Back in May Uprise RI revealed a special tax deal brokered by the Providence City Law Department and signed off on by Mayor Jorge Elorza that resulted in a tax savings of potentially $30 million to one the City’s wealthiest developers, Arnold “Buff” Chace.

Under the deal, Chace converted ten of his properties from being taxed at a lower rate under TSAs (tax stabilization agreements) to being taxed under 8% law, affording him even greater savings. Whereas TSAa last for a limited time, 8% law tax savings are forever. The settlement agreement between Chace and the City uses 8% law in a way that is brand new. 8% law was developed to stimulate low-income development. Under the settlement agreement, the entirety of the buildings, including the commercial portions, will now be taxed at 8%.

Last week the Providence City Council’s Finance Committee scheduled approval of the settlement between the City and Chace, only to cancel the meeting less than an hour after Uprise RI published a piece on it. Chace supports many past, present, and future city councilmembers with campaign donations, as does his attorney on this issue, Nicholas Hemond.

It was in this context that Uprise RI was finally able to secure Mayor Elorza’s time to ask about this issue:

Uprise RI: I have a bunch of questions about the Arnold Chase 8% law exception and I want to cover this with you. What was the nature of the original lawsuit and why did the city decide to settle?

Mayor Elorza: I don’t have the exact details of the original lawsuit. The City gets sued all of the time. From what I understand, there was a…there’s a disagreement, I believe, on the valuation of of certain properties. It was in the hands of the law department and they’re the ones that assess the merits or demerits of each of each lawsuit and they use that to formulate their best sense of what the best outcomes of these cases could be. If we roll the die and go to trial, we could win or we could lose. Typically, when the City reaches a a settlement out of court, it’s [priced] somewhere in between [the cost of winning and the cost of losing the suit]. At a high level, that’s essentially what happened here.

Uprise RI: In the legal department’s opinion the City was going to lose this case?

Mayor Elorza: No, I never think it’s that clear. It’s just an assessment. It’s probabilistic. What are your chances of winning here or there. From what I understand the law wasn’t 100% clear in this case. So you might win, you might lose and depending on the law department’s assessment of the strengths of the claim against us, that’s what sets the parameters for acceptable settlements. You could win, you could lose, and you settle somewhere in between.

Uprise RI: At the beginning of the case, there was one property listed in the lawsuit and by the end, nine additional Arnold Chace properties were added. Did the law department feel, on the first case and the next nine cases, that they were the same? Did they think, “Well, we’re gonna lose on all these, or at least it’s not guaranteed we’ll win on all these, so we’re going roll them all together and make a deal on all ten properties.”

Mayor Elorza: Yeah, I think that’s accurate.

Uprise RI: What’s to prevent every other real estate owner and developer in Providence from going to court to get the exact same deal as Arnold Chase?

Mayor Elorza: As I mentioned, the first thing that the law department does is they assess the merits or demerits of a claim, and there were definitely some merits to the case against us. That’s what led to the settlement. You know, any property owner out there that thinks that they have a legitimate claim can sue. I think it’s fair to say that just about all the folks out there, if they thought they had a legal claim, they would be pressing those claims with the City already, at least informally, if not formally bringing suit.

Uprise RI: Do you know of any that are currently doing this?

Mayor Elorza: I don’t, not for this particular issue. I will say though, that the City is engaged in no shortage of litigation matters, on property tax issues and in tort liability. It’s just this endless number of issues that come up on a regular basis.

Uprise RI: In Providence, virtually every homeowner and renter is facing increased real estate taxes and skyrocketing rents, except for one of the richest property owners, Arnold Chase. Do you think this is fair?

Mayor Elorza: I don’t think that statement you made is clear, Steve. Remember that we’ve lowered the property tax rate so that, in aggregate and individually, resident homeowners are seeing decreases in their tax bills. When you look at our tax rate for owner occupied, the tax rate is lower [than all but] 5% of property owners statewide. And you’re talking about the Little Comptons and Narragansets that have lower tax rates for owner-occupied. So people who are invested in Providence, who live in their homes, they’re seeing tax decreases in spite of the massive increases in property values that we’ve seen over the past several years.

Uprise RI: That’s fair. Arnold Chase will see, by some estimates, $30 million in savings on his taxes over the next couple of decades because of his 8% law agreement with the City, which translates to about $300 per Providence resident. That will be in taxes that won’t be collected or that will have to be made up by residents. What kind of effect will this have on the tax rolls? Not just the $30 million to Arnold Chace, but the potential millions in lost revenue from any additional people who might bring similar future cases? Do you think that could lead to tax increases on people like me who own houses in Providence?

