Fidelity seeks greener pastures
By Christina P. O’Neill
Massachusetts’ expensive economy may have reached a tipping point, at least for one mutual funds giant.
David Begelfer, president of the Massachusetts chapter of the National Association of Office and Industrial Properties, says Fidelity Investments management has told him that the real reason the company is sending up to 1,500 Massachusetts jobs to Rhode Island and New Hampshire by 2008 is that employees in the Greater Boston area can’t find housing they can afford to buy. Fidelity, the nation’s leading workplace retirement savings plan manager, is concerned that if employees can’t buy homes in Massachusetts, they’ll look for work with other companies out of state.Fidelity’s Marlboro campus, which houses about 3,600 employees, won’t lose jobs. But Fidelity will vacate a 125,000-square- foot building on Forest St. by year-end when its lease expires, and move those employees to two other larger buildings on Puritan Way.
"This is as far as I know, the first major move of existing jobs out of the state," Begelfer says. Because most of the jobs moved will be to Rhode Island and Merrimack, NH, New England weather isn’t the issue. "It’s not as if they’re looking to move to a new location and hire new people," he says.
Boston-based Fidelity Investments administered $1.25 trillion in assets and performed recordkeeping and other administration for an additional $1.3 trillion as of this January. The company has historically been considered the state’s strong man in terms of its ability to attract the brightest and the best, and compensate them well enough to navigate whatever vicissitudes the Massachusetts housing market hands out.
Fidelity, headquartered in Massachusetts for 60 years, now employs about 13,700 in the state and more than 37,000 worldwide. It has shipped jobs out of Massachusetts several times in the last 20 years, but it has historically kept generating more Massachusetts jobs to replace them.
Retaining the best and the brightest
Fidelity will move the entire senior management group of its Personal Investment division to Rhode Island by 2008. About 400 of them are expected to move to Providence next month, taking up space in the former American Express building in Providence, while awaiting the completion of a 500,000-square-foot building at Fidelity’s Smithfield, RI campus. That space hosts Fidelity Investments Institutional Services Co. and its development division. The campus already has 1,600 employees in two buildings. Average salary: Mid-$60,000 range, plus benefits.
When the newcomers get there, they’ll find lower housing prices ($271,000 median as opposed to the Boston area’s $400,000 median), a consumer price index 8.5 percent lower than Boston’s, and healthcare costs 13.6 percent lower. High earners will also get a tax break.
The remaining 400 to 700 employees will be relocated in Smithfield and in Merrimack by 2008, but it’s too soon to establish hard figures, says company spokesman Vin Loporchio.
Fidelity’s official stance on the move of Massachusetts jobs out of state is that the company wants to diversify its labor pool, and to establish multiple back-up systems in case of a major weather event, power outage or other business disruption. Loporchio emphasizes that the company, which owns or leases more than 4 million square feet of space in Massachusetts, has more employees in the Bay State than anywhere else.
For two decades, Fidelity has been creating a diverse, multi-regional workforce that spans time zones and capabilities. It runs eight regional operations centers across the U.S. In addition to campuses in New Hampshire, New York, North Carolina, Ohio, Kentucky, and Toronto, Fidelity operates campuses in Dallas (Central time) and Salt Lake City (Mountain time).
Last June, Fidelity announced it would expand its Kentucky campus by building a $115 million, 350,000-square-foot building in Covington, adding 1,500 new jobs. In February, the Boston Herald reported that Fidelity was in talks to open a campus in North Carolina at the Research Triangle Park that might have as many as 5,000 jobs. The company declined comment.
Meanwhile, the U.S. Census reports that Massachusetts has posted a net loss of highly-educated workers for two straight years. NAIOP’s Begelfer says industries are starting to find it hard to attract people from other states.
The solution, says Begelfer, is to produce affordable housing for earners of upwards of $90,000 a year.
