Blue Cross to Build New Headquarters in R.I.

But Governor Carcieri immediately questions the $114-million project slated for Providence.

PROVIDENCE - Blue Cross & Blue Shield of Rhode Island plans to build a large office building in Capital Center, and will consolidate its now-scattered operations into this new site. The health insurer, which serves 700,000 customers in Rhode Island, currently operates six offices in Providence for its 1,100 employees.

The insurer plans to leave these buildings and construct a 325,000-square-foot, roughly 12-story building on top of a parking garage already under construction in Capital Center by Intercontinental Development, which is building two residential condominium towers on the same two-acre lot.

Blue Cross hopes to start construction on the building late this year and occupy the site in early 2010. The design is subject to approval by the Capital Center Commission, which should review the project at its meeting on Tuesday. The building is expected to cost $114 million to complete.

But Governor Carcieri immediately expressed his skepticism about the proposal, saying through a spokesman that the project appeared too costly. In selecting such a high-value location, Carcieri said the insurer failed to take into account the impact such an expense would have on its customers, who are dealing with ever-increasing rates.

Of the six Providence locations it uses now, Blue Cross owns two of the buildings, at 15 LaSalle Square and 1 Empire St. The insurer expects to sell the two buildings for $20 million and put that money toward the construction of the new building.

The project will receive more than $25 million in tax breaks from the city, thanks to a one-of-a-kind tax plan negotiated in 2004 with Boston-based Intercontinental when the developer signed its long-term lease on the two-acre Capital Center parcel and started building its residential towers, Blue Cross officials said.

Blue Cross has been looking to relocate for three years and toured 40 locations across the state before settling on this site.

"As one of Providence's larg8est employers, we felt an obligation to remain here if possible," said James E. Purcell, Blue Cross president and CEO. "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."

The insurer came close to leaving Providence after touring 16 sites and not finding any to its liking. In Providence, Blue Cross looked at Francis Street next to the Masonic Temple, the former Providence Wholesale Produce Terminal on Harris Avenue, and at various locations along Westminster Street, among others. But none suited its needs.

"We wanted to stay in Providence if the price was right, and it wasn't until this site was brought to our attention," said Blue Cross spokesperson Kim Keough.

Fearing that the insurer was close to leaving the capital city, Mayor David N. Cicilline pushed the site to Blue Cross, trying to entice it to stay downtown.

"It's great for the capital city that Blue Cross & Blue Shield is remaining in Providence, where 1,100 employees will continue to fuel our economy and add to the life and vitality of our city," Cicilline said.

Carcieri, however, indicated he has serious reservations about the plan.

"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," said Jeff Neal, the governor's spokesman. "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.

"It is important to remember that Blue Cross was chartered by the General Assembly to serve the citizens of Rhode Island. That is its only mission and the governor will be examining this project with that mission in mind," Neal said.

Blue Cross & Blue Shield was created in 1939 as a nonprofit company to serve the "public convenience and advantage."

Carcieri and the General Assembly have fought with the insurer in recent years over its rates and executive compensation levels, eventually leading to the resignation of Blue Cross president Ronald A. Battista in 2004.

Blue Cross officials said that this building will "have no additional impact on premiums and reserves," and despite the expensive real estate, going to the Capital Center site will actually save money for the insurer over the long term, Keough said.

The six buildings the insurer currently uses are not all equipped with modern technology, and the spread-out operation has led to some inefficiency. Many would have needed serious renovation over the next few years.

"Over the long haul, it was less expensive to build a new building than it was to renovate the ones we're currently in," Keough said.

But the tax breaks were especially important in making the deal a money-saver for Blue Cross, Keough said.

Blue Cross will receive the tax breaks through the deal that Intercontinental negotiated with the city in 2004, according to Nicholas Iselin, director of development and construction for Intercontinental.

That deal set up the terms for future tax breaks at the Capital Center site without knowing what kind of development was planned there. Normally, tax breaks are given to a specific project.

This tax plan established one set of tax numbers for future residential development at the site and one for office development.

Under the deal, Blue Cross' office development at the site would be assessed at $140 per square foot and taxed at a rate of $37 per $1,000 of assessed valuation.

On top of that, the tax plan is graduated: for the first few years, Blue Cross will pay only a small percentage of the total taxable value of the building, which would slowly increase over the life of the lease, until the company is making the full payment by 2024.

"Without that tax stabilization Blue Cross would never have been able to do this," Keough said.

The deal between Blue Cross and Intercontinental is not yet finalized, but Blue Cross has signed a letter of intent to take over the 20-year lease from Intercontinental, and the two companies plan to be 50-50 owners of the two-acre site.

The purchase price from Intercontinental was not disclosed.

The plan will put three large high-rise buildings on a two-acre lot, but Iselin said, "In terms of urban high-rise proximity, they're not very close."

Iselin said that constructing the new Blue Cross building should be relatively easy, because the foundation work has all been completed as part of the parking garage construction. The underground, 484-space parking garage should be complete sometime next year. Blue Cross can then start erecting its own building directly on top of the garage.

The garage will cover parking for all three buildings, with the Blue Cross building using 180 parking spaces and the residen8ces using the rest. Outside of those 180 spaces, the Blue Cross building would have no additional parking.