New residents already have started moving into one of downtown Providence’s oldest commercial buildings, occupying efficient, modern apartments that have taken spaces once afforded to a jeweler, a barber and other office workers over the past 150 years.
The Case-Mead Building at 76 Dorrance St. was originally built in two phases, beginning in 1859, with a fifth floor added in the early 20th century.
Owner Joseph R. Paolino Jr.’s late father purchased the building in 1968, when Paolino was 13. The family’s company, Paolino Properties, had its headquarters there for about 40 years until the younger Paolino purchased the office tower at 100 Westminster St.
This spring, the Case-Mead Building reopened following an $8 million renovation made possible with the help of tax assistance from the city. Along with street-level retail, it has 44 newly created apartments, half of them aimed at professionals who want to live downtown and who don’t need or want a large space.
Paolino knew the micro-lofts would be in demand. But even he was taken aback by the speed of the leasing for the smallest units. By April, all but one of the micro-lofts were leased. “I think the whole building will be rented by May 1,” he said, leading a tour of the renovated floors.
Like other renovated buildings downtown and some that are newly constructed, the Case-Mead conversion was financially beneficial for the developer due to a gradual phase-in of new taxes generated by the improvements.
But under what circumstances should a business receive such tax breaks? It’s an enduring question in Providence, where the perennially cash-poor city has authorized more than $10 million in tax breaks over the past 17 years.
Most of that activity has taken place over the past four years, according to a recent analysis prepared by the City Council’s auditor. The capital city now has 51 active tax-stabilization agreements for developments of varying sizes.
Altogether, the city agreements cover $505.4 million in commercial property, based on current assessments. Would the investment have come without the tax relief? And what is the cumulative impact of the tax agreements on the city’s property tax rates, and the size of its tax base?
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UNDER CONSTRUCTION: The Wexford Science and Technology Innovation Center building is now under active construction in the Interstate 195 Redevelopment District. / PBN PHOTO/MICHAEL SALERNO[/caption]
As construction activity has arrived on the Interstate 195 Redevelopment District, any change in city policy has the potential to affect the type and pace of future developments there.
The council recently agreed to hire a consultant who could help answer these questions. It’s embarking on this as members are divided over whether to expand a program that would largely automate the process for receiving a TSA.
The proposed standardized tax-stabilization agreement would create a uniform TSA, with the length of the tax repayment determined by project cost. Once effective, it would replace the city’s existing TSA policies, and add an incentive for the first five projects approved in the I-195 Redevelopment District, as well as the Capital Center District of Providence.
It also would remove City Council review from all but the largest – and most rare – projects in Providence.
Only projects exceeding $100 million would receive council scrutiny. And that has set off a backlash from council members who want to make sure the elected body retains control through an open and public review process. And in the I-195 and Capital Center areas, council and mayoral approval would be removed for the first five projects larger than $50 million.
The effort has the support of Mayor Jorge O. Elorza, who said the city needs to move forward on it. “My office will continue to support and pursue a predictable and standardized process that takes the politics out of economic development in the city. Each day that we delay passing this ordinance, Providence is potentially missing out on business and development opportunities.”
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CAPITAL CITY TSAs: Providence has 51 active tax-stabilization agreements, according to a recent analysis by the city’s independent auditor.
1. 236-250 Westminster St., December 2001, extended October 2014.
2. 210 Westminster St., November 2002.
3. 220 Westminster St., November 2002.
4. 65 Eddy St., November 2002.
5. 5 Avenue of the Arts, July 2003.
6. 10 Memorial Blvd., July 2003.
7. 166 Valley St., December 2003.
8. 100 Exchange St., January 2004.
9. 1 and 25 Park Row West, March 2005.
10. 203 Weybosset St., August 2005.
11. 60 Valley St., September 2006.
12. 200 Allens Ave., January 2007.
13. 41 Central St., April 2007.
14. 125 Washington St., November 2009.
15. 122 Fountain St., December 2011.
16. 1 Hasbro Place, December 2011.
17. 11 Dorrance St., March 2012.
18. 100 Weybosset St., July 2012.
19. 95 Chestnut St., April 2012.
20. 130 Westminster St., December 2012.
21. 103 Dike St., January 2012.
22. 350 Eddy St., June 2014.
23. 326 Westminster St., June 2014.
24. 25 Holden St., July 2014.
25. 825 Chalkstone Ave., July 2014.
