Tax breaks are one way the city of Providence has persuaded developers to build or rehabilitate properties, but a proposal to overhaul the terms of these tax stabilization agreements could threaten that revenue amid a pandemic-induced drain on city coffers.
A recent report by the city showed that the 70 tax stabilization agreements on the books are projected to bring in $6 million in additional revenue in fiscal 2021, doubling the city’s total anticipated property tax income from those properties to $12.3 million. Over the next 20 years, the phased-in taxes on these projects are expected to generate an extra $450.6 million, according to the report.
City Council Finance Committee Chairman John J. Igliozzi said this analysis proves the city’s policies have been “wildly successful.” But the tax breaks have become increasingly controversial, drawing criticism from residents, labor representatives and other council members.
A proposal introduced by City Council President Sabina Matos in the fall seeks to address some of these criticisms by creating stricter reporting requirements and wage and labor standards for developers that receive tax deals. It would also expand the City Council’s authority to approve smaller-dollar projects.
Asked whether she thought the proposal might reduce revenue from these agreements, Matos in an email said the purpose of introducing the legislation was to discuss and debate such components during committee meetings. She also said her proposal could be revised based on that discussion.
Some developers have suggested these changes, if approved, are too onerous and will force them to take their projects elsewhere. A fiscal analysis of the proposal has not been completed, but the implication could be one of lost revenue.
“If we inhibit one of the key tax development tools now, while growth of nontaxable [property] is rising, the city will have a greater imbalance on its tax base,” Igliozzi said.
Jim Abdo, CEO and president of Abdo Development LLC, based in Washington, D.C., and the developer behind the Hotel Hive Providence project in downtown Providence, said the tax breaks he received through the city and state were crucial. When the City Council, amid criticism from residents and union representatives, postponed its decision on the tax deal for Hotel Hive in 2019, Abdo said he was putting the project on hold.
Though the council later approved a $2.7 million tax break, the project is facing delays again, this time because of the pandemic. Though Abdo was unsure when he would be able to begin construction on the combined hotel, micro-loft and coworking space in earnest, he paid the required property taxes.
Abdo said it is unfair to describe the tax deals as giveaways to wealthy developers.
“If you take away the TSA, those buildings just sit there and continue to languish,” he said, adding that the city loses property tax revenue from the development, as well as the income, sales and business taxes and permitting fees.
“It’s not a windfall for a developer to get a TSA,” he said. “If anything, it’s a windfall for the city.”
Mayor Jorge O. Elorza also expressed concerns that the proposal’s implications, which in his words make the process “less professional and more political,” could jeopardize economic development opportunities.
Igliozzi warned that any major policy change, particularly one that may threaten economic development, should not be made during a time of financial crisis. Matos said she would not have introduced the ordinance if she believed it would jeopardize the city or its economic development.
Elorza also described tax revenues as “vital” during the current crisis. Exactly how much of a deficit the city currently faces has not been specified; the city also has not passed a fiscal 2021 spending plan but instead approved level tax rates and a "pay as you go" policy for additional expenses.
Michael F. Sabitoni, president of the Rhode Island Building Trades Union and chairman of the recently formed Providence Rises Together Coalition, offered a different take. He said proposed reforms should not preclude economic development and were necessary for proper wage and labor standards for workers, many of whom are Providence residents.
