INVESTIGATION: Companies Taking Millions in Tax Breaks, Loans Stiffing City for Jobs

Thursday, July 10, 2014


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 Companies are taking millions in tax breaks, loans, and contracts from Providence without reporting back to the city on the new jobs they are creating or attempting to hire Providence residents for those jobs as mandated by an ordinance, a GoLocalProv investigation has found.

Documents also show that the city also isn’t doing much, if anything at all, to crack down on companies that do not comply with the law, known as the First Source ordinance.

Businesses in controversial loan program biggest abusers

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 The city’s own records indicate that 69 companies that it once claimed fell under the mandate of the ordinance did not submit reports on their hiring activities between July 2012 and March of this year. The bulk of those businesses received $7.7 million through the controversial loan program rub by the Providence Economic Development Partnership. The remaining companies benefited from tax stabilization agreements or federal grants.

And the city’s official list may be just the tip of the iceberg. A GoLocalProv review of the most recently published list of PEDP loans shows that 100 local businesses have received at least $25,000—the minimum amount for the First Source ordinance. (A business must also have at least five employees for the ordinance to apply.) All told, those businesses have received an estimated $15.6 million in loans.

Likewise, the city had 36 active tax stabilization agreements as of this January. But the city’s reports on compliance with the First Source ordinance only account for 20 of those.

“The city makes gifts of our scarce tax dollars to developers and other rich companies, using the promise of jobs to justify the corporate welfare.  Then, instead of demanding that employers actually meet their legal obligations that are part of the deal for getting tax breaks or PEDP loans, the city’s approach is to bow and scrape to those employers and wait till they drop crumbs,” said Fred Ordoñez, the executive director of Direct Actions for Rights and Equality.

“It’s as bad as any abusive relationship out there, except in this case, the victims are the unemployed and underemployed Providence residents, and all the taxpayers who are supposed to get something in return for the corporate subsidies,” Ordoñez added.

Businesses that receive contracts for city work also must comply with the ordinance, according to DARE. But records show that city authorities have not enforced the ordinance against any of its contractors, let alone even report on whether those contractors are following it.

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 Of 1,110 job vacancies reported by businesses that fall under the ordinance, just 41 were filled using the First Source program over the past two years, according to DARE’s analysis of city records.

City has no records of enforcement action

DARE officials say those numbers show that the city is not enforcing the ordinance. And, in fact, documents provided in response to a public records request show that there is no record of the city taking any enforcement action at all. Under the ordinance, the city may revoke the financial aid it is providing to a local business or nonprofit for failing to comply.

In a May 12 public records request, a former DARE board member asked the city for all written communications from city officials informing employers of any sanctions that were being taken against them for violating the ordinance. In a May 27 reply, the board member was told that “the City does not maintain documents responsive to … your request,” according to a copy provided to GoLocalProv.

The First Source ordinance has been on the books since 1985, but the city did not start enforcing it until 20 years later. But those efforts seemed too little, too late to members of DARE and the city council, who took the city to court in 2006 and won an order forcing it to fully enforce First Source.

By the time Mayor Angel Taveras came to office, a survey of businesses receiving grants from the city showed that barely half were in compliance. That led to a commission to investigate the matter, amendments meant to put some teeth in the ordinance, and the hiring of a First Source Director in 2012.

But two years later, little progress has been made, DARE officials say. “The only actions the city has taken were the result of a Superior Court order resulting from DARE’s lawsuit in 2006, and they have still failed to take any enforcement action whatsoever—no sanctions against any company in violation, no warnings, no accountability,” Ordoñez said.

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 City claims new, sweeping exemption for businesses

Now, the city is responding to such criticism by claiming that any business that receives federal dollars via the city is not subject to the ordinance. “Since this report was drafted, the City’s Law Department has advised that First Source does not apply to federally-funded projects,” city spokeswoman Meaghan McCabe said in an e-mail yesterday. That exempts all but six of the 69 businesses that the city had initially identified as noncompliant.

That claim is directly at odds with the language of the ordinance, which states that it applies to “federal aid programs administered by the City of Providence.” GoLocalProv request a copy of any city legal opinions explaining its position, but none was provided in time for publication.

A former member of the First Source Commission told GoLocalProv that the claims made by the Mayor’s office cannot be reconciled with the ordinance. “If you close your eyes and pretend that the actual language of the ordinance doesn’t exist then maybe you could see how the Mayor came up with such a completely outrageous position,” said John Prince, who is also a community organizer with DARE.

