Providence to Lose Millions as 50+ College Properties Go Off Tax Rolls

Providence to Lose Millions as 50+ College Properties Go Off Tax Rolls

The tax base in Providence is set to erode even more over the next 15 years as more than 50 properties purchased by local colleges and universities quietly slip off the tax rolls, costing the city millions of dollars in lost tax revenue over the period, new data shows.

The properties were purchased by four local colleges in recent years but their loss will not be immediately felt. Instead, in accordance with 2003 memoranda of understanding between the city and the colleges, the properties will be gradually phased off the tax rolls. The idea was to minimize the hit to city revenues, but the flip side is that eventually the city will lose those revenues and see those properties drop off its tax rolls permanently.

An estimated 52 properties owned by four local institutions of higher education are currently subject to the terms of the 2003 deals. Those institutions are: Brown University, Johnson and Wales University, Providence College, and RISD.

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Some have already begun to phase out their payments but the total amount of revenues from the properties has increased as some were purchased more recently than others. In the current year, the 52 properties will generate $1.9 million in tax revenue from the city.

That amount will hold steady in 2015. Then a sharp decline begins as the city loses a chunk of the revenues as the properties are phased off the tax rolls over the course of 15 years.  

Were there no phase-out, the properties would produce $28,633,905 in tax revenue for the city over that 15-year period. With the phase-out, the city will collect roughly half of that, foregoing an estimated $14.4 million in revenues it would otherwise receive were the owners not tax-exempt. By 2029, just a handful of the original 52 properties will be left to generate just $22,000 of the $1.9 million the city is receiving this year, according to a schedule of the phase-outs for each individual property that was provided by city Internal Auditor Matt Clarkin.

A listing of the properties with more information on the phase-outs is provided in the below slideshow.

Councilman: City stuck in a hamster wheel

For city Councilman Luis Aponte, the data points to an unsustainable dynamic. As schools like Brown become more successful, they buy up additional properties to compete for students, faculty, and research dollars. That adds jobs and increases income tax revenues for the state, boosting the local economy.

“But it comes at a cost to the city,” Aponte said.

It puts pressure on other taxpayers to provide city services, he said. It also ramps up the pressure on city leaders to attract more businesses to expand the city tax base, to offset the losses to local colleges and universities. There, the city’s options are limited as well. “It’s not like we live in the Southwest where we can annex land,” Aponte said.

What is left to the city to lure new businesses? More tax breaks, Aponte said. “We’re the hamster in the wheel there, trying to keep the tax base from eroding to an unsustainable amount,” he said. “It becomes harder and harder to do.” 

State help sought

During the city’s most recent budget crisis, Mayor Angel Taveras was able to obtain additional payments in lieu of taxes from all four private colleges and universities. Brown University, for example, agreed to give the city $31.5 million more in such payments over the course of an 11-year period. And that amount was in addition to $4 million PILOT payments the university had already been making each year.

Still, it’s far less than what the university would be paying were it a for-profit corporation, according to Ric Santurri, a local real estate investor and a GoLocalProv MINDSETTER. According to his estimates, Brown owns roughly $1 billion worth of taxable property in the city. Were it to pay full freight on property taxes it would be pumping in about $37 million in annual taxes, about 10 percent of the local tax levy.

Instead, Brown’s PILOT payments amount to about one percent of the levy.

But a spokesman for a local consortium of colleges and universities indicated that his members are not in the mood to give any more money.

“The colleges and universities in Providence have partnered with the city in good faith and are committed to paying the city in accordance with the 2003 and 2012 Memorandums of Agreements (MOUs). Any discrepancy that may exist will be resolved in accordance with the voluntary payment schedules detailed in these agreements,” said Dan Egan, the president of the Association of Independent Colleges and Universities of Rhode Island.

“Restructuring the payment schedule only two years after the most recent MOU was signed would violate the spirit of the agreements,” Egan added.

A spokesman for Providence College also emphasized the school’s commitment to the two previous agreements. “PC has faithfully paid the City just under $2.8 million in voluntary payments since the MOU was signed in 2003. And, as you know, we entered into a new and completely separate MOU with the City in December 2012 when we purchased portions of three City streets.  We have been making payments under that MOU as well,” said Steven Maurano, the Associate Vice President for Public Affairs & Community Relations.

Aponte says the city missed an opportunity to restructure its relationship with them. “I think that moment’s passed,” he said.

He is not calling for those colleges and universities to cough up yet further payments. Instead, Aponte, who is one of the candidates for city council president, says the city needs to bring the state into the conversation about what to do about its tax base. “One can argue that it becomes more incumbent on the state to make the city whole,” Aponte said.

Awareness but so far little planning for loss

Prior to Clarkin’s analysis of the 52 properties, there had been no single city document that spelled out which properties fell under the agreement and how much money the city could expect to lose—at least not any of which Clarkin is aware. Aponte, who had requested the analysis from Clarkin, expressed concern that the city has not been planning ahead for the slow bleed of revenues.

But a city spokeswoman told GoLocalProv the administration is aware of the problem.

“The city is aware of the phase-out of taxes over the years of the MOU and as such, we have already seen total tax collections hold steady or better in all three of the phase-in years, where large increases in tax revenue diminishment has occurred (FY 12, 13, and 14),” the spokeswoman, Dawn Bergantino, said in an e-mail.

A spokeswoman for Mayor-elect Jorge Elorza did not specifically comment on the how closely the transition team is examining the loss of revenues from the tax-exempts. But she emphasized that the team is taking a comprehensive look at all city finances. “We have begun a full review of the city's budget and fiscal status, and Mayor-elect Elorza is fully committed to responsible management of city finances,” said Marisa O’Gara.

Councilwoman Sabina Matos, whose name has also been floated as a possible candidate for council president, said she could not comment on the analysis until she had seen it for herself. But she said the figures cited by a reporter were “concerning.” (Matos had originally committed to backing Aponte for president and said she is currently in talks with him about how to move forward in the election for the council leadership.) 

Santurri puts it somewhat more bluntly. “Providence’s tax base is unsustainable,” he said.

He likens the city to a restaurant that is busy and packed with customers every night. About 38 percent of those customers don’t pay their bills. But they’re good customers. They write good reviews on Yelp. And they bring in new customers—paying customers.

“The problem is they don’t pay,” Santurri said. “How long can that restaurant stay in business?”