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Special Tax Deals for Developers Cost Providence $15 Million Since 2013

Thursday, August 21, 2014

 

 Tax breaks for developers of some of the biggest projects in Providence have totaled more than $15.1 million since 2013, according to a GoLocalProv analysis of city data for the controversial economic development program.

In tax year 2013, the deals, known as tax stabilization agreements, meant the city received at least $8.4 million less in tax revenue. For 2014, the loss in direct tax revenue was at least $6.6 million.

In fact, both figures are likely higher. But current figures for some properties cannot be calculated because the current assessments do not reflect the actual values. In some instances, assessors passed over properties that were under a TSA agreement during the last revaluation, declining to update their assessments, according to city Internal Auditor Matt Clarkin.

The data offers a snapshot at deals that can become costly over time. In 2013, GTECH normally would have paid $2 million in property taxes on its corporate headquarters, located at 10 Memorial Boulevard across from the Providence Place Mall. Instead it paid about half that under a TSA agreement that has been in place since 2003 and is not set to expire until 2026, according to a January 2014 report issued by Clarkin’s office.

City data shows that GTECH paid its taxes at a similar discounted rate for 2014, according to preliminary data Clarkin provided to GoLocalProv.

In theory, a tax stabilization agreement should spur economic development: lowering taxes becomes an incentive to revitalize a depressed property or break new ground on long-vacant land. Over time, once the development has been completed the property is supposed to go back onto the tax rolls.

 Developers seeking costly extensions

Instead, some developers who have had TSAs in place a decade—or even longer—are now coming back to the city seeking extensions on more properties, raising questions about the economic rationale behind them.

City records show that one prominent developer, Cornish Associates, has at least three current tax deals with Providence for 210, 220, and 236 Westminster Street. The three deals were struck between December 2001 and November 2002 and were originally set to expire after ten years. Instead, thanks to largely overlooked-2010 state law they were extended by another ten years.

Now, Cornish Associates is seeking yet another extension of the TSAs, according to John Jacobson, an investor who teaches at RISD.

“It is not only Cornish who needs another 5 years it is all the 2001-2002 TSAs who need them. Their numbers don't work without them. It is a very scary situation and every politician has kicked the can on this,” Jacobson said. “You see developers aren’t following the market. They are feeding at the city and state trough.”

As of 2013, a fourth of all the TSA agreements dated back to 2001 or 2002. Their tax breaks totaled more than $1.5 million that year alone.

 “The problem with the business model is when the TSA expires the project might be economically unsustainable,” said Ric Santurri, a local real estate investor.

TSAs also don’t work in the current tax environment, according to Santurri. He says taxpayers cannot afford the tax agreements when roughly 40 percent of property in Providence is already exempted from taxes because it is owned by a hospital, university, or other tax-exempt organization or government entity.

Santurri has roughly estimated the TSAs cost the city $10 million in 2013. (The GoLocalProv figure is lower because it incorporates updated data.) That amounts to 3 percent of the $330 million the city levies in taxes, which means that a homeowner who owes $4,000 a year in taxes to the city is paying an additional $120 to subsidize the tax breaks for developers, according to Santurri.

“It just adds to the burden of the residential component, the car tax, and everything else,” Santurri said. “Someone has to make up for these people who don’t pay.”

Taxes aside, Santurri also questions the economic theory behind the agreements. Other large Rhode Island cities, he said, manage to have large developments without the aid of TSAs. One is a six-story boutique hotel in Apponaug in Warwick. Another is an apartment building behind the Garden City Center in Cranston.

“Some Providence politicians are easy marks when it comes to giving away TSAs,” Santurri said.

 Council leader defends TSAs

When asked if the tax agreements are costing too much—as some critics allege—Council President Michael Solomon defended them as a vitally needed economic development tool.

“Tax stabilizations are a critical tool in a city or town’s economic development toolkit. I have proposed a comprehensive tax predictability program to spur economic development along our main streets. We need to grow our tax base and revitalize our neighborhoods. The ordinance also outlines benchmarks that need to be met to qualify for this administrative, apolitical process,” said Solomon, also a candidate for city mayor.  

