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Bishop: Corporatism for me But Not for Thee - Competing Proposals for 195 land?

Thursday, March 16, 2017

 

Cheerleaders for a new tower in Providence recently decried the 195 Commission apparently scheming to cut up a lot where a developer has actually proposed as many as 3 towers – perhaps the most ambitious project in Rhode Island in decades.

But suddenly the 195 Commission seems intent on expanding the park they were willing to bulldoze in order to locate the Pawsox in Providence. The scuttlebutt is that these changes are undertaken to preserve river access for Wexford, the flavor of the moment for the vaunted 195 land, slated to locate an ‘innovation center’ across the street. What is an ‘Innovation Center”? A place with no jobs that you build and wait for them to come.

And how would the swells at the Wexford development have gotten to the river if the Pawsox became the Prosox. It sure didn’t seem to worry anyone on the 195 Commission back then! It was Prosox at any cost. Wexford could walk around. Only the people stopped the seemingly inevitable stadium. Yes, the people who say no. So what should people say to these latest developments which appear to pit two proposals for soaking up subsidies against one another. Who said we don’t have one of the best political soap operas in the business?

WexFord

Wexford is lining up for tens of millions from the state and an equally sizable haul from evading city taxes –the city’s power to abate local taxes having been illegitimately given to the 195 Commission which has very limited representation of the city.  (And don’t get me wrong, the city is equally spendthrift with these giveaways, but at least if city elected officials do stupid stuff and the city taxpayers pay for it, then an electoral change could theoretically be effected.)

Wexford’s ‘Innovation Center’ doesn’t really promise a single job to Providence (some service jobs would be associated with the proposed adjunct hotel). Brown will locate a program there, but the Brown jobs would have gone somewhere in Providence anyway. The whole deal is a pie in the sky, maybe a rich custard indeed but premised on the “if you build it they will come” theory. And Wexford, under the current deal, gets its cut from the state and the city regardless of whether they do come. Another lousy deal that doesn’t require its recipient to show more than a zero-sum result before collecting incentives. Yet Wexford is also apparently being offered veto power over other development in its neighborhood.

This is just the kind of gruesome ancillary nonsense that Pfizer pulled in New London, in perhaps the most universally reviled decision of the Supreme Court in the last two decades, Kelo v. New London. (well not quite universally, planners like it, nobody else does). It wasn’t enough for Pfizer to get all kinds of tax breaks, they wanted the neighborhood around them built to their specifications. And then in the perfect denouement of another soap opera that could easily be reenacted in Providence, New London took the land from Suzette Kelo and her neighbors and Pfizer took its pills and bottles and went home to Groton. So the land sits empty to this day and no jobs in New London.

Fane

Now that is not to say anything good about the other development. The Laborer’s Union likes it. (Wicked shocker. More temporary construction jobs featherbedded to the union but no permanent jobs. These are residences designed to cannibalize the actual taxpaying property base in Providence with Fane insisting on tens of millions in state subsidies and sweeping under the rug the tens of millions more in property tax abatement they would enjoy. A pox on all their houses.  Giveaways with no jobs are not what Providence needs.

The hip ‘it’ people imagine that critics of these giveaways are all cynicism and no imagination. When we reach the tipping point, the story goes, Providence will take off. That is what proponents of subsidized development in Providence have been saying for 30 years.  And yet success is always just over the next hill.

Move From Fungible Tax Credits To Forgone Revenue Model

Contrary to popular imagination, curmudgeons do have an imagination and a calculator to go with it. Deals for the 195 land should be premised on the actual creation of jobs. That is easy enough to chart for something like the innovation center and ‘Rebuild RI’ incentives should adhere to the forgone revenue model rather than the tax credit model.

The tax credit model simply awards the subsidy regardless of jobs created and the credit is most often brokered to a business that has tax liabilities for a discount off its face value meaning the credits provide less investment in Rhode Island for each dollar of taxes the state gives up.  A foregone revenue model would simply allow a draw, up to some agreed limit, on the new state income taxes associated with the project. So its dollar for dollar of money the state would not otherwise have.

For the Fane project, and similar residential undertakings, a little more imagination is needed (and take notice the scions who think they know what should happened to the Industrial Bank building to the tune of tens of millions more in subsidies). There is no point whatsoever in subsidizing residential housing to compete for the existing tenant base since the existing housing stock pays a hefty tax rate. But if one accepts the ‘it’ explanation, that all of this is to make Providence the next great place to which people will flock, then it is fairly easy to create a forgone revenue model for these development subsidies as well.  You create a draw against income taxes paid by any lessee in these projects who hadn’t previously been filing income taxes in Rhode Island (say for the last 5 years).

Putting Rhode Island On The Map

This puts the onus on the companies that want the subsidy to put Rhode Island on the map, to close the circle of the “if you build it they will come” scenario – rather than to play like 38 Studios or Pfizer and leave those who provided the subsidy holding the bag with nothing to show for it.

Yes it creates a slight market dislocation in which these grand projects will be busy advertising their chi-chi Providence residences in Boston and New York and San Francisco, for that matter. It isn’t inconceivable that Providence could be a place. But it never will be if we give away money to make it happen without demanding results. The purported point of these developments is to bring people to Providence. Let them show us they can do it!

Economic Development Programs “Primitive And Amateurish”

In warning of a slowing economy in Rhode Island even while the Trump rally catches hold elsewhere, Len Lardaro, who keeps the Current Conditions Index for Rhode Island, yesterday characterized the state’s economic development program as “primitive and amateurish”. He was referring to a lack of real evidence of the effectiveness of subsidies being awarded. While better due diligence could help, the best approach is to require performance in order to collect subsidies.

And all incentives need not cost the taxpayer money. Another way to secure some cost control for these projects is to discontinue the practice of including disguised union riders that effectively require union construction. If, indeed, union workers are more efficient and provide quicker safer major building projects, developers are quite sophisticated enough to recognize this time savings value. They don’t need to be told to use union labor, they would simply choose to do so. As was seen in the major construction by Gilbane on the east side without tax subsidy, and thus without such requirements, a mix of union and non-union labor were employed in different aspects of the 257 Thayer project.

Subsidies, even forgone revenue subsidies, should not be spent to favor union construction over non-union.  This is an IV from the taxpayers to union coffers. (awkward double negative The state seems preoccupied with positioning itself as competitive with other New England states. Legislators are poised to subject us to silly things like carbon levies, as long as Massachusetts does it.  But if we are only economically equal to Massachusetts, where is a firm going to choose to locate? Boston, Cambridge, Watertown, Somerville. These are ‘it’ places right now.  Rhode Island needs to be the North Carolina of New England if it is to secure a place as other than the joker in the deck of this region.

 

Brian Bishop is on the board of OSTPA and has spent 20 years of activism protecting property rights, fighting overregulation and perverse incentives in tax policy. 

 

3 Towers Proposal for 195

 

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