Op-Ed: Is Providence Headed Into an Urban Doom Loop?

An urban think tank coined the term “Urban Doom Loop” to describe cities that see a sharp decline in commercial activity and little new building, causing property owners to seek tax reductions on their devalued properties. This, in turn, forces drastic cuts in basic services – cops, schools, sanitation and transportation – that make cities livable, which in turn leaves the place even less attractive to investors and encourages residents to flee.

Providence isn’t unique with this problem: almost every big city is re-gauging valuation of its commercial property. Since the pandemic, workers don’t want to go to work. Providence’s office market has been grappling with high vacancy rates due to downsizing, which has led many major landlords to challenge their tax assessments, arguing that their buildings are now worth substantially less than before.

One Financial Plaza (the 28-story Hospital Trust Tower), one of Providence’s premier office buildings, was listed in an ad for a foreclosure sale. While the building needs new windows and updating that could cost $10 million, it is expected to sell for significantly less than its assessment, which will factor into the new assessments and appeals. An office building in Boston with a $763 million mortgage and a $588 million assessment just sold at auction for $400 million! Several of the downtown buildings in Joe Paolino’s substantial portfolio have been added at prices dramatically lower than their valuations.

While One Financial’s sale shouldn’t bring an ominous drop in commercial property tax revenue, which accounts for 35 percent of the taxes collected, there is a growing worry that the expected drop in overall office values could be something of a ticking time bomb for the years ahead. Two other premier properties in downtown show surprising assessments: 100 Westminster (Fleet Center) saw its assessment for land drop 45 percent and its building drop 8 percent and One Citizens Plaza saw its land stay unchanged and its building valuation drop 26 percent. To make things even more confusing, 100 Westminster’s land size is 859 square feet larger and is valued at $984,300 less.

All of this comes just after everyone received their new property valuations, which showed dramatic increases in most people’s land value while their homes’ values saw only slight increases. While most assessments were up, the question of the actual tax rate remains unsettled, but it is likely that everyone will be paying more. Mayor Brett Smiley, with the City Council’s backing, announced that he’s headed to the Legislature to request an exemption for this year to raise property taxes, which are capped at 4 percent to up to 8 percent.

But even the expected residential tax increase can’t overcome big commercial revenue losses. The city relies on major annual funding from both the state and federal governments. This could become problematic in certain areas, as the state’s $14.2 billion budget has a $297 million deficit, but includes $5.6 billion in federal support. While most of the federal money is considered “safe,” there will most certainly be cuts and greater scrutiny.

The city’s five-year budget projects annual deficits averaging $16,400,000 per year. This is clearly unattainable along with massive pension debt. Over the next three years, there is a strong likelihood that both the state and federal support will see some compression causing the trickle-down to become a drip in certain budget areas. As boxer Mike Tyson famously said, “Everybody has a plan until they get punched in the mouth.” And we haven’t even seen a plan!

The Mayor needs to immediately tighten every department’s belt. And we’re talking Ozempic®-level cuts of around 15 percent in every department and a freeze on new hiring and not filling open positions. And only absolutely critical capital expenditures should be made. New levels of efficiency need to be achieved.

We saw a public works crew repair three potholes on the same street with a block of each other over three different days. Clearly they were responding to a 311 request – which is great, but they should be given the direction and discretion to repair any potholes they see!