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Lisa Blais: No Public-Private Deals For Superman Building

Thursday, May 09, 2013

 

From a birds-eye view, Providence's Superman building looks like the latest public-private bump in the RI landscape.

Rhode Island has seen its fair share of financial boondoggles. The lesson learned from our track record is that “public/private partnerships” means when the free market believes it’s a bad financial deal then the answer is to let taxpayers assume the risk and foot the bill when it doesn’t work out. 38 Studios is just one, obvious example. We also witnessed it with the proposed wind projects in the East Bay Energy Consortium legislation. We will bear witness to it in the very near future when we, as utility payers, incur the higher than market costs to support the “Deep Water Wind” project off Block Island. Don’t be fooled by the Pollyanna cliché, “public/private partnerships”. If an investment is not financially viable, it shouldn’t be subsidized by RI taxpayers.

Last year OSTPA wrote an abbreviated list of those boondoggles - the airport train station, with continued declining passengers at TF Green, the North Kingstown train station with an empty parking lot, the improved access road to Quonset Point, on which no one travels, and state tax credit giveaways, with no financial analysis to determine what, if any, benefit the state has realized from those incentives. Ah, but the proponents argued that those projects were aimed at statewide economic development.

Not so for the latest money grab.

Enter the Superman building but no Clark Kent.

Aside from the fact that spending $40 million in RI taxpayer dollars on this private/public partnership represents the crony capitalism our residents are used to - the lobbyists for the project are Speaker Fox’s former campaign manager, Nicholas Hemond, and Providence Mayor Taveras’ ‘Special Advisor’, Zachary Darrow - it is another “if we build it, they will come” scheme. How many times will RI taxpayers accept this ridiculous concept? If the privately owned former Industrial National Bank building had so much promise then why are the private investors unwilling to fully sink their own capital into development without taxpayer dollars? Do they lack the confidence to answer the obvious questions? Who will actually rent those condos? Who is going to frequent those shops and restaurants? Who will occupy the offices on the lower floors? And how quickly will this happen?

Look at the privately funded Waterplace Park development that was supposed to be condos, but became rentals for many units because the market could not bear the price of the condos. Another project behind the State House had to be sold for dormitories because there were no takers. And now we want to build more of the same at taxpayer expense? Shame on us. Businesses are not growing and they are not flocking to RI.

Did we forget?

The state has known about the Superman building being vacated since June of 2011. Former Mayor Paolino sounded the warning bells and begged the state to look at how it could retain its tenant, Bank of America, not only so the ‘iconic’ Superman building remained occupied, but also, so RI could hang onto an employer that was still one of the largest in RI. Paolino referred to the difficulties that would lie ahead given the fact that the building could not be converted, it wasn’t in great condition, and there was no parking.

At the time, real estate developer Arnold Chace said he was ‘unaware’ of the concern about the possibility of Bank of America leaving, but he wasn’t sure why this would be an issue [to be concerned with now anyway]. He also stated at the time that the big question would be whether or not the economy will turn around quick enough, but claimed he wasn’t worried. This is the same Mr. Chace, as reported in the media, who was hired by the building’s owners a couple of months ago to develop plans for turning the building into a residential space. Why worry when you can make money when the building is actually vacated?

How time flies, RI style.

By January 2012, Bank of America had officially reported that it would be vacating the building and the state. Surely, with the building being such an icon and representing lost jobs, 22 months later, there must be an analysis on the economic impact to RI resulting from this decision. There must be some recommendations made by either the beleaguered Economic Development Corporation or the General Assembly. But, in typical RI fashion, our elected officials are scrambling to figure out what to do about the building.

While it is a nice idea to save the “things” that represent RI, it is a lousy idea to ask taxpayers to save something at the cost of increasing taxes when we rank last in every business ranking there is, even in the emotional ranking of one of the most 'depressed’ states in the country. One Representative summed it up when she stated, “I would certainly like to see the building saved. But can we afford it?” We think that the answer is ‘no’. So, can we afford it? This question should be asked of all projects, but in particular, this one project. Where is the thorough, unbiased, financial analysis? The General Assembly should not even consider these tax credits in this session.

It’s the Budget.

Remember that none of the legislators knew about the 38 Studios deal when they voted on the increase in EDC bond limits? But no one can claim they don’t know about the historic tax credits for the Superman Building, whether it appears before them as separate legislation or part of the annual budget. If Representatives and Senators pass a budget that includes implied tax credits for the Superman Building, they will be voting to use your money on an investment that the private shareholders don’t even have enough confidence in.

A shell game at the expense of taxpayers.

Stop allowing our elected officials to play the emotional card of “the building is an icon” in RI to justify a public investment that will not return a profit to taxpayers. Speaker Fox recently and wistfully remarked about the historic and architectural significance of the Superman building. Some of us agree with that observation. He went on to suggest that he isn’t sure that we could afford to spend taxpayers’ money to save it. But, here it comes! Keep your eye on the shell game!

Senate Majority Leader Dominick Ruggerio believes that we must find a way to save the building. Translation? You will be an investor with no return on your money if you don’t speak up loudly and clearly! Majority Leader Ruggerio can be reached by calling 222-3310. You may want to let him know that you don’t want to place your bets on the Superman Building.

Cold hard cash for the insiders. AKA: Taxpayers are not insiders.

Did you know that state tax credits are transferrable? They can be bought and sold by RI insiders who are used to broker the deals. Think back to the reports of the movie tax credits that Michael Corso brokered to sell to Blue Cross and Blue Shield on behalf of 38 Studios. Once you are awarded a tax credit, you can do what you like with it. The recipient of the credit can sell the tax credit and obtain cash for the sale. The broker then skims money off the sale of the credit. The purchaser makes out because they pay only a fraction of what the credit’s face value represents.

If the owners of the Superman Building obtain the $40 million tax credit, but don’t use it because they have no income tax liability, they can sell it for cents on the dollar.

A broker takes a percentage of that $40 million in the sales transaction. The purchaser of the credit makes money because he gets a $40 million dollar tax credit, but pays less for it. Who wins here? Not RI taxpayers, that’s for sure.

What’s the take-away?

The only people who will benefit from this transaction will be the political insiders. There shouldn’t be any private/public partnerships with the Superman Building.

Legislation that removes the transferability of all state tax credits, and creates broad based tax incentives, not credits that allow for targeted cronyism, will go a long way to provide for taxpayers’ interests over insiders’ interests.

There should also be legislation that requires a review of all tax credits and determines the cost/benefit for RI taxpayers. By the way, there are bills in the legislature that propose to do just that. Will they pass? Let’s hope so.

Lisa Blais is a board member of OSTPA, a taxpayer advocacy organization in Rhode Island.

 

 

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