Government offers bank $4m tax break to relocate

From downtown, a move to waterfront

Email|Print|Single Page| Text size + By Ross Kerber and Thomas C. Palmer Jr.
Globe Staff / April 30, 2008

Boston officials yesterday proposed giving $4 million of tax breaks to JPMorgan Chase & Co. to persuade the banking giant to relocate from downtown to the fast-growing South Boston waterfront, relying in part on subsidies intended to rehabilitate blighted areas.

The tax breaks come as the city is struggling to fund its school system and Mayor Thomas M. Menino has proposed increasing parking fines to raise money.

The incentives include a city-funded program that would give the investment bank a roughly 50 percent break on some of its property taxes, or about $2 million over the life of the arrangement. JPMorgan could also receive reductions in state taxes - worth about $2 million - for investing in an area the city and state have designated as in need of economic help.

Boston officials said they proffered the breaks after hearing that JPMorgan was considering leaving the city when its lease at one downtown location, 73 Tremont St., expires next year. The city has targeted a half-vacant building at 451 D St., owned by The Beal Cos. and near the Bos ton Convention and Exhibition Center, as JPMorgan's potential new location.

"That's pretty valuable property," Stephen J. Murphy, chairman of the Boston City Council's Ways and Means Committee, said of the D Street location. With the tax breaks requiring council approval, Murphy said he hopes to question the Menino administration and JPMorgan officials about the breaks at a time of tough budget pressures.

"I'm going to ask JPMorgan to come in and ask the people who negotiated it to justify it, given that we are dipping into our city reserves $10 million to fund the School Department," he said. "I'm certain JPMorgan has more assets than we do."

City officials conceded the deal is an unusual use of the tax breaks for a company that earned $2.4 billion in the first three months of the year. But they defended it as the best way both to keep JPMorgan in Boston and to bring a financial services company to the South Boston waterfront.

"We don't do these deals very often," said Boston city Assessor Ron Rakow. But, he said, the risk of losing JPMorgan, which is scouting outside Boston for new offices, as well as the need to add jobs to the South Boston district, justified using the incentives. "I don't think there's going to be any issue at all," he said.

Dan Kramer, JPMorgan's managing director for fund services operations, said the firm is still in negotiations over the South Boston site and with several property owners in Boston suburbs. He declined to identify where.

Boston's incentives would be "a key determinant in our decision as we negotiate the terms of the lease," Kramer said. The firm looked at moving to other states but ultimately decided to stay in Massachusetts largely for the quality of the workforce, executives said.

JPMorgan currently has 725 people in the city, mostly providing services to the mutual fund industry, and expects to add up to 400 jobs to this area in coming years.

Menino yesterday said the tax incentives showed the city's dedication to attracting and retaining companies, especially financial firms.

"These workers will bring new vitality to the South Boston waterfront, especially during these uncertain economic times," Menino said. "There's a lot of competition and many incentives to get them to go somewhere else."

Developer Robert Beal declined to comment.

Though underutilized for decades, the larger South Boston Seaport District is now seeing billions of dollars worth of new condominiums, top-rated hotels, and office towers for white-collar industries under construction or in development.

Despite the buzz of activity there, the building targeted for JPMorgan is located in a so-called economic opportunity area, a beaten-down zone designated by the state as needing economic aid. In a Boston Redevelopment Authority memo on the JPMorgan deal, the city said the basis for designation "is that the proposed area or site be either a blighted open area, a decadent area or a substandard area."

If it signs a lease at D Street, JPMorgan would occupy 128,000 square feet and spend about $40 million to upgrade the nine-floor facility once known as the Fargo Building, built in 1909. Specifically, Boston's proposal would use a "tax increment financing" arrangement that exempts from city property taxes half of the additional value being generated by upgrades to the building, saving JPMorgan about $2 million through 2022.

The second $2 million stems from a state tax credit JPMorgan would receive for building in the economic opportunity area.

A spokesman for the Massachusetts Executive Office of Housing and Economic Development, Darrell LeMar, said only a handful of similar incentives have been awarded to businesses within the city of Boston. LeMar said the state and the city have previously approved property tax reductions for Manulife Financial, the Jurys Boston Hotel, and the Columbus Center project.

The JPMorgan incentives would require approval from a state economic development council.

Samuel R. Tyler, president of the Boston Municipal Research Bureau, a nonprofit organization that reviews city operations, said the property tax break was justified in this case because of the troubles Beal has had filling the building. "This is a unique situation in some ways, and therefore makes it more acceptable," he said. "It brings a major financial institution to the waterfront, which for some would be the beginning of what should be a growth of that industry down there."

But while other cities like Chicago and Los Angeles heavily rely on these tax incentives to attract development, Tyler said Boston doesn't have enough other revenue sources to cut property taxes frequently.

"The city has to be very sensitive about this," he said.

Globe staff member Todd Wallack contributed to this report.

Ross Kerber can be reached at, and Thomas C. Palmer Jr. at .

Clarification: A headline about the city's proposal to give tax breaks to JPMorgan Chase & Co. to relocate to the South Boston Waterfront stated that the city was offering a $4 million tax break. Of that total, about $2 million would come from a city-funded program and about $2 million would be a reduction in state taxes.

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