Uprise RI has covered the special, multi-million tax deal brokered under former Providence Mayor Jorge Elorza and City Solicitor Jeffrey Dana to downtown Providence realtor and developer Arnold “Buff” Chace in series of pieces, but the nature of the deal has come into sharper focus today with access to a December 15, 2022 “confidential memorandum” from Providence’s internal auditor Gina Costa to all the members of the city council.

The crux of the story is that Chace gave up the lucrative tax stabilization agreements (TSAs) on ten of his properties and instead worked out a deal through his attorney, Nicholas Hemond, to tax his properties using the more lucrative “8-Law,” a state statute created to promote the development of low-income housing in the state.

In the memorandum, Costa advises the City Council “to hire their own attorney to challenge the unilateral action of the City Solicitor, with the intent of preventing at least an $18 million dollar loss in tax revenue to the city.”

Uprise RI has a redacted version of the memorandum, which omits three attachments that can only be revealed to council members during executive session due to confidentiality concerns. However, some of the information contained within the sections that are redacted are referred to in the body of the memorandum.

The ten “Buff” Chace properties in question are:

1. Harrisburg Associates, LLC – 89 Eddy Street
2. Lerner Associates, LLC – 90 Eddy Street
3. The Alice Building – 236 Westminster Street
4. Smith/Keen, LP – 1 Fulton Street
5. Lapham 290, LLC-290 Westminster Street
6. Peerless Lofts, LLC 150 Union Street
7. Clemence 91, LLC-91 Clemence Street
8. RWB Associates, LLC-270 Westminster Street
9. 276 Westminster, LLC – 276 Westminster Street
10. Downtown Revitalization Fund I, LLC – 326 Westminster Street

Obtaining key information on this multimillion dollar tax deal has proven difficult and the entire incident has been shrouded in mystery. Attorney Dana has ignored several requests from Uprise RI for comment and in an exclusive interview, former Mayor Jorge Elorza refused to directly answer questions about why this deal was done and what precipitated the lawsuit that resulted in this agreement.

Earlier this year the newly elected Providence City Council approved the re-appointment of Jeffrey Dana as City Solicitor. During the City Council Finance Committee hearing to discuss the solicitor’s re-appointment, questions from Councilor Justin Roias (Ward 4) about the special 8-Law tax deal were deflected by Dana, who said he would only answer the questions during an executive (i.e. private) session of the council.

See previous coverage here:

• May 16, 2022 As taxes rise, Elorza Administration gives huge tax break to one of the richest property owners in PVD
• September 21, 2022 Providence Finance Committee to take up lucrative Buff Chace tax giveaways on Thursday
• September 22, 2022 Campaign donations may supply a clue as to why Providence seeks to approve sweetheart developer deals
• September 28, 2022 Exclusive: Mayor Elorza interview on Buff Chace sweetheart tax deal

You can access the original memorandum here.

You can read the memorandum here:

On June 9, 2021, a consent order was entered in the Providence/Bristol County Superior Court that applies 8% tax law treatment pursuant to Rhode Island General Law 44-5-13.11 which is a special tax provision for low-income housing units. 8% tax law treatment allows the property owner to pay 8% of the previous year’s rent collected as its property tax instead of the full commercial or residential rate depending on the property. The Consent Order applied this low-income housing tax treatment to several mixed-use properties in the City, which results in a significant reduction in the amount of taxes the City collects from these properties. The properties that benefit from this consent order are:

Some issues that should be made known:

1. This consent order was approved and implemented without the approval of the City Council, the Committee on Claims and Pending Suits or the Board of Tax Assessment and Review. The City Solicitor claims that his authority to enter into the Consent Order rests in Code of Ordinances Sec 2-99 (b) (4). This section does allow the Solicitor to settle however that settlement authority requires the city Tax Assessor’s consent. My research has been unable to identify any such consent from the Tax Assessor at the time the Consent Order was signed, but a response from the Solicitor is pending.
2. The Area Median Income (AMI) level used in this consent judgement to be deemed as an “affordable unit” is 100%. The Department of Housing and Urban Development (HUD) defines “low-income” as 80% AMI or below. The leases that are being used to justify restricted “low-income” units includes students with zero income level. Housing and Urban Development (HUD) does not include students as eligible for qualification in other HUD approved properties.
3. These properties are mixed-use and contain both commercial and residential space. Under this Consent Order the entire property, including commercial space such as restaurants and stores, is now being taxed the same as the residential — 8% of the previous year’s gross income. The Tax Assessor is empowered to separate the commercial from the residential, however the Consent Order does not allow for that separation.
4. Per the consent order, the Tax Assessor’s office is responsible for reviewing all lease agreements and leaser’s income to determine the annual gross income. The standard practice in Providence is to have RI Housing certify compliance with HUD regulations prior to receiving 8Law treatment. It is questionable why the Consent Order breaks from standard practice and instead burdens the Tax Assessor with compliance responsibilities that are better suited to be run through RI Housing. One may ask if a conflict of interest could occur.
5. There is retroactivity to abate taxes to July 24, 2020, even though there was no restricted covenant in place at that time, as required. Approximately $626,000 has been abated for six of the ten properties. The Assessor did ask for the HUD forms that would confirm the qualification of “affordability” after the Consent Order was entered with the Court but was instead simply provided with the leases themselves.

