City Council to Consider Major Overhaul of Providence Tax Breaks

City Council to Consider Major Overhaul of Providence Tax Breaks

The Providence City Council is slated to address changes to tax stabilization agreements in the city, and debate is centered around how to scrutinize -- and expedite -- interested parties. 

"There's a discussion about changing and standardizing TSAs.  The Council is talking to the Administration, and we're working on what that will look like," said Providence City Council President Luis Aponte.  "We're talking to the advantages and disadvantages of policy changes.  Some argue a standardized process based on project size is preferable, some of us think it might make more sense as to what we want to incentivize. That's where we are right now. "

"So I think that there are two schools of thought here," continued Aponte.  "One is not every development is good development nor should we be incentivizing every development.  The other is we need to get things going and get cranes in the air and get moving." 

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Last year, critics of the TSA process questioned the efficacy and oversight of the tax deals, following the report by City Auditor Matt Clarkin that at the end of 2012, the then-36 TSAs in Providence had a total assessed valuation of $429.4 million, and paid $5.2 million in taxes in 2013.

"TSAs are essential and important tools despite critics' opinions, and implemented widely in competing communities," said Zach Darrow, a leading TSA attorney in Providence. "There can always be improvements.  I don't think the current system is flawed, but there are situations that could be served better, or worse -- the debate whether they should be administrative, or on a case-by-case basis. I see merits to both sides."

TSAs in Spotlight

Last August, GoLocal's Stephen Beale reported that tax breaks for developers of some of the biggest projects in Providence totaled more than $15.1 million since 2013. 

 “The problem with the business model is when the TSA expires the project might be economically unsustainable,” local real estate investor and GoLocal Mindsetter Ric Santurri told Beale at the time, saying taxpayers cannot afford the tax agreements when roughly 40 percent of property in Providence is already exempted from taxes because it is owned by a hospital, university, or other tax-exempt organization or government entity.

"Some of the conversation has been around, do we treat projects the same -- a 500 unit building for student housing, where there are jobs in construction, but not ones later -- should that be treated the same way as a commercial project that comes up with 100 career track jobs?" asked Aponte.  "Should one be more generous than another -- do we want to incentive to developments that will leave permanent jobs?"

Providence Mayor Jorge Elorza is on the record with supporting a standardized approach for granting TSAs, rather than on a case-by-case basis.  

"Tax stabilization agreements are valuable tools for attracting and facilitating broad economic development in cities throughout the country. I want a standardized TSA because it will bring consistency and predictability to the process and benefit all who do business in the City of Providence," said Mayor Elorza.  "I look forward to continuing to work with the City Council to develop TSA policies that work for the City and those who seek to invest here."

Taxpayer, Policy Considerations

Some in the state argue that TSAs should not be used to incentivize projects.

"Governments should not be in the business of picking winners and losers, and they should not be in the business of making some taxpayers smooth out the investments of others," said Justin Katz with the Center for Freedom and Prosperity.  "Instead, Rhode Island and its cities and towns should concern themselves with being places in which people want to live and do business."

Taxpayer advocacy group RI Taxpayers called for a standardized process -- with demonstrated TSA project "justification."

"To a certain extent, the necessity of TSA's on some limited basis has become a reality as states compete to attract or retain businesses.   It is important, however, that our elected officials sharpen their pencil, do the numbers and show their work before committing to a TSA," said Monique Chartier with the group.  "They need to demonstrate that the revenue generated by THIS PARTICULAR company far exceeds the tax concessions proposed.  Sometimes the answer is obvious.  The revenue, direct and indirect, from a seasonal baseball stadium warrants little if any tax concession.  The revenue from a Google or Microsoft, conversely, would warrant a more aggressive TSA."

"Most of the time, however, the answer is not so obvious and the numbers have to be crunched," continued Chartier.  "Certainly, a standardized process needs to be implemented, one that involves officials publicly showing their work to justify, in dollars, the taxes they propose to concede so as to bring in specifically quantified revenue that the business would generate, directly and indirectly.  It is critical that officials demonstrate that they are not showing favoritism by offering a TSA but that it makes sense financially to the taxpayer."

Former Director of Administration and founding director of the Hassenfeld Institute for Public Leadership at Bryant University Gary Sasse offered his perspective -- and views as to what "best practices" are for TSAs.

"Given Providence's uncompetitive property tax burdens TSA are a tool that should be in the City's economic development total kit," said Sasse. "However, their use should be based on the following best practices:

1) the city council should determine the parameters for TSAs, e.g. length of time, maximum tax relief schedule etc..
2) the city council should be required to approve all TSAs on an individual basis,
3) approval should be predicated on consistency with a city wide strategic economic development plan not the political connections of private developers,
4) all TSA agreement should have ironclad clawback provisions if the developer fails to meet economic development goals that should be incorporated into all TSAs.