26. 32 Custom House St., July 2015.
27. 55 Cromwell St., September 2015.
28. 15 Point St., 2 South St., December 2015.
29. 342 Eddy St., December 2015.
30. 111 Fountain St., December 2015.
31. 39 New York Ave., March 2016.
32. 75 Fountain St., April 2016.
33. 39 and 45 Pike St., April 2016.
34. 400 Hope St., May 2016.
35. 1037 Chalkstone Ave., June 2016.
36. 80 Smith St., June 2016.
37. 125 Atwells Ave., Date unknown on approval.
38. 19 Harrison St., July 2016.
39. 5 Exchange St., January 2017.
40. 225 Weybosset St., January 2017.
41. 80 Manton Ave., February 2017.
42. 11 Aleppo St., February 2017.
43. 37-40 Jones St., May 2017.
44. 100 Cedar St., May 2017.
45. 169 Canal St., June 2017.
46. 76 Dorrance St., June 2017.
47. 259 Weybosset St., July 2017.
48. 78 Fountain St., July 2017.
49. 225 Dyer St., September 2017.
50. 276 Westminster St., March 2018.
51. 59 Westminster St., March 2018. / SOURCE: OFFICE OF PROVIDENCE INDEPENDENT AUDITOR[/caption]
ARE THEY NEEDED?
The city currently has several TSA policies. The most commonly used, the traditional council-approved TSA, has been responsible for $413.7 million in assessed development, according to a report released in December by former council auditor Matthew Clarkin.
An administrative process directed at renovation of historic buildings had produced another $73.6 million in investment by year-end.
Two more recent variations – an administrative approval for large projects in the I-195 Redevelopment District and the Capital Center District – and an administrative approval for smaller investments in selected neighborhoods – have produced about $7 million in investment each, according to Clarkin’s report.
His analysis, released shortly before he left the city for private employment, pointed out structural weaknesses in the programs. Among other faults, the report highlighted a lack of coordination in City Hall responsibility for enforcing TSA-agreement requirements, including minority- and women-owned business hiring goals, and the collection of a required city fee to cover the costs of that oversight.
Another issue: the TSA can be authorized at any point up to the issuance of a certificate of occupancy. This makes it all but impossible to track compliance with contract requirements to include minority-owned or women-owned businesses in construction.
And it raises the question as to whether the tax incentives were really needed, Clarkin said, in a recent telephone interview. “You can have that project mostly done, and then you show up and you sign an agreement that says you’re going to make ‘best efforts’ on [minority-owned business enterprises] and all these other things, and the project’s already done,” Clarkin said. “It’s definitely an issue with regard to compliance. You can’t comply if you’re that far down the road. And then the question does come up, are you giving TSAs when you really don’t need to?”
Clarkin did not identify how many projects fell into this scenario. But Elorza spokesman Victor Morente, when asked by the Providence Business News, reported six projects since 2015 had been approved for TSAs once construction had already begun. They represent about 18 percent of the TSA projects approved in the past three years.
Opponents argue the projects don’t need the incentives.
Although the criticism initially targeted hotel projects – because of the potential for creation of poor-paying service jobs – in recent months a more coordinated effort opposing administrative TSAs has begun.
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UNITED ADVOCATES: Members of Unite Here Local 26, which advocates for better wages for workers, outside of the 903 apartment building they protested in front of several months ago. The group is opposed to the tax-stabilization agreement proliferation because it promotes development of costly living units. From left, Jeyson Gomez, Juana Cabrera, Jenna Karlin, Hipolito Rivera, Gina Vasconez, Raquel Cruz and Jonah Zinn.
/ PBN PHOTO/MICHAEL SALERNO[/caption]
Unite Here Local 26, a New England union of service workers employed in restaurants and hotels, has applied political pressure on the City Council in its review of TSA agreements, including through pickets outside City Hall and protests at meetings.
The group wants to ensure that employees of the projects being built are paid a fair wage and have the right to unionize.
Jenna Karlin, the organization’s vice president, said the current proposal for a uniform TSA needs to be withdrawn. “Providence should be prioritizing increasing funding to improve our schools, our affordable housing, our streets and sidewalks, our playgrounds and more good jobs,” she said. “The city already faces serious financial challenges. Every additional tax dollar that we give to the already wealthy means we have one less tax dollar to run the city.”
