New Tax Break Violations Alleged as Providence City Council Considers Proposals
Friday, June 06, 2014
New allegations of violations of past Tax Stabilization Agreements in Providence have arisen, as the City Council currently considers new tax breaks for developments in the city -- as well as extensions on current ones.
In a letter sent to the City Council this week, real estate professional John Jacobson wrote, "I would like to point out the Kinsley Building that is going for a TSA [on] June 4. This is a project being developed by Cornish Associates. As I understand it, Cornish is also seeking another five year extension on 3 of their projects. This after already receiving 5 year extensions. This has cost the City millions of dollars. Why would the City Council grant yet another TSA to Cornish until all the previous TSAs had run out and they were paying taxes?
Jacobson added, "I was curious to look at one of these TSAs and got a copy of one of Cornish's TSAs and I was shocked. I have attached it here. It violated every stipulation of the agreement, in particularly with the building at 93 Eddy. In fact the construction did not even start at 93 Eddy until 8 years after the agreement was signed. It does not have affordable housing or meet any of the other terms of the agreement. How is this possible? How can the City Council even be considering granting Cornish another TSA for Kinsley with past violations in question?"
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTJacobson provided the council both with a copy of the TSA, as well as his notes on the sale of 93 Eddy to make his case.
In January 2014. Providence City Auditor Matt Clarkin submitted his "Analysis of Tax Stabilization Agreements in Providence" report which lists no violations of compliance with Cornish. Clarkin did speak however to lack of oversight of the affordable housing requirements.
"One of the findings in my report on the current TSAs was that there was not a process in place to determine if a recipient was in compliance with the affordable housing requirements," said Clarkin. "I cannot answer to the compliance of any recipients who have such requirements. And I do not know the answer to the timing of construction."
Cornish's lawyer declined to comment on the record on the matter.
Looking Back, Looking Ahead
The Providence City Council is currently looking at tax breaks for seven property developments -- as well as proposals for extensions on at least three existing TSAs now, which would amount to millions of foregone tax revenue to enable the economic development projects to move forward.
Clarkin noted that the city had recently revoked the TSA for the RW brewery location and is in the process of revoking the TSA on 50 Agnes.
"The kind of TSAs the City has been granting are not the kind that helps smooth out the lack of income during construction and leasing and to provide predictable costs for financing. They are creating an actual subsidy to offset the lack of higher rents that the developers need to make their business models work," wrote Jacobson in his letter to the Council. "This is very dangerous because it involves speculation and City government should not be offsetting speculative risk in the private sector especially when the City has continually raised taxes over the years."
"It makes me very nervous to hear private developers say that they need city money so they can match the rents in Boston. Providence is not Boston and our economy or real estate market looks nothing like it," Jacobson continued. "Will it in 10 years? I am not sure. That is risk that businesses take, not governments.
Of the 93 Eddy property, Jacobson noted, "They should be paying about $30,000 in taxes and [it] pays nothing. Cornish as of this summer has received 9 million in tax relief and is now going for more."
City Councilman David Salvatore, who heads up the Ways and Means Committee, noted that compliance would be a major focus moving forward.
"The committee diligently examined current monitoring procedures relative to tax stabilization agreements. The committee anticipates issuing a report in the near future, which will include findings and recommendations," said Salvatore.
Councilman Sam Zurier offered his perspective on the increased scutiny -- and need -- for tax breaks.
"The hearings in the Ways and Means Committee earlier this year indicated historical gaps in the development and implementation of tax stabilization agreements. The Committee is preparing a reported with analysis and recommended improvements, " said Zurier.
"In the meantime, the administration has begun incorporating some of the recommendations that came out of the hearing even as the report is being prepared. I think all of us are more aware of the issues today than we were last December. More recently we received a report from the Economic Development Task Force describing the important role that tax stabilizations can play in economic development; therefore, I believe our task will be to improve the TSA process to minimize the identified problems and maximize the benefits."
Change in Protocol?
Councilman Luis Aponte spoke further the current changes underway to the manner in which the council monitors -- and enforces -- TSAs.
"Cornish just submitted a compliance plan with the [Kinsley Building] TSA proposal, said Aponte. "It basically states, 'We [Cornish] understand these are the terms, and here's where there's something to measure against.' I'd asked that they give us a document that shows that you've gone through, to memorialize the agreements of compliance. We will be requiring this of all TSAs moving forward."
Aponte noted that along with Zurier, they were addressing the "year 13 problem."
"[Zurier] wants to put a deed restriction for five years at that year 13 mark for TSAs," said Aponte. "If the buyer were sell to a tax exempt entity, then the city would be entitled to a portion of the profits." Aponte noted the proposal is in Ways and Means. "You get your 12 years, you get your shot, and that's it," said Aponte.
In the meantime, Jacobson said that he would "urge the City Council to think more deeply about the use of TSAs."
"They are a very powerful tool and capable of positive economic development if used properly. Providence needs TSA policy, enforcement and a way to measure their success and to keep them in check so they don't hurt existing property owners and businesses," said Jacobson, who provided his suggestions to the City Council.
"I have also included some policy ideas on TSAs. I am not an expert on this but these are the type of questions and ideas that I would be asking on the TSA issue to ensure their effectiveness," said Jacobson. "Providence's economy is at a very fragile state right now and the wrong decisions could be disastrous and stick with us for decades to come."
Related Slideshow: Current Tax Stabilization Agreements in Providence
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