019).

iii. At a minimum, this report should detail the projects requesting and receiving credits, the value of credits received, the timing of these awards, the value of other public subsidies provided to the project, the location of the project, the total qualified expenditures, the number of units in the building (both market-rate and income- restricted) by number of bedrooms, and gross square footage of retail or commercial space in the building. In addition, the annual report should include recommended policies or actions to improve the efficiency and effectiveness of the program.

iv. See Elizabeth Haney and others. “Prioritizing Equitable Growth Through Fare Policy” (Boston, MA: MassINC, 2019); and Dan Hodge and others. “The Promise and Potential of Transformative Transit-Oriented Development in Gateway Cities” (Boston, MA: MassINC, 2018).