A Hotel Developer Is Holding Providence Hostage for Tax Breaks

The city council doesn't have to cave, but looks like it will.

A fight over a hotel in downtown Providence, Rhode Island, is showing exactly how developers attempt to push around local communities in order to receive ever-larger amounts of government largesse — and exactly why those governments don’t have to take it.

Here’s what’s happening: A hotel developer, Jim Abdo, bought some vacant, historic buildings in downtown Providence, for which he’ll be eligible for state tax breaks and federal historic rehabilitation tax credits (which are their own problem to discuss at another time).

But he also wants property tax breaks over 20 years from Providence itself, which would be worth about $2.7 million.

Share

When the finance committee of Providence’s city council put the kibosh on those property tax reductions, citing Abdo’s attempt to “triple dip” by getting federal, state, and local tax incentives, Abdo said he wouldn’t move forward with the project, thus leaving buildings in downtown Providence vacant indefinitely. “We’re patient,” he said. “If it means we have to wait 10 years, we have to wait 20 years, so be it.”

The threat here is pretty explicit: Unless you want buildings located on prime real estate to remain empty, worthless holes in your economy for decades on end, you’ll cough up some cash.

And it seems Abdo’s ploy is going to work: A majority of the city council has decided to bypass the finance committee, using a maneuver that hasn’t been employed in five years, in order to bring up a vote on Abdo’s tax breaks on Thursday night.

In general, giving hotels tax breaks is a goofy way to promote economic development. Hotels don’t, by themselves, gin up tourist interest in a location that would lead to overnight stays, so if there isn’t enough demand for them to make good business sense without government subsidies, there probably isn’t enough demand to justify them, period.

But still, many cities dating back to the Jimmy Carter-era, when urban renewal was the hot new thing in economic development, have fallen prey to thinking that if you just build hotels, tourists will come. A 2014 survey found more than $8 billion in public money spent on 118 hotels nationwide, and there’s surely been quite a bit more since then.

Abdo’s move in Providence not only promotes that same folly, but shows how corporate tax break recipients try to wield power over local communities via threatening to actively harm the economy. Abdo is castigating the city as “obstructionist,” blaming it for the continued existence of a graffitied-up building downtown. He seemed to think enough quotes like that appearing in the local press would sway the council his way; and it’s looking like he’s right.

Share Boondoggle

What Providence needs to remember is that it also has power: Yes, those downtown buildings aren’t being used and having a hotel there would surely be better than nothing — but Abdo has already bought them. He presumably would like to make some money, not leave them empty forever, despite his threats. The city could absolutely win a standoff against an investor who has a material interest in making something of his investment, especially given the amount of money he’s already received through other channels.

It just needs to try, instead of caving at the first opportunity.


FYI: I’d be remiss if I didn’t mention this blockbuster story from the Center for Investigative Reporting alleging that the Indiana government helped whitewash the death of an Amazon warehouse employee because the state didn’t want to jeopardize its chances of landing Amazon’s HQ2.


Thanks for reading this edition of Boondoggle. If you don’t subscribe already, just click the green button below.

If you liked this post, take a moment and click the little heart under the headline. It helps.

If you’re already a subscriber, please send this around to friends, family, neighbors, or whoever you think might like it, and tell them to sign up too.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle, go here. Thanks again!

— Pat Garofalo