In an interview, the retired Superior Court judge who heard the 2006 case, Stephen Fortunato, speculated that the city may believe the ordinance is in conflict with a federal law or regulation, though he was not aware of which one it might be, adding that the question was outside his area of expertise. 

Fortunato said DARE has not exhausted its legal options against the city. “If they’re displeased and indeed aggravated by the lack of enforcement they should go to court,” he said. DARE could either seek a motion to compel the city to follow the original 2006 order, or a motion seeking judgment that the city was in contempt of court, according to Fortunato, who now teaches at the Roger Williams Law School.

In a statement, McCabe insisted the city remains committed to enforcing First Source. “Mayor Taveras is deeply committed to getting Providence residents back to work and First Source is one tool supporting that mission. First Source is designed to position out-of-work Providence residents for employment opportunities,” she said in an e-mail. “First Source works with the city’s Law Department to enforce the law and bring businesses into compliance.”

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 Asked about the six companies that received tax stabilization agreements and that the city has admitted are not in compliance with First Source, McCabe said one has had its agreement revoked. But the revocation had nothing to do with First Source. Instead the business, the Roger Williams Brewery, was sanctioned because it owed back taxes, according to a report.

Two more tax agreements are under review “due to compliance issues,” McCabe said.

“With respect to the remaining three TSA’s, the First Source Office has engaged with several of these businesses in an attempt to bring them into compliance. The administration is working to improve the way in which First Source is incorporated into the process once a TSA has been approved to better promote compliance,” McCabe said.  

City records show that those three businesses have not been out of compliance since July 2012.

Health insurance giant, food truck among recipients

GoLocalProv reached out to several of the businesses that the city had originally identified as noncompliant. One of the owners at Julians Omnibus, a food truck that serves festivals around the state, said he had never heard of the First Source ordinance, but he said his business does hire Providence residents.

Officials at two other businesses, Salon Bianco on Federal Hill and the Rising Sun Mills mixed-use development on Valley Street, did not respond to requests for comment. And a man who answered the phone at Naga Food Products, an African-themed food company, asked that questions about the company’s compliance with the city ordinance be sent in mail to the manager.

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 It’s not clear that even those businesses that the city says are in compliance—an estimated 60 between July 2012 and this March—are really following the ordinance. One of them, Blue Cross Blue Shield, admitted in testimony before the First Source Commission that being a Providence resident does not give a job applicant an advantage. Of the remaining businesses, only about half consistently reported on their hiring to the city.

Mayoral candidates affirm commitment to First Source

Several mayoral candidates weighed in on the controversy yesterday, promising that, if elected, they would renew efforts to enforce First Source.

“DARE is correct! I have consistently supported this ordinance as good for Providence, but the current administration has consistently ignored enforcement, although giving lip service to the measure. A Republican administration would enforce the law, all laws,” said Dan Harrop, the sole GOP contender for the office.

“First Source has always been underutilized and under-enforced since it was first enacted in 1985. But employers are also able to dodge it by setting job requirements so high as to disqualify Providence residents,” said Democratic candidate Jorge Elorza.

Elorza said First Source should be tied to the City’s Apprenticeship Utilization Program, which he described as “another great idea that’s underutilized and under-enforced.” “When First Source and the AUP are applied in tandem, it’s one of the most effective tools we have to put Providence residents back to work. I will make this a priority across all city departments,” Elorza said.

A campaign spokesman said Brett Smiley, another Democratic candidate for the office, is also committed to First Source, pointing out that he called for ramping up enforcement in his Jobs and Economic Development Plan, unveiled several months ago.

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 The plan states that, “Mayor Smiley will fight back against unemployment and enforce the First Source ordinance by streamlining the list online, making it readily available to city businesses, and ensuring that unused, appropriated funds remain allocated to First Source rather than being swept into the General Fund.”

First Source was enacted in 1985, the year after Buddy Cianci finished his first run in office at Providence Mayor. Cianci, now seeking a third stint as mayor, said he fully supports the ordinance, describing it as a common-sense measure that the city needs to curb high unemployment.

Businesses receiving money from the city, Cianci said, should hire Providence residents first, if they can. “As far as I’m concerned, that’s a no-brainer,” he said.

He also believes the city should be keeping tabs on those businesses that fall under the First Source ordinance. “If they’re not enforcing it, they should,” Cianci said. 

Stephen Beale can be reached at [email protected] Follow him on Twitter @bealenews


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