Report: City failed to monitor tax deals

Providence City Hall

PROVIDENCE, R.I. (WPRI) – Providence failed to properly monitor dozens of special tax breaks for developers awarded over the last 25 years, allowing some recipients to miss required payments to the city and others to fall behind on their taxes, according to a report released by the internal auditor Thursday.

The city has already recovered $106,000 that was owed to the Providence Redevelopment Agency (PRA) dating back to 2006, payments that two developers were required to make as part of their multimillion dollar tax stabilization agreements, according to the report.

“The identification of the overdue contributions underscores the need for regular reviews to ensure property owners are complying with all the requirements of the tax stabilization agreements,” City Councilman David Salvatore said in a statement. “These agreements are made to benefit not only the property owner, but also to benefit the city in terms of job creation, business growth, and community investment. It is imperative to continue the review process, and I look forward to future reports.”

Tax stabilization deals historically have allowed developers to increase property tax payments on a sliding scale over the course of 10, 15 and sometimes 20 years in exchange for creating jobs and filling vacant buildings – often in downtown. Changes made under the Taveras administration allowed developers to lock in their tax rate at $0.35 per square foot for a period of 12 years, rather than gradually increasing payments over the life of the deal.

Salvatore, who chairs the Ways and Means Committee, called for a complete review of the tax deals last year after a WPRI.com analysis of the agreements since 1992 showed that many of the deals were crafted in a way that never carved out a realistic path for building owners to begin paying 100% of the taxes owed based on their properties’ actual value.

City officials now say some of the deals turned out to be far more lucrative than originally predicted, leading to questions about whether the incentives have outweighed their long-term financial benefit to the city.

The report, prepared by internal auditor Mathew Clarkin, paints of positive view of how tax breaks can benefit the city, but finds that compliance monitoring of the terms of the deals has “been either non-existent or deficient at best.”

The report also highlights the “disjointed nature of the records and documentation concerning tax stabilized properties,” which made it difficult to secure accurate information about each deal.

When WPRI.com began requesting data last summer, the city tax assessor’s office was able to produce paper records of every tax stabilization agreement it has granted, but acknowledged that no one maintained a database to track how much the deals were worth until Mayor Angel Taveras took office in 2011.

Clarkin’s review found that 36 tax stabilizations are currently active, generating $5.2 million in tax payments to the city in 2013. The total assessed value of the 36 properties, which include several downtown luxury apartments as well as smaller projects like a nightclub in Olneyville, is $429.4 million.

For the current fiscal year, commercial property owners that do not have special arrangements with the city pay $36.75-per-$1,000 of assessed value, the highest rate on any big city in the country, according to a widely cited annual study by the Lincoln Institute of Land Policy and the Minnesota Taxpayers Association.

Lack of compliance; 6 tax delinquents

When utilized “judiciously and wisely,” Clarkin said tax stabilizations “are an important tool for the city to grow its economic base,” but his report said the city needs to streamline its approach for monitoring the agreements.

Among his findings:

  • Two of the four recipients required to make contributions to the PRA failed to make $106,000 in payments since 2006. Those payments have since been made;
  • Six recipients were delinquent on their property taxes as of Jan. 17. A payment plan that would ensure they are current on their taxes within 12 months is required or they could have their tax stabilization revoked;
  • Seven residential properties are required to offer at least 20% of their rentals below market value, but there is no process in place to monitor whether the recipients have followed those terms;
  • Compliance with the city’s First Source ordinance as well as apprenticeship requirements for some recipients has rarely been enforced.

Clarkin offered a host of recommendations to improve internal monitoring of the city’s tax deals as well as ensure recipients have met their end of the bargain on the agreements. He also said the City Council should vet each stabilization request individually, a policy that was always in place until 2011 when the council gave Taveras the go-ahead to sign off on 10 tax stabilizations without legislative oversight.

The idea to remove the council’s vetting proves was pitched in part as a way to remove politics from the process, but it also eliminated “the need for time-consuming public hearings, council committee meetings and two formal passages of an enabling ordinance,” according to a report released earlier this month by the city’s law office.

Separately, the Taveras administration has clashed publicly with at least one high-profile developer over tax breaks awarded long before the mayor took office. In August, Taveras Chief of Staff Michael D’Amico wrote a letter to downtown businessman Arnold “Buff” Chace expressing concern over four tax stabilizations for Chace’s properties on Westminster Street that are set to expire by 2016.

The goal, according to D’Amico, is to eventually streamline the city’s tax stabilization agreements so that all deals are capped at 12 years and result in the recipient ultimately paying the city’s full commercial tax rate.

City Council President Michael Solomon, who is running for mayor, said he supports tax stabilizations, but acknowledged that the review was overdue.

“We need to promote economic development in Providence, and tax stabilization agreements with developers can be a valuable tool to grow our tax base and create jobs,” Solomon said in a prepared statement. “The council’s examination of existing treaties will result in improved tax stabilization policies, and ensure that these agreements assist in moving the city forward, and are a benefit to Providence residents, and the city as a whole.”

Dan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Twitter: @danmcgowan

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