Solomon said the latest deals approved by the council are revenue neutral. “The City Council recently approved several tax stabilizations, which are revenue neutral to the city. Because of these agreements hundreds of millions of dollars are being invested, jobs are being created, and our tax base is expanding.”

(Solomon did not elaborate on why the deals were revenue neutral but supporters of TSAs argue that the developments would not happen without the deals. The argument is that the properties when developed are not paying any less in taxes than they are now as undeveloped land or unused buildings.)

Solomon’s opponents in the Democratic primary for mayor took a more skeptical approach.

 “My plan is for a system that is predicated on the principles of transparency and predictability. Everyone should have equal access to TSAs and we need to remove as many political barriers as possible. City investment in development is absolutely necessary, but it only works if it reaches businesses of all types in every neighborhood and not just those with connections in City Hall,” said Brett Smiley.

Smiley added: “I also believe that no TSA should end with a cliff. It’s unrealistic to expect that a business owner can afford to pay no taxes one year and full taxes the next. Any TSA granted in my administration will have a gradual increase over several years until the business is paying the full tax rate. By creating a TSA system that’s predictable, fair and transparent, we can get back to the work of investing in the right city businesses to create jobs and grow our economy.”

Jorge Elorza likewise has called for more comprehensive reform of the tax-incentive program.

“TSAs are an extremely useful tool to spur development in the City, but they have been misused and mismanaged. This is the rare example of a single program that has been both over­utilized and under-­utilized. TSAs have been over­utilized in the sense that some developers have gotten agreements that essentially amounted to tax breaks; these agreements are meant to stabilize taxes, not eliminate them. Many of these TSAs are poorly supervised, overly generous, and ultimately cost the City money,” Elorza states in a position statement on TSAs forwarded by a campaign spokesperson.

Elorza added: “They are under-­utilized in the sense that our lack of accountability and long-­term vision in granting TSAs has prevented us from unleashing their full potential as an economic development tool.”

 The campaign for independent Buddy Cianci did not respond to a request for comment. Republican Dan Harrop did not respond to a call in time for publication.

Calls for reform, but little action

TSAs have come under greater scrutiny over the past year. Last January, Clarkin issues a report revealing that a number of businesses receiving the deals were behind on the taxes they did owe and had other potential compliance issues. Clarkin’s report also showed that the city currently has a disorganized system for tracking the agreements and enforcing their conditions, with about half a dozen separate departments and agencies sharing in the responsibility.

In all Clarkin made nine recommendations for the city in his January report. When asked what action the has been taken since then, a leading city official identified just one.

“The City Council has made it a priority to review tax stabilizations and tax stabilization policies. Since the Special Committee on Ways and Means began studying TSAs earlier this year, several changes have been implemented. We are now requiring that developers have pre-construction meetings with representatives from First Source and Building Futures to ensure compliance with the hiring requirements included in their TSAs,” said Councilman David Salvatore, Chairman of the Special Committee on Ways and Means.

In the meantime, Salvatore said the council is also taking a deeper look at the issue, reviewing the economic ramifications of the tax deals.

“We will be finalizing a report that will include a recommendation to conduct an economic impact study to determine the short- and long-term economic benefits associated with tax stabilizations. Additionally, we are pursuing a recommendation made by the Economic Development Task Force for the City to conduct a cluster analysis to create an economic development strategy based on the strengths and growth areas in Providence. The results of this analysis also will help determine the types of tax stabilizations, or other economic investments the City should make in the future,” Salvatore added.

Clarkin is now planning a follow-up report to be released in September. 

 

Related Slideshow: Tax Breaks for Developers - See the Special Deals

Below is a breakdown of current tax stabilization agreements (TSA for short) in the city of Providence. In theory, tax stabilizations lower tax payments for developers as an incentive for development in the city. However, some deals have stretched over more than a decade. For each property, the amount the owner would normally be paying is displayed, along with the amount actually being paid under the TSA agreement. The difference is the amount of tax revenue the city is not receiving. Data is from the city Internal Auditor and is for fiscal year 2015. Note: several TSA properties are not listed because current data on assessments and estimated tax payments was not available in time for publication.

