Baker’s Basic Legislation on Economic Development

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

On the release of ARPA
Legislation introduced by the governor last week allocates the state’s remaining $2.3 billion to ARPA. Under the federal stimulus law, the state must commit those dollars by 2024 and spend them by 2026. Sec. Kennealy sees those dates as imminent and thinks there is little time to delay whether state agencies and city governments are going to meet the deadlines with leeway to execute well.

To speed up the process, a significant portion of the money goes directly to specific cities and projects named and affected in the bill. In ARPA’s first round, the Baker administration was criticized for its lack of specificity on its downtown revitalization proposals, and the legislature omitted these funds from the final legislation. This time, the administration pulled local projects already underway for state funding applications. Second. Kennealy pointed out that the Commonwealth received $303 million in applications to its one-stop shop 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 earmarkings as a ploy to control the distribution of funds when time is running out for administration. Knowing how red tape bogs cities down, we welcome any approach that favors opportunism, while retaining additional funds to give the state the flexibility to deal with unforeseen events. We believe the Governor’s bill strikes the right balance.

On Downtown Recovery and HDIP
Each Gateway City receives a Flexible Downtown Relaunch Grant. About a third of the total $108 million in this item goes to gateway cities. (Ideally, a formula for disbursing those dollars would emphasize commercial vacancy and other indicators of real 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.)

Funding for projects in gateway cities, many of which are located in downtown areas, receives about $259 million. Awarded through a standard competitive process, a significant increase in funding for MassWorks ($147 million more than the state has recently provided on an annual basis through the capital budget) could also strengthen efforts to spur investment in downtown Gateway City.
However, it is not ARPA funding, but rather a policy change in the bill that will have the most transformative impact on downtowns in Gateway City.

The bill increases the legal cap for the Housing Development Incentive Program (HDIP) to $30 million. Long before the pandemic changed habits, gateway cities needed to convert underutilized office space into housing to create more vibrant downtowns. HDIP provides the capital needed to make these adaptive reuse projects economically feasible.

Second. Kennealy makes a compelling case for the housing production that occurs when the state supports these projects and notes that the HDIP has demonstrated that it can cost-effectively stimulate housing production and at a scale well beyond the annual cap. paltry $10 million currently authorized. We commend the administration for including (and vigorously supporting) the much-needed increase in HDIP. According to our projections, an expanded HDIP program could help produce 1,200 homes per year and generate $3.75 billion in investment in Gateway City over 10 years.

Combining the HDIP with the immediate infusion of one-time downtown improvement funding is a solid foundation. We continue to believe that there is also an urgent need for a sustainable source of funding for organizations dedicated to managing growth in commercial districts. These neighborhood management entities can have a huge impact by marketing and programming town centers and carrying out catalytic projects. Legislation (S.270/H. 505) tabled by Senator Lesser and Representative Cabral, co-chairs of the Gateway Cities Legislative Caucus, would create more of these organizations and ensure they have adequate resources over the long term. The provisions create a matching fund for district management entities by setting aside 5% of proceeds from online sales tax collection. By weaving 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 industrial wasteland
In recent months, Gateway City executives have expressed concern that MassDevelopment’s brownfields fund has dried up. Access to these pre-development resources is critical to clearing contaminated land for residential or commercial redevelopment. The governor’s bill only includes $7 million to meet immediate needs, though Sec. Kennealy acknowledged that a major recapitalization in the range of $30 million is needed and that EOHED is working on a separate vehicle for this. In the past, recapitalization has come from additional operating funds, so Gateway Cities will need the help of the legislature to find the resources to fully fund and shore up this vital program.

On regional economic development

In February, we offered some preliminary reflection on how the state might approach the ARPA 2.0 bill. The bottom line was that the plan should emphasize strategic economic development investments rather than scattered spending. Components of the governor’s plan support this, 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, sowing growth in a region that is hungry for additional economic activity.

We remain concerned about the western part of the state. Massachusetts needs to mobilize resources for strategic investments in cutting-edge Pioneer Valley industries. The ARPA funding is a unique opportunity to do this 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 momentum is encouraging. Rail is necessary, but not sufficient. Without a serious strategy to spur growth in Pioneer Valley, the line could simply serve as a stronger siphon to suck talent and economic activity into Greater Boston.