Mayor Elorza: A couple points. The first is that from what I understand, this is massively complicated and it depends on property values in the future, whether they increase or decrease. It’s hard to say what, if any, fiscal impact this is going to have, period. That’s one and second, remember that we could have gone to trial and lost. And whatever the fiscal impact, if any, turn out to be, it would’ve been worse if we lost at trial. That’s part of the calculus the law department takes into account when it reaches any settlement.

Uprise RI: It’s hard to see that calculus. Instead of the TSAs [tax stabilization agreements] that some of his buildings were previously under, they are now covered under 8% law, which saves him quite a bit of money. Since that’s all he was asking for, wouldn’t losing mean paying some lawyer’s fees on top of saving him money?

Mayor Elorza: That’s potentially part of it. Although a lot of this work is done in house. So yeah, it saves some time and probably some lawyer fees for the City, but I think the biggest risk was potentially losing at trial and the financials being even worse for the City. That was the biggest concern.

Uprise RI: Under the terms of the consent agreement, which you authorized, the entire property, including the ground floor commercial parts of the buildings, are taxed at the new lower, 8% law rate. This goes well beyond the intent or execution of 8% law anywhere else, that I’ve been able to find.

Mayor Elorza: Again, the approach of the law department is based on what they believe or what they assess are the legal merits, or not, to the claim, and the risk to the City of rolling the die and taking it to trial. Typically what the law department [tries to determine] in these cases, is “Where do we land if we win, where do we land if we lose.” Typically you find settlement agreements somewhere in between.

Uprise RI: Sure. But there are no other commercial properties anywhere in the state that are taxed under the 8% law. Usually what they do is they divide up the percentage of the property that’s commercial versus residential and low income and then tax the low-income parts of the property under the 8% law rate. What you’re doing here is taxing commercial, low income and regular income apartments all at the same 8% law rate, and that’s never been the intent of 8% law.

Mayor Elorza: I’ll mention again, Steve, that at the end of the day, the concern of the law department is “What’s the financial exposure?” They arrived at a number that was somewhere between where the city would land if we lost and where the city would land if we won. The mechanisms of how that gets documented in the settlement agreement, I think, are less important than the final number and where it is that we land in terms of risk and financial exposure.

Uprise RI: Sorry to keep going on about this, but under 8% law, to qualify, a realtor must make extensive improvements in the property. Do you know what extensive improvements were made to these 10 properties? And normally aren’t the improvements certified before the new 8% law tax structure is imposed?

Mayor Elorza: I don’t know this at that level of detail.

Uprise RI: That’s okay. Was a fiscal note ever done for this deal? What was the highest amount of money we might’ve lost and what was the lowest amount if we had won? Have you seen any numbers like that?

Mayor Elorza: As I mentioned earlier, Steve, from what I understand the the fiscal impact is incredibly difficult to determine because there’s so many uncertainties based on if property values go up or go down, where they go up, where they go down, et cetera, that it’s virtually impossible to put together.

Uprise RI: The city council will have to approve at least some aspects of this deal before it can go through. What happens if they don’t approve it?

Mayor Elorza: You’ll have to speak with them.

Uprise RI: I’m just wondering what happens, legally speaking, if the city council says, “No, this deal isn’t any good.” Does it go back to court? Is the deal moot? How does that work?

Mayor Elorza: You’ll have to speak with them. I wouldn’t be able to answer that.

Uprise RI: That’s fine. That’s related to my next question. The power of levying taxes and making tax deals rests with the city council. By what authority does the mayor and the city solicitor make this deal?

Mayor Elorza: The only thing I’ll say is that the details always differ, but in reaching these kinds of agreements, when taxes are in dispute, this is something that the law department regularly does.

Uprise RI: This deal was done in court, but without a lot of notice and without a lot of attention given to it. And when this agreement was reached, there was no announcement from the Mayor’s office. There was no announcement of any kind. It was actually pretty hard to track down the details on this. Do you think that we should be doing tax deals like this behind closed doors?

Mayor Elorza: I’ll tell you, Steve, the details always differ, but settling tax disputes is something the law department does regularly. This question that you raise, as to when they should be announced and how they’re publicized – that’s a fair question. But what I can tell you is that this case was handled right. Just as every one of these cases is handled.

Uprise RI: Although, we have to admit there are some exceptional aspects of this case. I mean, Arnold Chace is one of the biggest, wealthiest landowners in Providence. The law being used, 8% law, is being used in a way that no one I’ve talked to has seen before. And the amount of money, potentially, is quite large, at least as large as any TSA I’ve seen. Plus, most of the buildings in question were covered under lucrative and valuable TSAs, and now they’re taxed under this other part of the law that seems to be very different. There’s a lot about this case that make it noteworthy, I think.

