City putting limits on property-tax breaks

STABLE ENVIRONMENT: Cornish Associates recently applied for a new tax-stabilization deal for the Kinsley Building on Westminster Street in Providence. / PBN PHOTO/MARK S. MURPHY
STABLE ENVIRONMENT: Cornish Associates recently applied for a new tax-stabilization deal for the Kinsley Building on Westminster Street in Providence. / PBN PHOTO/MARK S. MURPHY

Providence is bringing an end to indefinite property-tax breaks for large development projects.
Concerned about the cost of “tax stabilization” agreements awarded ad hoc to developers over the past two decades, Mayor Angel Taveras has created new rules to govern the practice and make sure the breaks don’t become permanent.
Most major building projects completed in the city in the last 20 years – from the Providence Place mall to the Arcade – have taken advantage of tax stabilization. And with improvement in the real estate market and the return of state historic tax credits, a number of high-profile properties, including the Industrial Trust Tower and South Street Power Station, could be seeking them soon.
Under the new tax-stabilization framework developed by the Taveras administration, future deals will be capped at 12 years and staggered so that relief to owners diminishes during the course of the deal.
In the first three years of a tax stabilization, the owner will pay no property taxes. Then in the fourth year, taxes will begin at 22 percent of assessed value and rise 11 percentage points annually until the 13th year, when they will pay the full assessed value.
“Historically there has not been any structure for stabilizations,” Taveras spokesman David Ortiz said. “The administration believes there is a place for stabilization and that it is very helpful for promoting developing in the city. What we are seeking to do is be responsible about structuring [the deals] so they enable a project to get off the ground and bring it onto the tax role in a reasonable amount of time.”
But the new policy may not be the end of debate about the tax stabilization going forward.
City councilors, who negotiated and approved all tax stabilization deals until 2011, when an ordinance authorized the mayor to negotiate 10 agreements without having to seek individual City Council votes, have been discussing a comprehensive review of the policy.
Ward 14 Councilor David Salvatore said the Ways and Means Committee he chairs would be reviewing individual tax stabilizations within the next two weeks to determine whether recipients have been living up to their obligations under the deals.
When the review is complete, Salvatore said he expects the committee to issue recommendations for ordinance changes regarding stabilization. Salvatore said he didn’t know what aspect of stabilization policy would be addressed by any changes, but he is concerned about tax deals stretching on indefinitely.
Ward 2 Councilor Samuel D. Zurier became involved in the stabilization debate when Gilbane Development Co. requested a tax deal for its planned student apartment building on Thayer Street, in his ward, and said the project may not go forward without it.
The City Council eventually rejected the agreement with Gilbane, which chose to go ahead with the project anyway.
“Are there projects where a 12-year stabilization could make sense? I am sure there are, but I would like to determine how we can find out if that’s the best idea,” Zurier said. “Now, we don’t have a way to evaluate projects and figure out if they are a good candidate. There may be times when a five-year or 15-year stabilization makes sense.”
Zurier became involved in the stabilization debate when Gilbane Development requested a tax deal for its planned student apartment building on Thayer Street, in his ward, and said the project may not go forward without it.
The City Council eventually rejected the agreement with Gilbane, which chose to go ahead with the project anyway.
Gary S. Sasse, director of Bryant University’s Institute for Public Leadership and an adviser to Taveras on the city’s budget crisis two years ago, said the mayor’s 12-year framework appeared fundamentally sound.
“In the past there were too many cities and towns that granted tax stabilization on a one-off basis, leading to wheeling and dealing that was not in the interest of all taxpayers,” Sasse said. “What the mayor has [set up] appears balanced, with more equity to taxpayers than existed, but recognizes you need to use stabilization from time to time to be competitive, especially with Providence’s high commercial tax rates.”
Along with the Gilbane project, debate about stabilizations was spurred this year by the tax status of several properties owned by Cornish Associates, which has played a leading role in the redevelopment of downtown.
The four Cornish buildings that make up the Westminster Lofts all have tax-stabilization agreements that are nearing expiration and the company recently applied for a new deal for the Kinsley Building, also on Westminster Street, which it intends to convert into apartments. In August the city denied Cornish’s initial proposal for the Kinsley Building and no progress has been reported on a deal since.
Stephen Durkee, principal at Cornish Associates, declined to discuss the company’s tax-stabilization request.
But Cornish is only one of many developers utilizing tax stabilization and facing substantial tax hikes if extensions are not given.
Last year the “System Out of Balance” report, by an ad hoc commission tasked with looking at Providence’s tax structure, said 35 businesses entered into some form of tax stabilization in 2012.
As a result of the agreements, the businesses paid $3.5 million in property tax instead of the $6.8 million that would have been due without the agreements, the report said.
The city was unable to provide a total of how many tax stabilizations are currently active or the total value of those deals.
Ortiz said in addition to Cornish, one other property owner has made an outstanding request for a new tax-stabilization deal, although he declined to say who that was.
Providence’s commercial tax rate of $26.75 per $1,000 of value remains one of the highest rates in the country. Developers argue that the city needs to offer tax stabilization if it is going to see any growth and investment.
Joseph R. Paolino Jr., managing partner of Paolino Properties in Providence, was mayor from 1986 to 1991, before the city split its tax rate and tax stabilizations took off. Among the handful of stabilization agreements he negotiated was the Avalon at Center Place apartment complex.
“Not a lot of people asked for them in those days, but taxes have increased greatly, as have costs since then,” Paolino said.
Paolino said establishing a policy to govern tax breaks was a good idea, even if in some cases the city needs to depart from the framework for individual projects.
“At least in that case you have something on the books, a place to start when someone comes in and makes a request,” Paolino said. “It is good to have guidance.”
No current Paolino Properties holdings have tax stabilizations, Paolino said.
The 903 apartment-condominium complex on Providence Place street had one, but its upcoming expiration was one reason Paolino said he sold his interest in the property in 2011. •

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