Wage requirements in Providence TSA proposal pit developers against unions

Updated at 4:59 p.m.

A PROPOSAL to require developers who receive city tax breaks to abide by state prevailing wage laws has stirred controversy between developers and union representatives. Lack of wage standards was a source of criticism for the Tax Stabilization Agreement for the Hotel Hive project slated for the former Providence Journal building, pictured above. / COURTESY ABDO DEVELOPMENT

PROVIDENCE – A proposal to add wage and labor requirements for developers whose projects receive property tax breaks in the city has fanned flames of longstanding disagreements between developers and union representatives.

At issue is how much the city can and should set requirements on developers whose projects are awarded tax stabilization agreements, and whether those requirements represent much-needed stringency on a publicly subsidized project or are so onerous and costly they will dissuade developers from building in Providence altogether. Specifically, the debate centers upon a proposed requirement that developers must abide by state prevailing wage requirements when paying their construction workers, contractors and subcontractors. 

The proposed change does not specify the rate at which workers must be paid, but refers to state prevailing-wage statutes, which give the R.I. Department of Labor and Training director authority to approve rates based on industry and area standards. Contractors and subcontractors must also file certified monthly payrolls to the city as proof of compliance, with failure to do so allowing the city to potentially cancel the agreement if violations are not remedied within a set time frame.

The wage requirement is one of a host changes or overhauls the policy lays out; other significant changes include enforcement mechanisms for meeting city requirements to contract with minority and women-business enterprises and giving the City Council authority to approve every tax break, instead of limiting their purview in smaller dollar-value projects.

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The council will take public comment on the proposed Tax Stabilization Investment Act at an upcoming meeting. But already, both sides are weighing in, submitting letters shared with Providence Business News.

In a Dec. 3 letter to the council, Mayor Jorge O. Elorza and city staff, Seth Zeren, development director for Armory Management Co. in Providence, warned that this requirement would make projects more expensive, ultimately dissuading the development and corresponding tax revenue that TSAs are intended to incentivize.

Zeren also pointed to new requirements that developers, and their subcontractors, submit monthly reports certifying payrolls, as disproportionately hurting the smaller, minority-owned contractors who did not have the staff and accounting capabilities to accommodate the “administrative burden.”

“The sum effect of this regulation will be to greatly reduce the use of TSAs in Providence because of the unworkable requirements, while simultaneously reducing investment in new construction housing and commercial space and encourage for-sale redevelopment of smaller properties,” Zeren wrote.

Zeren did not return inquiries for comment, but in the letter recommended a host of changes to the proposed ordinance, including that projects under $20 million be exempt from prevailing wage requirements.

Zeren’s letter drew a heated response from Michael Sabitoni, president of the Rhode Island Building Trades Union, who described Zeren’s concerns as “outrageous” in an interview. Sabitoni also sent a letter on Jan. 13 to the city responding to Zeren’s concerns, in which he reiterated the importance of the requirements set forth in the TSA proposal, including prevailing wage and reporting standards that ensure awarded projects comply with guidelines for minority contracting and wages.

“If developers want to construct a building for profit while misclassifying their workforce; without paying a living wage, health care benefits, retirement benefits, paying employment taxes; and, without reporting requirements, they should take the risk of doing so on their own dime. Otherwise, they should simply say thank you for the tax assistance they are receiving and comply with the reasonable obligations of those agreements that should not just benefit them, but the citizens of the community as well,” Sabitoni wrote.

Justin Kelley, who represents the International Union of Painters and Allied Trades, echoed Sabitoni’s comments.

“Basically, up until this point, we’ve been subsidizing fraud and criminal behavior by a host of contractors who benefit from these policies,” Kelley said, citing “rampant” wage theft, employee misclassification and other health, safety and labor law violations by TSA-awarded projects. Asked for evidence of these violations, Kelley pointed to the Capitol Cove development on Canal Street, which under the 2004 TSA with the city will not pay the full property taxes until 2023. A 2018 investigation by the R.I. Department of Labor and Training found that J.S. Interiors Construction Inc, a subcontractor for Capitol Cove’s Tocci Building Cos., misclassified and failed to pay 27 workers. The settlement agreement resulted in a $40,500 fine. Kelley said the union was working to compile documentation of additional examples of wage theft and labor violations by TSA projects, though it was not immediately available.

Council President Sabina Matos, who introduced the ordinance with support from a majority of the council, did not respond to multiple calls for comment. 

Councilwoman Rachel Miller, a self-described community organizer and longtime advocate for changes to the city TSA policy, said the letter from Zaren was the only feedback she has received from the development community to date. Noting that the public comment process has just begun, Miller said it was important to create a predictable process with fair standards that show specific benefits the tax breaks give to the city.

“Constituents are increasingly asking, and I am with them on this, why we forgo millions of tax dollars for projects with no tangible benefit,” she said.

Miller named as example of this public feedback the $39 million Hotel Hive project proposed for the former Providence Journal building downtown, which was approved for a $2.7 million tax break amid criticism including from union representatives. 

Hotel Hive developer Jim Abdo declined to comment.

Kelly Coates, president of real estate development company Carpionato Group, which has worked on past projects with TSAs, urged  the city to be careful not to put additional burdens on developers, though he was not familiar with the specific requirements of the new proposal.

“At a time when it’s really important to get development going again, the city should be very cautious about adding hurdles for people to jump over,” he said. 

(ADDS paragraphs 3-4 with detail on proposed changes.)

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

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