Bishop: Structural Changes to Address Structural Deficit
Thursday, April 28, 2016
As Providence’s Mayor is set to roll out his budget proposal, perhaps most important are proposals for future budgets. Rhode Island’s urban core, Providence in particular, must improve its competitiveness to outgrow years of mismanagement at both the state and local level.
A recent study from the federal government who is ‘here to help us’ projects an enormous structural deficit for Providence in the next decade but has none of the “innovative solutions” it claims. Instead it recommends more taxes and more regulation, for a city that has taxed and regulated itself out of competitiveness.
To be fair, it does take a swing at costs, firefighting costs in particular. That’s appropriate with Providence and Pawtucket caught in the morass of labor law and being held hostage by their firefighters. Its quite obvious fire stations will have to be closed. Regardless of the outcome of arguments over shifts, fewer firefighters, trucks and facilities are in our future. But that doesn’t make much of a dent in the deficit, it only keeps it from ballooning.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe report correctly identifies, but does not tackle, the major problem for the city: Spending that has outstripped a tax base predominated by exempt property, and grossly disparate rates between commercial and owner resident taxes that disincentivize new building without enormous tax breaks. One has only to look at the I-195 land that, despite state promises it would bolster Providence’s tax base, is now being pawned off with property tax exemptions by the Commerce Commission.
Rather than confront this central problem, the “Strategic Fiscal and Management Plan” recommends such gimmicks as a war on parking and pay as you throw trash. Fortunately, Council President Luis Aponte declared the garbage recommendation garbage. He recognizes that trash collection is one of the few things the city does well.
Aponte highlights concern about the extent of the tax-exempt base. The report recommends a hodgepodge of silly enticements making exempt institutions into something like Tax Increment Finance Districts in which they decide on what the city will spend their contributions - if they decide to make payments in lieu of taxes. Send that back to the drawing board as well.
Far more important is the growth of the tax-exempt property base. And we’re not just talking about universities and hospitals. How can Providence tax rates ever be competitive if virtually every new development is effectively considered a non-profit?
“Do you see cranes in the sky?” the Governor famously intoned. Well, you’re not going to until the city addresses its deficit and makes clear it won’t just dream up a scheme to hand the bill to commercial property owners. Fear of voters has kept owner-resident’s rates low, and that is as it should be. But raising commercial rates has been the too convenient relief valve for politicians, rather than balancing spending growth with tax base growth.
Providence city government is no panacea but the legislature needs to change its habit of doing more harm than good. Rather than rein in the disparity in rates, legislators gave the city the power to pass out tax exemptions to individual projects thus advantaging new business and investment over those already here. What a great way to thank and support the existing businesses who pay such a disproportionate share of Providence’s tax burden -- exempting competing new entrants from paying taxes?!
Is there any wonder that Citizens bank chose a new campus in Johnston over a downtown Providence bid? Of course they got a generous give from Johnston but nothing like the Providence giveaways. They will pay $250,000 a year in property taxes which at present rates covers $9 million in value. But more importantly, Citizens can reason that, in Johnston, they won’t be a target to make up a massive structural deficit when their agreement expires.
Of course Cranston is convinced that the whole deal was poached from them in the first place leading to the question of whether cities should even have this power to pass what are essentially reverse bills of attainder letting individual properties off the hook for taxes. If bills taxing one individual more heavily are unconstitutional, why are bills taxing another individual less heavily not just as wrong?
Help on this question of tax giveaways has been suggested from a surprising corner of the legislature, i.e. newly elected Senator John Pagliarini Jr., who won a special election to represent portions of Bristol, Porstmouth and Tiverton on a no tolls platform. Who would have thought that an exurban toll fighter would file the stalking horse legislation that begs the question of how to fix Providence’s downward spiral of high taxes for everyone and tax breaks for the few?
In bill S-2289 Senator Pagliarini proposes repealing the authority of cities and towns to offer special tax breaks to individual taxpayers or properties. Towns and Cities would compete by offering their lowest rate to everyone, not just a select few.
Is there never an instance where the government should promote the interests of an individual project or employer through subsidy and directed infrastructure investment, such as partnering with Citizens to add an exchange on 295 serving more than 3000 employees who would work at the new campus? Senator Pagliarini simply believes that if those jobs would bolster income taxes or sales taxes that the state should make and pay for that decision. So he would not award the power to the state to abate property taxes but rather the state would subsidy and infrastructure on anticipated sales and income tax.
Is there much faith that the state would get that right? Of course not. But at least it wouldn’t be the state giving away local property taxes, which is the latest craze in Providence.
So how would the high commercial tax rates in Providence be addressed if not by property tax giveaways? Perhaps an amendment to S-2289 should also command a 5% per year reduction for ten years in the difference between commercial and owner-residential property tax rates. This would get Providence businesses back to paying 150% rather than 200% of the owner resident’s rate within a decade.
Given the way commercial assessments are managed and a reasonable desire to favor home ownership some modest difference is appropriate. 50% is still high, but Providence has to crawl before it can walk. The council and mayor would be forced to plan for this change over time and businesses would see the promise that they are not ATM machines for politicians.
In the meantime you can expect that the Superman building will stay empty and corporate campuses like Fidelty and Citizens will be the norm. My car hating friends think this is a horror, that we should enable this ‘sprawl’, even as they would drive businesses from the city with a parking tax.
What exactly is the downside of keeping 3000 jobs that could as easily have left the state altogether? Someday Route 295 could ring Providence with commerce as 128 rings Boston.,And that’s an issue because . . . ? Indeed the 128 circle was a place that kept Boston a business destination in its darkest days when the urban core was not so de rigueur.
Thinking like Senator John Pagliarini’s is what we need to start Providence on a road to functionality, relevance and revitalization of the sort that makes Boston competitive with its suburbs these days. But the Finance Committee has yet to schedule this important bill for a hearing. The chairman is Senator Dan Daponte. Maybe he wants to hear from you at 276-5584 or [email protected].
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.
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