The latest plan to overhaul Providence’s controversial development property tax incentives restarts the debate over whether elected officials should approve individual deals or not.
Recommendations presented by City Internal Auditor Matthew Clarkin to the City Council’s Special Committee on Ways and Means in late October include an option that keeps political leaders in the loop, along with one developed by a business-centered task force last year that would make the process administrative.
In both cases, the recommendations call for cleaning up a “tax stabilization” system, as the deals are known, widely condemned for sloppiness, inconsistency, poor record-keeping and lack of monitoring.
Procedural recommendations in the report include seemingly common-sense items such as:
• Assigning each proposed deal an identification number.
• Requiring complete documentation before consideration.
• Standardized abatement commencement dates.
• Payment schedules included in each ordinance.
• A single point person for all deals.
• City solicitor review of all changes.
• Defining the term “best efforts” in relation to developer compliance.
The report also calls for prohibiting any new extensions of existing stabilizations until at least next July, an apparent response to controversial extensions for Cornish Associates’ Westminster Lofts granted in October.
But in providing two separate tax-stabilization structures, the report does not signal which way the Ways and Means Committee is leaning on the central question of how predictable or flexible the incentive program should be.
The first option, outlined by last year’s economic-development task force and fleshed out in an ordinance proposed by Council President Michael Solomon in June, would make tax stabilizations administrative, that is, any project that qualifies for a break would get one without vetting from the mayor or city councilors.
Along with greater predictability, the task-force recommendation extends the term of tax stabilizations from the current 12-year model in place to 15 years. Projects would need to include a minimum of $500,000 in construction or rehabilitation in order to qualify.
It would provide one category of administratively approved tax stabilizations for projects of $500,000 or more, but they would only run five years instead of the 15 in the task-force plan.
Projects built on the former Interstate 195 land worth more than $1 million could get 15-year stabilizations also without mayoral or council approval.
But for projects outside the I-195 land wanting more than five years of consistent, reduced taxes, the system would remain mostly unchanged and involve individual crafting of deals.
Each developer would need to pitch their stabilization ordinances to the mayor, who would vet them, and then send to the City Council for approval.
Solomon’s proposal is still before councilors, unacted on since the summer, and on Nov. 20, Councilor David Salvatore, chairman of the Ways and Means Committee, was slated to introduce the two pieces of the new proposal – 15-year automatic stabilizations for qualifying I-195 projects and smaller five-year automatic stabilizations – in separate ordinances.
For Kane, either proposal would give potential I-195 developers greater cost certainty than they enjoy now and eliminate political risk some have already complained about.
“Amen. This I celebrate,” Kane said over the phone. “[Capital markets] don’t want to underwrite political risk. They want to underwrite development risk.”
But the I-195 exemption raises the question of why an administrative process is right for projects on The Link, as it’s being marketed, but not for the same kind of development on one of the many vacant lots a few feet away.
Salvatore said he supports administrative stabilizations for The Link because “there is growth potential on the I-195 and this will send a message to the business community that we are serious about cutting red tape.” Making Link stabilizations administrative has taken on particular significance since the I-195 Commission last week approved a $50 million student-housing project there that intends to seek a stabilization.
“One person’s flexibility is the other’s lack of predictability,” Simmons said.
Made possible by Rhode Island law, tax stabilizations started becoming a default tax incentive in Providence starting in the boom years of the 1990s with projects like the Providence Place mall. Most lasted for 10 years, but were individually negotiated and included different provisions for different projects.
After the real estate market collapsed, state lawmakers passed a law extending all stabilizations. In 2011, city councilors expanded the program for new deals.
The 2011 ordinance allowed administrative approval for 10 new deals, extended their length to 12 years and set payments at either 35 cents per square foot or whatever they were at the end of 2010.
Although several popular projects were boosted by the ordinance – including the Dean Hotel and Arcade – complaints that they were too generous and continued issues with monitoring prompted the series of overhaul efforts still underway.
Tax stabilizations were a subject of debate in the Providence mayoral campaign.
Republican Daniel Harrop was the lone candidate calling for their elimination, while independent Vincent A. “Buddy” Cianci Jr. and now Mayor-elect Jorge Elorza, a Democrat, have both called for reforming the system.
Elorza, a former housing court judge, leans toward removing elected-official approval.
“My position on TSAs is we take the politics out of them as much as possible instead of negotiating one-off deals,” Elorza said in a phone interview before Election Day. “We should make it as much of an administrative process as possible. They can’t be giveaways as they have been in the past.” •
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