With various tax breaks for real estate developers in the news, and the cost of construction playing an important role in the housing crisis, it’s worth considering what a tax stabilization agreement is, and what it isn’t.
A TSA is not a giveaway, it’s an introductory discount. A TSA is a teaser rate to a subscription to pay real estate taxes, and it is a subscription that can never be canceled. And the real winner of a tax stabilization agreement is our local government.
We all have agreed to the classic promotion: “Subscribe now for $1 a week for the first year.” These promotional teaser rates are designed to draw us in. The introductory discount is worth it for companies because sometimes we stick around past the discounted teaser rate and we end up paying the full rate.
We have all felt the sticker shock when a teaser rate discount for a subscription ends. We have all canceled a subscription instead of paying the full rate. But a TSA is a little different. TSAs have one weird trick that makes them stickier than any other teaser rate marketing ploy. In a tax stabilization agreement, the new customer can never leave.
A property owner can’t call in and cancel their subscription to local government. The building can’t be moved. The building is literally stuck, paying real estate taxes, right where it is, forever. TSAs are the Hotel California of subscription agreements. When someone agrees to a TSA, they can check out anytime they want, but the building can never leave.
When people argue about a 10-year TSA, they get distracted by the value of the discount in the first 10 years, and lose sight of the fact that the property will pay taxes for potentially hundreds of years. A 10-year discount is meaningless when you remember that the building is going to pay the full rate for that long. There is a restaurant in Newport that has been continuously paying real estate taxes for 350 years!
Whether it’s a streaming subscription or a TSA, the dollar figure discount grabs our attention. It’s human nature. But that discount is a ploy, that figure is just bait. After the initial excitement of seeing the dollar figure, we all must remind ourselves that the full subscription rate is coming. Exactly like every other promotional teaser rate subscription, a tax stabilization agreement is just a time-limited discount to draw in a new customer, designed to collect the full rate a little later.
If we think about it, the acronym TSA should really stand for Teaser Subscription Agreement. The important thing about a TSA is not the initial discount. The important thing about a TSA is the building’s lifetime guarantee of hundreds of years of real estate taxes.
So next time we hear someone has agreed to a TSA in our hometown, instead of getting lost in the teaser rate marketing ploy, we can have a little laugh because we know someone just took the bait. We know that the Teaser Subscription Agreement locked a new building into a lifetime guarantee of paying for our roads to be paved, our pensions to be funded, and our schools to be supported.
Dylan Conley is a local government and land use attorney in Providence.