Report: Providence tax deals lack compliance, transparency

PROVIDENCE, R.I. (WPRI) – There is “widespread noncompliance” with annual reporting requirements for recipients of tax breaks in the city of Providence, according to a review of the special deals released Monday by the internal auditor’s office.

The 95-page report on the city’s 52 active tax stabilization agreements (TSAs), prepared at the request of the City Council, also suggests there “is not an easy or transparent way” for the public to learn about the incentives that are currently in place.

Other findings in the report include:

  • The city “continues to struggle at clearly defining and coordinating roles, responsibilities and processes” concerning tax deals.
  • Applications for tax breaks can be submitted at any time before a certificate of occupancy is issued, raising questions about whether the deal “is necessary on the project because financing was already secured.”
  • There is no formal notification or communication provided to departments that are tasked with monitoring tax stabilization agreement compliance.
  • There is no process to bill or collect fees owed to the city as part of the agreements.

Emily Crowell, a spokesperson for Mayor Jorge Elorza, said the mayor’s staff is still reviewing the auditor’s report. The report was prepared by Matt Clarkin, who retired from his city job Jan. 5.

Many of the findings in the report cast blame on the city’s oversight of the tax agreements, not the recipients themselves. In order to ensure recipients comply with annual reporting requirements, the report recommends the city create a template that “incorporates all potential TSA requirements” for them to fill out each year.

The report also suggests the city should publish a list of all active tax stabilization agreements online and require the city finance department to oversee compliance matters.

Tax stabilization agreements allow developers to gradually increase their property tax payments to the city over a period of time in exchange for promises to create new jobs, living spaces or hotel rooms. Supporters say the deals are essential to kickstart construction because of the city’s high commercial tax rate ($36.70 per $1,000).

The deals typically require developers to comply with the city’s First Source ordinance and have an apprenticeship agreement in place with local laborers. Activists have long accused the city of failing to enforce various provisions in the agreements, but city leaders maintain most developers are in compliance.

Tax breaks have historically been approved by the City Council as one-off ordinances, but the report from the internal auditor’s office comes as Mayor Jorge Elorza and City Council President David Salvatore are advocating for a standardized process that would grant tax breaks based largely on projected construction costs.

Salvatore, a Democrat, is the lead sponsor of a standardized tax stabilization ordinance that has yet to be discussed by the City Council Finance Committee. Supporters say it would streamline the process for tax breaks and assist the city when it comes to monitoring the agreements, but critics say it will lead to a spike in tax deals without offering the same benefit to existing taxpayers.

In 2013, Salvatore called for a “comprehensive review” of city tax incentives after an Eyewitness News review of tax breaks dating back to 1992 found many were crafted in a way that never carved out a realistic path for owners to begin paying 100% of the taxes owed based on their properties’ actual values. An internal auditor’s report released in 2014 outlined a series a recommendations for improving the tax break process, but most of them were never implemented.

The auditor’s latest report found there are 52 active tax stabilization agreements in place in Providence, more than half of which have been approved since 2014. Recent recipients of the deals include the owners of the Providence Journal building at 75 Fountain St., a group seeking to build a hotel at 111 Fountain St. and the Wexford Science + Technology innovation campus.

The combined assessed property values of the 52 tax stabilization agreement recipients is $500 million, according to the report. The city currently generates about $8 million in property taxes each year from the projects, approximately $10 million less than it would receive if all of the properties were fully taxed.

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