The eye of the storm
Fidelity’s Marlboro campus appears to be in the eye of the storm. It houses Fidelity’s Employer Services Company, or FESCo, which administered $719.9 billion in assets last year. It’s one of Fidelity’s fastest-growing divisions, Loporchio says. Almost all of its Marlboro jobs will stay put, despite Fidelity’s vacating the 26 Forest St. building. The company will move workers in that building into two other facilities at 3 and 4 Puritan Way, or to Fidelity’s 4,900-employee Merrimack, NH campus.
On paper, Marlboro looks pretty good as far as development goes. It’s home to many life science companies, including fast-growing Sepracor and Cytyc, as well as 3Com. Its total assessed property value has grown from $2.6 billion in FY 2000 to $4.38 billion in FY 2005, fueled by approximately $100 million a year in new growth of its tax base with about two-thirds of that commercial growth over the last few years.
But the city is struggling to manage that growth. Its Community Development Authority, which faces a trimming of its ranks, must undergo a state-ordered audit of its spending practices. The city planner only works one day a week. Marlboro’s wastewater treatment plant needs a $10 million upgrade, or the city will not be able to support future commercial growth. The pressure is already on newly-elected Mayor Nancy Stevens. She must address what some are calling a high commercial vacancy rate. And that was before Fidelity’s announcement that it would close down its Forest St. building.
Marlboro’s Principal Assessor Anthony Trodella says the prospect of a vacant 125,000-square-foot building could be a tougher sell this year than it was in the boom years of the 1990s. "Now, you’ve got vacancies up and down I-495," he says.
Robert Yale of Comvest Realty concurs. "Right now if I had to fill 125,000 square feet, I’d be hard pressed to do so," he says.
Business development experts say the state has to do more to create jobs. It could offer tax incentives (see sidebar). But that wouldn’t address the high cost of housing.
"We have so many impediments to the production of housing in Massachusetts that it’s artificially constraining the supply," Begelfer warns. "It’s driving up prices, and we cannot afford to continue on that path." The state posted a net loss of 165,000 jobs over the past five years, and more than 200,000 residents. "We are in a crisis position right now."
Christina P. O’Neill can be reached at coneill@wbjournal.com
SIDEBAR: Jobs for tax breaks
Fidelity Investments is so big it gets legislation nicknamed after it. Both Massachusetts and Rhode Island have passed tax-break packages that came to be dubbed "The Fidelity bill," because the firm took the lead in advocating for them.
In 1996, Massachusetts passed the Mutual Fund Jobs Growth Law, which gave Fidelity a sales tax break on in-Massachusetts sales if it grew its Massachusetts job base by five percent a year in each of the following five years. The company did so, aided by a booming employment market. By the time the recession came along, Fidelity was no longer obligated by law to keep growing the job base in order to receive the tax break.
Last June, Rhode Island passed the Jobs Growth act. It allows companies that hire at least 100 new workers and add new payroll of at least $10 million to grant new employees tax exemptions on half their bonus money. Eligible employees are those who make more than 125 percent of the state’s average wage. The participating companies pay a 1 percent tax on the income. It also lowers the state’s progressive income tax rate for salaries of $319,000 from 9.9 percent to 4.95 percent. That’s less than Massachusetts’ 5.3 percent flat tax rate.
This year, Rhode Island threw in an additional $364,000 in sales tax breaks to help Fidelity invest in a Providence building it will use to temporarily house an influx of Massachusetts workers. In exchange, Fidelity is required to create 450 new jobs with an average salary of $55,000. C. P. O.
at a glance -
Fidelity Investments
Total assets under management (1/31/06): $1.225 trillion
2005 revenues: $11.1 billion
2005 net income: $1.3 billion
Participating individuals in defined contribution plans: 19.5 million
Total number of mutual funds: 381
Number of call centers, U.S.: 110
Total number of employees: 37,000
Total number of employees, Massachusetts: 12,700
Total number of employees, Marlboro campus (2005): 3,652
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