Last year Realen Properties and HRI Properties, which specializes in the renovation of historic properties, announced it would be converting the historic Liberty Title and Trust building into a 179-room Starwood Aloft brand hotel. After more than a decade of vacancy, the building is currently being renovated and will soon be humming with new life.
But not everyone is happy with how the project turned out. Last week activists, organized under the banner of Center City Organized for Responsible Development (CCORD), claimed that the developers won substantial public subsidy without providing enough to the public in return.
“This should truly be community economic development, not just gain for one segment of our city,” said Robin Hynicka, senior pastor at the Arch Street United Methodist Church.
The project is receiving expensive taxpayer assistance in the form of $2 million from the state’s Redevelopment Assistance Capital Program (RACP), $10 million in historic tax credits, and $15 million in the form of two different New Market Tax Credit deals (one for $5 million and one for $10 million). Because the program is receiving so much public assistance through programs meant to encourage development in struggling areas, CCORD argues that the public should have more to show for it.
At the presentation, researcher Brittany Alston of CCORD gave a presentation that demonstrated the fruits of three months of research into the project. She found that the developer guaranteed the creation of 170 full-time jobs in 2013 when it applied for a $2 million grant from Pennsylvania’s RACP. Of those jobs, 115 were to come from the creation of a “destination restaurant,” which has since been cancelled.
The New Market Tax Credit program, meanwhile, is supposed to spur development in impoverished communities. Alston argued that the Liberty Title and Trust building, which is just north of City Hall, isn’t situated in a struggling low-income neighborhood. The poverty rate in its census tract is 7 percent, or roughly a quarter of Philadelphia’s overall rate.
But judging by a tool run by the Cohen & Reznick public accounting firm, the census tract containing the Aloft hotel project does qualify for New Market Tax Credits. That’s because the criteria for eligibility are very broad. Although the tract containing the Aloft property doesn’t qualify due to its unemployment or poverty rate, the median family income is apparently low enough to meet the program’s criteria.
“New Market Tax Credits are targeted to communities that are starving,” said Alston, who has experience in the community development field. “Maybe someone has a different idea of Center City but to me it’s not starved of resources.”
In her presentation Alston highlighted a quote about the application of New Market Tax Credits from former Clinton administration Treasury official, Cliff Kellogg. “Things like luxury hotels are entirely contrary to what we set out to do,” he told Bloomberg Markets, in an interview for a 2011.
Taking the city’s ten-year tax abatement into account, which Alston values at $5.9 million for the project, she estimates that each hotel room will be receiving $183,000 in public subsidy. (Not including the tax abatement, the total would be $150,000 per room.)
Representatives of Realen and HRI were invited to the meeting, but did not attend. Neither company returned PlanPhilly’s requests for interviews, but the story will be updated if and when they get back to us.
The gathering was also sponsored by the hotel workers union, Unite Here, as well as Hynicka’s Arch Street church, Old First United Church of Christ, and the Ethical Humanists.
Hynicka said that the office of Congressman Bob Brady, who represents the area where Liberty Title and Trust is located, had been contacted three times about the project and the massive public subsidies it is receiving. He hadn’t, as of CCORD’s meeting last week, heard back from the Congressman or from state senator Larry Farnese.
The only public figure that showed up for the meeting was First District Councilman Mark Squilla.
Squilla said that the dollars at issue weren’t city dollars, but they still stemmed from public programs so the questions raised by Center City Organized for Responsible Development should be followed up on. After City Council on Thursday Squilla said he’d been in touch with the Congressman’s office and that Brady’s staff is looking into the project details now, including the developer’s allotment of New Market Tax Credits. On Friday, representatives from CCORD met with Brady’s chief of staff.
“I don’t know what happens when people apply and they make certain predictions of what their project will have and then they don’t follow up,” said Squilla, at the meeting last Tuesday. “Do you lose those tax credits? Do you have to give money back? Sometimes they are forced to do the right thing just be knowing people are watching them.”
The New Market Tax Credit (NMTC) program has been dogged by controversies like this since its creation. The program is a product of the Clinton administration, which framed low-income and distressed communities as untapped markets that weren’t reaching their full potential. The NMTC program was meant to use tax incentives to attract private capital to such locations.
Under George W. Bush, and continuing under Barack Obama, the program’s implementation became more cautious, frequently turning away from community development in low-income areas to focus more broadly on economic development. As a result, many projects of tenuous benefit to poor communities were funded by the program to the consternation of the policy’s original crafters.
The complexities surrounding the social benefits of the NMTC policy are deepened by the system created to administer the credits. For a developer to access the fruits of the Clinton-era policy it must go through a for-profit intermediary known as a Community Development Entity (CDEs), which can be created by any public, nonprofit, or private institution including, say, a large real estate firm. In the case of the Aloft hotel project at the Liberty and Trust building, the $10 million New Market Tax Credit deal came through a CDE called National Cities Fund LLC--which is a project of HRI Properties.
“It’s very hard to monitor private, profit driven entities and tell if they are using NMTC appropriately,” says Julia Sass Rubin, a professor of public policy at Rutgers University and an expert on New Market Tax Credits. “What's hard to answer is how beneficial it really is and whether it would have happened anyway without the subsidy. It's not cheating in the sense of breaking the law, but often it is cheating by claiming a lot of value that’s not being created because it's actually marginal.”
As a result, the New Market Tax Credit program’s prerogatives have been broad enough that they have often been stretched, legally, to include fancy projects in not-so-impoverished areas. There are no clawback provisions in the policy. There also aren’t any clawbacks in the state-level Redevelopment Assistance Capital Program, which isn’t tied to job creation the way many of Harrisburg’s economic development grants are. (The grant comes in the form of reimbursements for costs incurred on the project, so in theory the Wolf administration could revoke the RACP.)
To CCORD the Aloft hotel project is ethically a simpler matter than all these policy complexities would suggest. They think the developer is breaking the spirit of the law, if not the letter.
“This is about morality and justice,” says Hynicka. “If a federal program is designed to help low income communities, then by George it’s going to do that.”
Squilla ended his discussion with CCORD last week on a note of urban realpolitik. The councilman said he understood that the group wants permanent jobs at the Aloft project to go to local residents and they want them at family sustaining wages. (That means unionized service sector jobs, which event sponsor Unite Here would no doubt seek to win.) Squilla said that he didn’t know enough about the programs in question to say whether anyone had done anything wrong, but he did know that community groups needed to have a means to get the developers to sit down and talk.
“It’s always better to do that when you have leverage, and they need to come to you for something,” said Squilla. “In this case we don’t have that much leverage. You have to bring them to the table. Because if they don’t have to come they won’t, even if it’s the nice and the right thing to do. It just doesn’t work that way.”