Smiley makes first moves to boost city income from colleges, hospitals

PROVIDENCE – Mayor Brett Smiley is making good on his campaign promise to bring in more tax revenue from the universities and hospitals that are rapidly expanding across the capital city.

Increasing the financial benefits Providence receives in exchange for the services it provides to these organizations, which as nonprofits are tax-exempt, is the centerpiece of the city’s 2023 legislative priorities, which were unveiled at a press event on Thursday.

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Smiley emphasized how these proposed changes in state law, which must be passed by the General Assembly, work in concert with the city’s direct payment agreements with institutions to rectify a history of “unfairness and noncompetition.”

“It’s an issue of basic fairness,” Smiley said. 

The discrepancy between what massive, well-endowed institutions like Brown University would pay in city property taxes versus the amount they actually pay has long been a source of contention, increasingly so in recent years as these institutions buy more and more property across the city. 

A 2022 city report estimated these institutions – which include Brown, Care New England Health System and Lifespan Corp., among others – own nearly 40% of the tax base. That means the city is losing about two-thirds of the $130 million it would be collecting in property taxes based on the full assessed value as of fiscal 2021, according to the report. The city can’t do much to change the $35.5 million it gets in state aid on these tax-exempt sites, but it could renegotiate the terms of what the universities, hospitals and other nonprofits pay – currently a combined $8 million a year.

Which is where the city’s pending legislation comes in. One proposal would require tax-exempt institutions to pay the full commercial tax rate on buildings, or portions of buildings, that it leases to commercial tenants. For example, a Starbucks in a Johnson & Wales University building or a private doctor’s office that leases space out of a Lifespan property, would be taxed at the full commercial rate.

Hypothetically this wouldn’t cost the tax-exempt institution as building operator any more, since usually the tenant pays taxes, according to Smiley. How many properties this would apply to, and what that would bring into city tax rolls, has not been calculated.

A second legislative proposal calls for the state to give a quarter of the payroll tax revenue it makes from new jobs created by these institutions back to the city. Smiley stressed that the revenue sharing would only apply to new positions, not those existing, so it does not take away from the state’s existing payroll tax revenue. 

It also gives the city an incentive to support job creation and growth of these institutions, Smiley said.

At the same time, Smiley has begun initial conversations with university and hospital leaders around their direct payments to the city as existing agreements expire. The city decline to share details of those negotiations, including whether the city will ask for more money from these organizations.

Brian Clark, a spokesman for Brown University, referred questions about the proposed legislation to The Association of Independent Colleges and Universities of Rhode Island. Clark also noted that Brown already pays taxes on its commercial properties – equal to $2.4 million in fiscal 2022.

Lifespan and Care New England each did not immediately respond to inquiries for comment about their negotiations or the city’s proposed legislative priorities.

The legislation outlined Thursday is still being drafted, and bill sponsors have not been confirmed, according to city administrators. The city expects to have bills for each of the PILOT proposals, as well as other items in its legislative package, introduced at the Statehouse this month.

The city’s list of legislative priorities also includes additional “support” – funding or other – to redevelop the Cranston Street Armory. The historic state-owned building in Providence’s West End is being used as a temporary warming shelter for homeless people, but is slated to be redeveloped, with space for an indoor turf soccer field plus room for small businesses and entrepreneurs. Smiley said the shovel-ready project is a perfect example of a one-time spend using the state’s federal stimulus dollars, although the city has not specified exactly how much more state aid they will ask for.

McKee’s office did not immediately respond to inquiries for comment about the city’s legislative proposals.

(Update: Story has been updated to clarify that Brown University already pays city property taxes on its commercial properties.)

Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.