The Boston Globe yesterday reported a lawsuit that has been filed by three Massachusetts colleges regarding Massachusetts Brownfields Tax Credits, the first public acknowledgement of a brouhaha that has been two years in the making. Wellesley College, Northeastern University, and Boston University have sued the Massachusetts Department of Revenue (DOR) for improperly denying applications filed by each school.
The Globe’s news story was accurate but lacked the background and perspective needed to understand the full story. The facts of the case and the chronology of events may provide observers with a better understanding of the issues.
The Brownfields Tax Credit program was put in place in 1998 to incentivize the redevelopment of previously contaminated properties as a way to spur the economy and improve the environment. Originally, not-for-profit organizations effectively were excluded from the program because they generally have no income tax liability. In 2006, the credits were made transferable – they could be sold to others – and the program was opened to non-profits.
Between 2006 and 2012, as use of the program expanded greatly, the amount of credits issued by the state increased dramatically from year to year. The Brownfields program – and tax credits in general – began to draw greater attention from certain politicians. DOR’s scrutiny of the applications evolved over this period into the equivalent of a full-scale audit. Simply, the program had become more expensive from a budget perspective and so had become a more prominent target for criticism.
Then, in late 2012 DOR received applications from the three area colleges at around the same time – completely coincidentally – that together totaled almost $20 million. This apparently pushed the issue past the tipping point and caused DOR to reevaluate the program. Application reviews were placed on hold for several months while the new rules were being developed. On April 5, 2013, DOR released a Draft Directive that proposed new rules, or “clarifications” as described by DOR.
The new rules disallowed common interpretations and practices and removed eligibility from certain applications that for years had been approved. In other words, applications that previously had been approved would now be denied. Most pertinently, a 5-year deadline to apply was created and cleanups that were completed prior to June 2006 would not be transferable.
Egregiously, DOR proposed to “apply the rules set out in this Directive to all pending and future applications.” Pending applications, that had been submitted as much as a year earlier, and whose review the DOR had placed on hold while the rules were re-interpreted, would now be denied when considered under the new rules.
Following comments from a wide variety of interested parties, many of which focused on the due process violations of changing the rules and then applying them retroactively, DOR issued a final Directive in November 2013. DOR removed the retroactive nature of their proposed changes for most applicants – but not for the non-profits.
After the directive was finalized, DOR finally processed the colleges’ applications and denied them in light of the new program rules. An appeal of the denials through DOR’s hearing officer process was also unsuccessful, leading to the decision to file suit.
Now, a judge will decide whether a state agency can, with no Legislative guidance or direction, switch gears and apply new interpretations to existing applications, or whether that is considered arbitrary and capricious and disallowed.