Prev Next

130 Westminster St.

The Arcade

Current Assessed Valuation: $1,826,200

2014 Tax without TSA: $67,113

Tax with the TSA: $16,742

Difference: $50,371

Agreement Date: 12/31/12

Expiration Date: 12/31/24

Prev Next

95 Chestnut St.

Hacht Development

Current Assessed Valuation: $3,091,300

2014 Tax without TSA: $113,605

Tax with the TSA: $23,867

Difference: $89,738

Agreement Date: 04/15/12

Expiration Date: 12/31/24

Prev Next

122 Fountain St.

Sportsman Inn

Current Assessed Valuation: $1,607,800

2014 Tax without TSA: $59,087

Tax with the TSA: $9,601

Difference: $49,486

Agreement Date: 04/20/12

Expiration Date: 12/31/24

Prev Next

265 Oxford St.

Institute for Non-Violence

Current Assessed Valuation: $1,393, 700

2014 Tax without TSA: $51,218

Tax with the TSA: $1,000

Difference: $50,218

Agreement Date: 01/01/12

Expiration Date: 1/0/00

Prev Next

100 Weybosset St.

Providence G Building

Current Assessed Valuation: $2,575, 400

2014 Tax without TSA: $94,646

Tax with the TSA: $32,557

Difference: $62,089

Agreement Date: 03/20/12

Expiration Date: 7/1/24

Prev Next

11 Dorrance St.

The Biltmore

Current Assessed Valuation: $20,162, 400

2014 Tax without TSA: $740,968

Tax with the TSA: $124,506

Difference: $616,462

Agreement Date: 03/15/12

Expiration Date: 3/15/24

Prev Next

103 Dike St.

Fete

Current Assessed Valuation: $589,700

2014 Tax without TSA: $21,671

Tax with the TSA: $6,152

Difference: $15,519

Agreement Date: 01/01/12

Expiration Date: 12/31/24

Prev Next

145 Globe St.

Victory Square

Current Assessed Valuation: $7,234,800

2014 Tax without TSA: $265,879

Tax with the TSA: $252,750

Difference: $13,129

Agreement Date: 07/18/11

Expiration Date: 12/31/23

Prev Next

1 AT&T Plaza

Hasbro

Current Assessed Valuation: $25,092,400

2014 Tax without TSA: $922,146

Tax with the TSA: $57,202

Difference: $864,944

Agreement Date: 12/01/11

Expiration Date: 12/31/23

Prev Next

25 Eagle St.

Butcher Block Mill

Current Assessed Valuation: $590,500

2014 Tax without TSA: $21,701

Tax with the TSA: $11,431

Difference: $10,270

Agreement Date: 01/01/11

Expiration Date: 12/31/23

Prev Next

41 Central St.

Art Recreation Center

Current Assessed Valuation: $287,100

2014 Tax without TSA: $10,551

Tax with the TSA: $5,862

Difference: $4,689

Agreement Date: 04/16/07

Expiration Date: 12/31/24

Prev Next

125 Washington St.

Mercantile Block Assoc.