Background:

In 2016, an Assistant City Solicitor provided a response to the City Solicitor’s inquiry of “how the city applies RIGL 44-5-13.11 to properties which are deed-restricted but not comprised of 100% affordable units.” (ATTACHMENT C redacted) The response provided the following criteria:

1. Be residential property.
2. Has be issued a certificate of occupancy after January 1, 1995.
3. Has been “substantially rehabilitated.”
4. Has a restricted covenant recorded restricting either the rents to be charged or the income of the tenants, or both.

The properties in question are not 100% residential. There are stores and restaurants occupying the first level of many of these buildings. The assessor has the discretion to provide the 8Law rate to the residential portion of the property and the remainder would be at the commercial rate. Based on the review, there is no indication that the assessor agreed to providing this benefit to the property owner and states her disagreement in various emails. This consent order includes the entire property at the 8% rate, not just residential. All properties meet eligibility criteria 2 and 3. Eligibility Criteria 4 has been completed after the Consent Order was entered. It is interesting that the Consent Order provides for retroactive relief of taxes for a period in which the properties do not meet the eligibility criteria outlined above.

In March 2020, a different Assistant City Solicitor responded to a question “Can the City accommodate a developer who intends to rehab a multi-unit residential property in Providence by applying 8% tax law treatment to the property as a whole, when only 25% or less of the residential units will be restricted for affordable housing.” In short, the Assistant City Solicitor said that the “appropriate way to do this would be to enter into a Tax Stabilization Agreement (TSA) with the developer.” The problem with this approach is that most, or all, of the properties in question had already been granted tax stabilizations and would not qualify for additional relief. (ATTACHMENT D redacted)

On June 24, 2020, a complaint with the Providence/Bristol Superior Court was initiated.

In January 2021, the third (and different) Assistant City Solicitor reviewed the draft consent order and the memorandums of the other attorneys and provided this comment: “Because this project is mixed use (not solely residential) and because the entirety of the property is not restricted, I agree with my colleagues that the project does not meet the criteria for 8 Law under 44-5-13.11. I share my colleague’s suggestion that it would be generous of the city to apportion 8 law treatment to those qualifying units within the project.” Once the agreement was signed by the City Solicitor, without any council approval, the property owner applied for a 30-year restricted covenant for each property. The restricted covenants were then signed by the mayor and recorded in the City’s land evidence records.

An email exists dated June 15, 2021, from the third Assistant City Solicitor to the Tax Assessor with the attached approved consent order stating “Sorry Elyse, I tried.” The assessor responds, “am I allowed to reach out to them [plaintiff’s counsel] directly.” Based on this email, one could assume that the Tax Assessor had known about this consent order but did not agree with it. As previously stated, the City Solicitor’s authority to enter into this Consent Order required the Tax Assessor’s consent. Another presumption one could make from these emails is that there was no fiscal oversight of this agreement. The City Solicitor was asked to produce a fiscal note from my office on March 9, 2022. He has not provided one. I question the authority of the City Solicitor to bind the city with thirty years of restricted covenants. The city council, by state law can only relieve twenty years of taxes through a tax stabilization. Elected officials have more authority than an appointed employee. It is questionable as to why a consent agreement had to be created to do so. If the properties are HUD qualified, there would be no reason for the Consent Order to receive 8Law treatment, except that the properties would not have received such treatment for the commercial space.

It is my opinion that this Consent Order was created specifically to allow certain properties that have already exhausted twenty years of tax stabilization to obtain further preferential tax treatment that may not have been allowable without the Consent Order. If not challenged, these properties will receive fifty years of tax relief.

It is my recommendation to hire outside counsel to challenge consent order 2020-04757. If $626,000 is abated from 2020 and the thirty-year life of the Consent Order’s tax treatment is followed, then the city would be facing a potential loss in the amount of $18,780,000, at a minimum since only six of the ten properties received retroactive abatements. The City Council was not provided with an opportunity to approve or deny this “generous” abatement.

Additionally, since the City Solicitor has stated that his authority falls under the Code of Ordinance, Section 2-99 (b) (4), the consent of the assessor is required. This section is to settle complaints, not bind the city for the future. The assessor at the time of this consent order has since separated from the city.

The abatements are currently in the Finance Committee under tax certificate 62H. However, a new set of certificates were introduced to the council with the same numbers (not subbed) that did not include the consent judgment properties. That version was approved by the council. The original submission of Certificate 62H is still pending in Finance.