Moreover, much of the recent TSAs have helped to finance construction of luxury housing, she said. Most apartments created under the TSA approvals have been aimed at single city dwellers downtown, with rents typically beginning near $1,000 a month. The Case-Mead apartments start at $950 for the micro-units and go up to $1,850 for the one-bedroom units with corner views.
Several months ago, the Unite Here local staged a protest outside one of the city’s first apartment buildings financed through a TSA, the 903. Although no longer an active TSA, the project represents what is wrong with the approach taken in Providence, Karlin said.
“Luxury housing should not receive any incentives,” she said, in an emailed message. “We should be proactively using our tax dollars to support new housing that is affordable to working people and their families.”
HIGH TAXES
Many commercial developers have argued the tax program is needed because of the exceptionally high commercial tax rate in Providence. It necessitates an incentive to encourage significant development or the investment will go elsewhere, said Paolino, whose company owns 26 holdings in downtown Providence, in addition to 10 in other city locations. The former St. Joseph Medical Center, with 12 surrounding acres, also is among its properties.
“Property taxes are too high in Providence,” Paolino said, in a recent interview. “We have one of the highest tax rates in the country.”
Although former Mayor Angel Taveras froze the commercial tax rate for five years, and Elorza provided a minor reduction last year, the rate remains well-above other cities in the Northeast, at $36.70 per $1,000. The commercial rate in Boston, for example, is $25.20 per $1,000, and has been falling for five years.
“The city is behind the eight-ball,” Paolino said. “Because the only way they can get revenue is from property taxes. You have developers who are not going to develop here if they have to pay the high rate.”
As an incentive for such development, the TSA allows a project owner to slowly phase in the increased taxes associated with the new development. Although the arrangements vary, the most recent TSAs have had a three-year delay in payment of any taxes, to allow construction and occupancy for new development.
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TEAMWORK: Ron Kuhn, left, a carpenters union steward, mentors Edward Vanner, a third-year carpentry apprentice, while working on the South Street Landing project in Providence in January 2016. / PBN FILE PHOTO/RUPERT WHITELEY[/caption]
But over time, the city collects far more taxes than it would have on the original, unimproved sites. This is the argument levied by development teams, who argue it’s a win for the city.
“The city isn’t losing any money from TSAs,” Paolino said. “They’re still making money.”
In the past 15 months, Paolino’s business entities have received approval for three TSAs.
In June 2017, Paolino received a tax-stabilization agreement to help facilitate the redevelopment of the Case-Mead Building.
Five months earlier, in January 2017, he and partners developing the Homewood Suites Hotel at 5 Exchange St. received a TSA to help finance the new construction. The hotel will feature 120 suites, partly aimed at a business market.
And in March, Paolino received a tax agreement for another project, the conversion of the Exchange Bank Building into a 48-room boutique hotel above a ground-floor restaurant. Introduced last year, the TSA request ran into opposition in December, after several council members criticized a change in the original application, from conversion to an office use to a boutique hotel.
The $7.7 million project has already received a promise of state incentives, through the R.I. Commerce Corp. The building at 59 Westminster St. is one of Providence’s most historic. It is the only remaining building from the 1800s that fronts Kennedy Plaza. The 15-year TSA, approved by the council, will provide for three years of a base tax, the same tax paid this year, followed by 12 years of a slow phase-in of additional taxes.
Over that span, the cumulative payments will total $2.7 million in taxes to the city, as opposed to the $3.6 million that would have been generated without a TSA.
Councilman Luis A. Aponte described the change in use to a hotel as a “bait and switch,” at a Dec. 28 finance committee meeting.
“If we allow this precedent to be set, what stops future projects from being submitted as one thing, and then turned into something else?” Aponte said. “The nature of the public process of these things, the incentives we provide … works because it is open. It works because it is transparent. It works because people who disagree can come before this honorable body and be heard. They can dissent if they don’t support it.”
Aponte’s argument gets to the heart of what some council members say is the flaw in the administrative process for TSAs, that it removes negotiation and discussion from public view.
Of course, proponents argue that the public review also tends to stretch out the process.
Proponents of a clear-cut, administrative review of development incentives argue an automated process takes politicking out of the development decisions.
Using a simple formula – the amount of construction investment – the proposed citywide administrative TSA would authorize the agreements for projects less than $100 million without council negotiation. That sets a high bar for construction value in Providence.
In the past five years, only the $88 million Wexford Innovation Center, now under construction, has approached that amount. South Street Landing, a three-phase $220 million project, received city tax incentives via three separate projects.