Current Assessed Valuation: $1,758,000

2014 Tax without TSA: $64,607

Tax with the TSA: $34,248

Difference: $30,359

Agreement Date: 11/16/09

Expiration Date: 12/31/20

Prev Next

200 Allens Ave.

Capstone Properties

Current Assessed Valuation: $1,753,500

2014 Tax without TSA: $64,441

Tax with the TSA: $25,110

Difference: $39,331

Agreement Date: 01/08/07

Expiration Date: 12/31/16

Prev Next

35 Hylestead St.

65 Pavillion LLC

Current Assessed Valuation: $675,500

2014 Tax without TSA: $24,825

Tax with the TSA: $9,752

Difference: $15,073

Agreement Date: 08/01/05

Expiration Date: 12/31/16

Prev Next

60 Valley St.

Armory Revival

Current Assessed Valuation: $2,797,000

2014 Tax without TSA: $102,970

Tax with the TSA: $11,730

Difference: $91,240

Agreement Date: 09/26/06

Expiration Date: 12/31/16

Prev Next

160 Niantic Ave.

Morvco Realty

Current Assessed Valuation: $1,305,300

2014 Tax without TSA: $47,970

Tax with the TSA: $38,550

Difference: $9,420

Agreement Date: 05/27/04

Expiration Date: 12/31/15

Prev Next

166 Valley St.

Rising Mills Project

Current Assessed Valuation: $16,749,900

2014 Tax without TSA: $615,559

Tax with the TSA: $80,535

Difference: $535,024

Agreement Date: 12/01/03

Expiration Date: 12/31/16

Prev Next

21 Gordon Ave.

South Providence Development Corp.

Current Assessed Valuation: $1,042,600

2014 Tax without TSA: $38,316

Tax with the TSA: $10,984

Difference: $27,332

Agreement Date: 01/16/04

Expiration Date: 12/31/16

Prev Next

5 Avenue of the Arts

Masonic Temple

Current Assessed Valuation: $45,974,100

2014 Tax without TSA: $1,689,548

Tax with the TSA: $284,219

Difference: $1,405,329

Agreement Date: 07/15/03

Expiration Date: 12/31/25

Prev Next

10 Memorial Blvd.

GTECH Corp. Headquarters

Current Assessed Valuation: $54,767,800

2014 Tax without TSA: $2,012,717

Tax with the TSA: $1,100,000

Difference: $912,717

Agreement Date: 07/15/03

Expiration Date: 12/31/26

Prev Next

65 Eddy St.

Peerless Lofts

Current Assessed Valuation: $12,843,700

2014 Tax without TSA: $472,006

Tax with the TSA: $33,407

Difference: $438,599

Agreement Date: 11/22/02

Expiration Date: 12/31/15

Prev Next

210 Westminster St.

Wilkinson Building

Current Assessed Valuation: $1,188,300

2014 Tax without TSA: $43,670

Tax with the TSA: $6,349

Difference: $37,321

Agreement Date: 11/08/02

Expiration Date: 12/31/15

Prev Next

255 Promenade St.

The Foundry

Current Assessed Valuation: $15,810,300

2014 Tax without TSA: $581,029

Tax with the TSA: $30,345

Difference: $550,684

Agreement Date: 11/22/02

Expiration Date: 12/31/15

Prev Next

220 Westminster St.

Harrisburg Associates

Current Assessed Valuation: $2,004,800

2014 Tax without TSA: $73,676

Tax with the TSA: $10,302

Difference: $63,374

Agreement Date: 11/08/02

Expiration Date: 12/31/15

Prev Next

236 Westminster St.

Cornish Associates

Current Assessed Valuation: $3,680,500

2014 Tax without TSA: $135,258

Tax with the TSA: $13,439

Difference: $121,819

Agreement Date: 12/28/01

Expiration Date: 12/31/14

Prev Next

77 Reservoir Ave.

Mashpaug Associates

Current Assessed Valuation: $6,953,300

2014 Tax without TSA: $255,534

Tax with the TSA: $108,829

Difference: $146,705

Agreement Date: 11/09/01

Expiration Date: 12/31/15

Prev Next

825 Chalkstone Avenue

CharterCARE(Roger Williams Hospital)

Current Assessed Valuation: $72,249,200

2014 Tax without TSA: $2,655,158

Tax with the TSA: $2,500,000

Difference: $155,158

Agreement Date: 07/02/14

Expiration Date: 12/31/24

 
 

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Comments:

And who doesn't get TSAs or historical tax credits?? The citizens of Providence. But, hey. They'll just keep raising taxes on motor vehicles, personal real estate, commercial real estate to make up for the short falls. Relax. Enjoy.

Comment #1 by Stephen Lemois on 2014 08 21




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