Providence Has 5th Highest Commercial Tax Rate in U.S., and it is Creating Two Classes of Business
Monday, July 31, 2017
The new building projects coming to Providence are asking for millions of dollars in tax breaks — tax stabilization plans.
Presently for land and building values of greater than $1 million, Providence has the 5th highest taxes of any city in the United States, based on analysis conducted by Lincoln Institute ranking the commercial property taxes for the largest city in each state. Providence ranks as the 5th highest for land and building values over $25 million too.
"Tax rates vary widely across the 53 cities. The top five cities of Detroit, New York City, Chicago, Providence, and Bridgeport all have effective tax rates that are at least two-thirds higher than the average for these cities," writes the Lincoln Institute in its report.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTIn comparison — Providence’s neighbor to the north, Boston, ranks 28th and 29th respectively, giving it a substantial competitive advantage.
“Providence commercial property taxes are among the highest when compared major cities in the nation, ranking in the top five for over a decade," said former Rhode Island Department of Administration Director Gary Sasse. "Thus, for Providence to attract commercial investments the City gives developers preferential tax deals. Over the long-run this is economically unsustainable for the City and other property taxpayers."
The outcome is that Providence functionally can’t compete without major subsidies. Thus, the new projects are “the haves” — new, modern, and heavily subsidized. Then, there are the "have nots."
Haves and Have Nots
The existing buildings are older, less efficient and do not enjoy the benefits of tax breaks — they are the “have nots”
Former Mayor of Providence Joseph Paolino, who today is among one of the largest real estate developers in Providence, says that the city needs to dramatically change its spending.
“Taxes in Providence are high, for residential or for commercial, as well as personal property [tax]. So all three are very high. How do you correct this? A major change in how the city spends,” Paolino tells GoLocal.
“That is why there are so many TSAs. Take Providence Place Mall as an example. Taxed at full taxes, you'd probably see some of the major stores leave. The city will have to have to face that in the future. I'm concerned when the [PPM] TSA runs out, what's going to happen,” Paolino adds.
Angus Davis, one of Providence’s most successful technologists, has warned about the dangers of the upside down financial structure. Davis founded Upserve — it is a restaurant management platform. The company leases tens of thousands of square feet in downtown Providence.
Davis tweeted, "Providence tax now 3.5 times Boston rate for apartments & 45% higher for offices. But PVD rents 50% less = all new building want a TSA."
The proposed tower by Justin Fane on the 195 land is looking for tens of millions in subsidies. Jeff Padwa the attorney for the project said the total project cost is now $220 million.
The project costs were originally claimed to be $400 million to $500 million when the project was first announced. Back in November of 2016, Fane explicitly did not outline any request for any incentives. Beyond the $15 million in state subsidies, Fane is asking for tens of millions in tax abatements from a tax stabilization. Fane is seeking a 20-year tax stabilization for the project.
“You have to look at the [city's] priorities, but if they want to do something, it would have to be a major restructuring,” said Paolino. “Take Blue Cross -- they have the TSA, and they're moving jobs out, and they can underbid me for $4 a square foot."
Sasse added, “Real business property tax reform is necessary to enhance the competitiveness of Rhode Island and its Capitol City. Unfortunately, state policy appears to be directed at providing real estate developers with preferential tax deal while totally ignoring structural property tax reforms needed to make Providence truly competitive.”
Related Slideshow: Providence Finances - Benchmark Report - 2016
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