Where did the money go? Buyers of lucrative state tax credits remain secret

Windover Development received more than $2 million in historic rehabilitation tax credits to turn this building on Pleasant Street in Beverly into veterans housing. RYAN MCBRIDE/Staff photo 11/27/19

BEVERLY — When Windover Development was converting a former box factory into veterans housing, the state and federal government awarded the company more than $2 million in tax credits through a program designed to encourage historic rehabilitation.

More than six years after the Pleasant Street Apartments opened, those tax credits are still generating controversy, including a recent resolution by a Beverly city councilor alleging "manipulation" of the program.

For all of the attention the tax credits have received, however, there's still one question that hasn't been answered: Who ultimately cashed in on them?

Windover Development ended up selling the credits, according to comments made by Chris Koeplin, a former vice president of operations at Windover Development who is now president of Beverly Crossing, at a public hearing in August. Koeplin said he does not know who bought the credits.

The taxpayers who funded those credits don't know either, and apparently never will. The state Department of Revenue has refused a request by The Salem News to release the names of the buyers, saying that information is barred from disclosure due to "taxpayer confidentiality."

The lack of disclosure keeps taxpayers in the dark about a little-known aspect of the state's many tax credit programs involving hundreds of millions of dollars in taxpayer-subsidized credits. Under state law, seven of the 14 programs allow the recipient of the credits to sell them. But the public is not allowed to know how often that happens, the identities of the buyers, or the selling price.

Gregory Sullivan, a former state inspector general who works at the Pioneer Institute, called the lack of transparency regarding the buying and selling of tax credits "very strange."

"It seems to me that the sale of a historic tax credit should be public," Sullivan said. "It's public property."

The Historic Rehabilitation Tax Credit program was created in 2004. It awards up to 20% of a developer's qualifying expenses for a historic rehabilitation project. Credits have been awarded for everything from the renovation of Fenway Park to the conversion of the old Salem Jail into condominiums. The federal government, through the National Park Service, offers a similar program.

Windover Development received more than $2 million in tax credits for its project at 62 Pleasant St. in Beverly, according to state and federal officials. The project received praise for creating 32 units of supportive housing for homeless veterans. But it has also come under fire because Beverly Crossing, a successor company to Windover Development, now plans to knock down other buildings in the same historic district that Windover helped to create in order to qualify for the tax credits. Earlier this month, Koeplin announced that the company would revise its proposal and preserve one of those buildings, the former Casa de Lucca restaurant, while proceeding with its plan for a six-story apartment building.

In apologizing for Beverly Crossing's role in the controversy in August, Koeplin revealed that Windover Development had sold the tax credits to investors. Just how much of the tax credits were sold, and to whom, is unknown. Koeplin declined to comment further on subject. Lee Dellicker, who was president of Windover Development at the time of the tax credits, did not return messages.

Credits turned into cash

Paul Graney, a partner with the accounting firm Marcum LLP in Boston and the former chief of audit at the Massachusetts Department of Revenue, said the state began allowing the sale of tax credits in part due to the film tax credit program. Graney said the tax credits were worthless to many film companies because they do not make money until their movies reach theaters, so the companies do not initially have enough tax liability to use the credits. Tax credits are used to subtract, dollar from dollar, from how much a taxpayer owes in taxes.

By allowing the credits to be sold, the state makes them valuable even to a company that does not have significant tax liability, Graney said. For example, a company may be awarded a $200,000 tax credit but owe only $100,000 in corporate taxes, leaving $100,000 of the credit unused. Instead, the company could sell the $200,000 credit for say, $160,000, to a buyer that does have a larger tax liability. The buyer could then use the full $200,000 credit to reduce their taxes, and the seller gets cash for the credits.

Graney said the tax credits usually sell for 80% to 90% of their value. Buyers are usually "high-net-worth individuals or corporations," he said. "It's not the average guy."

In Windover's case, the company was awarded more than $1 million in state credits for the Pleasant Street Apartments in several rounds from 2009 to 2012, according to records of the Massachusetts Historical Commission, which issues the awards through the Secretary of State's office. Graney said the credits can also be sold and turned into cash to help finance a development while it's in progress.

An official with the National Park Service said the federal credits cannot be sold, but developers often bring on an equity investor who can claim the credits.

Julia Sass Rubin, an associate professor at Rutgers University in New Jersey who studies tax incentive programs, said hiding the identity of tax credit buyers, however, raises questions about whether they are being used properly.

"It does open up all sorts of possibilities for mischief," Rubin said. "It's just generally bad government not to tell people where their tax credits are going. These are public tax dollars. There's a lot of different ways it could be exploited."

Rubin said New Jersey state law does allow the identification of tax credit buyers, but only for the initial sale. The credits can be sold multiple times.

The selling of tax credits does not cost taxpayers more money in the sense that a $1 million credit is worth $1 million no matter who ends up using it. But Rubin pointed out that allowing the credits to be sold ensures that the full value will be used. If a company could not sell the credits and did not have enough liability, it would use only a portion of the credits, or none at all.

"When you sell a tax credit you increase the possibility of it being maxed out, so it costs taxpayers more," she said.

The Massachusetts Historic Rehabilitation Tax Credit program awarded more than $50 million in tax credits in 2017, the most of any of the state's 14 tax credit programs, according to a 2017 "transparency report" by the Department of Revenue. A spokeswoman for the agency said the 2018 tax credit transparency report is not yet available.

State Sen. Joan Lovely, a Democrat from Salem, said her office was already looking into the program in the wake of the controversy over the Windover tax credits. Now, she said, she plans to also ask why the selling of tax credits is done in secret.

"Certainly these are public funds and people really should know where they go," Lovely said. "I feel strongly that government should be transparent."

Staff writer Paul Leighton can be reached at 978-338-2675 or pleighton@salemnews.com.

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