Blue Cross & Blue Shield of Rhode Island says it plans to build a new headquarters in downtown Providence, on Parcel 2 of Capital Center, a property that is leased by Intercontinental Real Estate Corp. and covered by a 20-year tax stabilization plan.
The project, for which construction could begin as soon as this year and be completed in early 2010, is expected to cost about $114.2 million, the company said.
Preliminary plans, which will be presented to the Capital Center Commission on Tuesday, include a 180-car parking garage and up to 325,000 square feet of office space on 12 to 13 floors.
Health Insurance Commissioner Christopher F. Koller, whose office oversees Blue Cross and can block any action that would imperil the company’s solvency or seriously affect consumers or providers, has already reviewed the plan and found “no regulatory basis” to stop it.
But in a letter last Monday, Koller also “strongly” encouraged Blue Cross to “broaden its criteria for available office space” in Providence.
“Such an effort may locate lower-cost and less prominent but still professionally acceptable options that would better maintain the public and subscriber trust in BCBSRI, which is fundamental to its continued success,” Koller advised.
State officials and consumer advocates have in the past expressed concerns about Blue Cross’ desire to build a new headquarters in the city – for instance, about discussions the insurer had with The Procaccianti Group about possibly going into its new La Salle Square project.
On Wednesday, Jeff Neal, spokesman for Gov. Donald L. Carcieri, said his boss only had access to “limited information” about the Blue Cross plan, but he shared Koller’s concerns.
“In particular, it is not clear at this time that the construction of a Class A office building in one of the most expensive locations in Rhode Island comports with Blue Cross’ responsibility to provide affordable health insurance to the people of this state,” Neal said.
“It is also not clear how this project will affect the public perception of Blue Cross, especially as thousands of Rhode Islanders struggle to afford ever-rising health care costs,” he added.
But Blue Cross spokeswoman Kim Keough said that with the tax stabilization deal, which phases in property taxes over 20 years, ending in 2024, and a “pad” already built, the Capital Center parcel was the best and most cost-effective location of 17 considered in the city.
Blue Cross also looked at 23 options outside Providence, but President and CEO James E. Purcell and others at the company felt strongly about staying in the city, Keough said.
“As one of Providence’s largest employers, we felt an obligation to remain here if possible,” Purcell said in a news release. “Our analysis concluded that this location is best for us and our members. We’re thrilled to remain in the city and to be able to continue to contribute to the vibrancy of the downtown area.”
Mayor David N. Cicilline is out of the country, but a Blue Cross news release quoted him as saying that “it’s great” that Blue Cross is staying in Providence, “where 1,100 employees will continue to fuel our economy and add to the life and vitality of our city.”
Neal said Carcieri had found it “laudable” that Blue Cross wanted to stay in Providence, echoing Koller’s own assessment.
The choice of such a valuable piece of land, however, was less well-received. While Koller acknowledged that, of the handful of options for which Blue Cross gave his office a detailed analysis, “the one proposed at Waterplace Park may be the most financially viable in a 20-year time frame,” he noted that the insurer had set very narrow parameters.
Blue Cross “appears to have constrained the range of options it considered in the City of Providence to those that meet the following criteria: owned space, new builds and Class A office space and locations,” Koller wrote in his letter.
“These criteria exclude a number of promising and potentially less expensive options for the company in the city,” he added. “They also make the company – as a publicly chartered corporation – vulnerable to public concerns about the judicious use of its community assets.”
Keough stressed that Blue Cross would not have to dig into its reserves or pass on costs to subscribers to pay for the project. It plans to sell its two main buildings, at 15 LaSalle Square and One Empire Place, for about $13 million and $7 million, respectively, and the remaining costs “will be financed through a third-party mortgage,” she said.
Add savings from the rent on space in four other buildings where Blue Cross now has offices, plus $25 million in estimated savings on property taxes, and the project’s cost-effectiveness is clear, she said. Blue Cross also will benefit from having its full staff in a single place, she said, and the new building will include “green” features that will “substantially” cut energy costs.
The alternative, Keough added, would have been to renovate the current facilities, which are 20 to 40 years old and in serious disrepair. After three years of reviewing the company’s options, Blue Cross is convinced that building new would be less expensive than renovating.
“Everything indicated through our research that this was the site that was going to provide us with what we needed,” she said. “What we’re looking for is operational excellence, and the fact that this pad is ready to go, environmentally everything is done, everything just came into place with this particular site.”
In a letter replying to Koller on April 17, Purcell raised several of the same points and also noted that a move-in date of early 2010 would be “much more fast-track” than renovating the current buildings, and the cost of the land lease, $5.6 million over 20 years, is “very modest.”
Blue Cross signed a letter of intent to lease the property from Intercontinental – which, in turn, leases it from Capital Properties Inc. – on April 13, Keough said.
In an interview, Koller noted that as he wrote to Purcell, he agrees that Blue Cross “has demonstrated that their current space is outdated and that consolidation would help,” and that while staying in Providence is the company’s own decision, “it seems appropriate.”
Still, Koller reiterated his wish that Blue Cross would reconsider its choice and look at other options. And while details of the plan were still not widely known by late Wednesday, the general sentiment certainly rang true among consumer advocates.
Craig O’Connor, lead organizer for Ocean State Action and a member of Koller’s consumer advisory board, said the current situation “highlights why it’s a very good thing that Rhode Island now has a health insurance commissioner.”
“I trust the health insurance commissioner to play the role of making sure that their reasons for moving are legitimate and won’t have any adverse impact on the people of Rhode Island,” O’Connor said.