Mayor Elorza: Yeah. And as I mentioned, Steve, what kind of communications/publicity there should be around this agreement, that’s a fair question. What I will stress again is that this case has been handled just as every case like this is handled.

Uprise RI: OK….Providence voters recently passed a referendum to allow the city to borrow a large amount of money to help right the pension ship. But isn’t part of the problem with our finances that these tax deals we give out in the form of TSAs, and now, apparently, under 8% law? Shouldn’t large property owners pay at least the same percentage that people like me pay on our houses and businesses? The renters in Providence are getting hit hard and there’s no relief for them, but there’s $30 million for one of the richest people in the city. Do you think that’s fair?

Mayor Elorza: I have a question for you. What if we would have lost in court? I’m curious to understand like what your thoughts are are, especially as you’re writing this piece. How do you handle the risk of losing in court?

Uprise RI: I understand that losing could be difficult, but at the same time, do you think that if Arnold Chace didn’t believe that this case was going to be settled quietly, off to the side, he would’ve wanted to sue the city so boldly? If the City had called attention to it, people could have made their opinions known and [perhaps] public opinion would’ve turned against him. As it is now, the deal is made and he’s all set.

Mayor Elorza: I don’t know about that, Steve. Remember that anytime someone files a suit in court, that’s a public document.

Uprise RI: Yes. I know that.

Mayor Elorza: And you better believe that when they file a suit like this, they’re ready to go to court. You mentioned in a previous question how we felt about the $30 million going out, and I think it’s just as accurate to think of this as $30 million in savings, because had we lost, that expense would’ve been a lot bigger. I don’t think it’s fair to just throw that out as a given, that it’s sort of this boon or benefit to the property owner as a result of this settlement.

Uprise RI: The reason I bring this up is that when I talk to people who do this kind of real estate deal, they say that this is exceptional. It’s a large amount of money and it’s a big tax savings. And Arnold Chace didn’t seem to negotiate with the city council, in a public process, on these ten properties and say, “Hey, I’d like to reconsider my TSAs” or start a legit 8% law process. He seems to have simply sued the city and got this massive tax exception under 8% law. And even to call this deal 8% law is a stretch. It’s a stretch of 8% law to say that the buildings he has are eligible for consideration.

I understand that under the settlement agreement special exceptions were made, but to even to call it 8% law at this point feels wrong. In truth, the consent agreement is a special exception and 8% law has very little to do with it.

Mayor Elorza: I think lawyers would disagree [with you] on this. And that’s part and parcel of the uncertainty of “What if you win, what if you lose?” That’s ultimately what drives where the city landed with this with this settlement.

Uprise RI: One last thing, and maybe this is inappropriate, but I’ll say it anyway…

Mayor Elorza: Wait…On the pension bond, the scale of the pension bond is just so massive that this [lawsuit] has the most minimal negligible effect on it. I don’t think it’s fair to pin this to the challenges with the pension issue which is $1.2 billion. It’s a whole other beast.

Uprise RI: I understand that, but everything that we talk about is a different scale. At some point these little things add up. If I added up three more deals like this, I’d be at a hundred million…

Mayor Elorza: You’re assuming that $30 million is the number…

Uprise RI: But using that as a baseline, if I found enough deals like this of any kind, I would get to a hundred million dollars easily, and we’d be at almost ten percent of the pension deficit.

Mayor Elorza: That’s my point. It’s inappropriate to use this number as a baseline.

Uprise RI: Okay. That’s fair. Nicholas Hemond, who is the lawyer for Arnold Chase on this deal, is a legal shark in our local waters. When somebody like that comes in, who is well known, sharp, and unrelenting, does that change the calculus on settling the lawsuit?

Mayor Elorza: We have really, really, really good attorneys in our law department. Have you seen those commercials on TV where they say, “So and so is on the case, we better settle.” That does not happen in the real world. We have very capable attorneys in our law department and they can handle whatever challenge comes up.

Uprise RI: There’s also the question of Nicholas Hemond being well connected. He has contributed a lot of money to the next Mayor’s campaign. He’s very out front on issues in Port and expanding the fossil fuel footprint there. He’s a former head of the school committee. He’s very well connected and very influential. It seems to me that when someone like that comes in it changes the calculus on some level.

Mayor Elorza: No, no, no, no, no, no. Not in the slightest. Absolutely not.

Uprise RI: Fair enough. Thank you so much for your time. I really appreciate it.