PROVIDENCE – Blue Cross & Blue Shield of Rhode Island today announced 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 include a 180-car parking garage and up to 325,000 square feet of office space, are to presented to the Capital Center Commission on Tuesday.

R.I. Health Insurance Commissioner Christopher F. Koller already has reviewed the plan. He found no evidence that it would materially affect Blue Cross' solvency or otherwise trigger any regulatory grounds for disapproval (such as a significant impact on consumers or health care providers), he said in a letter dated Monday.

But in that same letter, however, Koller “strongly” encouraged Blue Cross to “broaden its criteria for available space in the City of Providence,” noting that 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.”

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, the insurer had talked with The Procaccianti Group about possibly going into its new La Salle Square project.

However, 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 – this was the best and most cost-effective location of 17 it 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 if possible, 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.”

A comment from Gov. Donald L. Carcieri – who has previously been critical of what he sometimes views as lavish spending by Blue Cross – could not be immediately obtained.

Keough stressed that Blue Cross will 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 conform to LEED specifications, so energy costs will drop.

The alternative, Keough added, would have been to renovate the current facilities, which are 20 to 40 years old and in serious disrepair, and 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.”

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.

Koller has exchanged correspondence with Purcell about the plans. In an interview today, he said he has told Purcell he agrees that Blue Cross “has demonstrated that their current space is outdated and that consolidation would help,” and while staying in Providence is the company’s own decision, “it seems appropriate.”

But Blue Cross also appears to have set parameters for the project, such as that it should be what Realtors call “Class A” office space, Koller noted, that “excluded potentially promising and less expensive options” in the city.

In addition, he said, that choice “makes the company vulnerable to public concerns about the use of its assets.”

Additional information about Blue Cross & Blue Shield of Rhode Island is available at www.bcbsri.com.