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CONCERNED: Providence City Councilman John Igliozzi, majority leader and chairman of the City Council’s finance committee, is not in favor of a new tax-stabilization proposal that would remove public review of TSAs.
/ PBN PHOTO/MICHAEL SALERNO[/caption]
John Igliozzi, a longtime councilman who is chairman of its powerful finance committee, which reviews all TSA proposals, does not favor the administrative process.
In the current council term, within the past four years, more than a dozen TSAs have been “received, vetted, negotiated and approved,” he said. “The key to that is there was always full public disclosure. There was a full public vetting, and there were open and honest negotiations that would benefit the city, the taxpayer and the developer.”
The proposal for the administrative process was introduced in mid-November by now-Council President David Salvatore and supported by seven of 15 council members.
Igliozzi’s concern with the citywide administrative process is the removal of the public review.
“I think it has the potential to be abused,” he said. “You need to make sure there are proper checks and balances, so the public has full understanding of what is happening. Right now, there is a full public vetting of all of these TSAs. The public has a right to come in, and find out who’s getting it, why they’re getting it, what they’re building, how much they’re investing, what is being [forgiven], and what is happening.”
As of late March, the proposal remained in finance committee and had yet to have a hearing. But Salvatore said he is confident it will be heard and approved.
“I think there are some folks who are interested in having a public process around how we address tax policy in this city. I am fully committed to the proposal. I think it’s vitally important we start creating a more business-friendly capital city here in Rhode Island,” he said.
“The only way we are going to attract new businesses or see our existing business climate expand is by making the existing process easier,” Salvatore added.
One of the ordinance’s features is an expansion, citywide, of the administrative process now extended to developments in low- to moderate-income neighborhoods, and to larger projects in the I-195 and Capital Center districts.
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CAT CLINIC: Cathy Lund, right, is the owner of City Kitty, a newly constructed vet clinic focused on cats located on Hope Street in Providence. Lund is holding Stanley, a short-haired domestic, while vet tech Chris Profit holds Walter, also a short-haired domestic.
/ PBN PHOTO/MICHAEL SALERNO[/caption]
NEIGHBORHOOD TSA
The neighborhood TSA, which targets 19 of the city’s 25 neighborhoods, allows small business to access an administrative TSA. The purpose was to direct some of the recent downtown redevelopment momentum into needy neighborhoods.
Since May 2016, eight neighborhood projects have received the stabilization agreements.
One was for City Kitty, at 400 Hope St., a veterinary clinic that focuses on cats.
Owner Cathy Lund had previously operated the business in the city’s Jewelry District. In the Hope neighborhood, she invested in a $1.7 million project that allowed for new construction of the clinic and retail operation.
She employs about a dozen people. The TSA, approved in May 2016, allows her to pay taxes on the improved location through a five-year phase-in. Had she not received the TSA, the tax burden in 2017 would have been $46,132. Instead, her stabilized payment for the last tax year was $13,296.
What has the flexibility meant? It’s meant she could pay her employees a living wage, with sick leave, Lund said, and provide them with fully covered health insurance. She thinks the city should expand the administrative approvals, because it will make the process easier for business owners to navigate and invest.
Even with the standardized TSA, the process of approval for the new construction took about eight months, she said.
“I think it needs to be accessible and uniform,” Lund said. “Unfortunately, there are so many obstacles to opening a business.”
Small business is critical to Providence, she said, and should be encouraged to invest in the city. If any aspect of the TSA is expanded, it should be the small-business component, she says. The idea that the larger projects create more jobs is not true, in that small business overall has more impact, she says.
“Small businesses create good, local jobs. They’re more invested in the community,” Lund said. “We live or die by the feel of our communities.”
City Kitty, which is current on its tax payments, is among the projects that is alluded to, although not by name, in the council auditor’s report. The project received its TSA approval when the construction had already begun, Lund said.
The timing was such that she learned of the newly established TSA program after the work on her clinic had started and determined that the project met the requirements.
Clarkin recommended that no TSAs in the future be issued once a construction permit is issued. The process would be corrected under Salvatore’s uniform, citywide TSA bill, but it has not yet moved out of committee.
Lund said City Kitty’s TSA has allowed her to thrive as a business. As for compliance, she had already hired a firm co-owned by a woman and certified as a woman-owned enterprise.
“[The woman-owned firm] was really important to us,” she said.
