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DEVELOPMENT

A wealthy developer in Providence has a one-of-a-kind tax deal meant for affordable housing

“I think it is a gross and outrageous abuse of the affordable housing law,” a Rhode Island state senator said of the “8-Law” tax breaks for Arnold “Buff” Chace, which are worth about $42 million over 30 years

The Peerless Lofts on 150 Union St owned by Cornish Associates receives tax breaks for affordable housing even on the parts of the buildings that are commercial or retail spaces.Matthew J. Lee/Globe Staff

PROVIDENCE — More than 600 buildings in Providence that offer affordable housing take advantage of a decades-old state statute known as “8-Law,” which provides a tax incentive for developing low-income housing.

But none of them have a deal quite like the one granted to millionaire developer Arnold “Buff” Chace, a Boston Globe investigation found.

Chace’s controversial tax breaks granted by the city in 2021, worth an estimated $42 million over 30 years, have become the subject of a drawn-out court battle, a public debate, and are part of the impetus for new legislation set to be filed at the State House this month.

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The previously little-known 8-Law, nicknamed for the 8 percent tax treatment applied to the properties that receive it, was catapulted into the spotlight because of questions surrounding Chace’s agreement with former city officials, who gave him the tax break on 10 downtown properties he owns or controls through his firm, Cornish Associates.

Unlike the other properties that receive this affordable housing tax incentive, Chace is receiving the tax treatment on restaurants and retail space as well as housing. The Providence City Council is currently attempting to overturn the tax breaks in court.

“I think it is not the way that the law was intended to work,” said Mayor Brett Smiley, who called the deal “overly generous” and is hoping to convince state leaders to change the statute. “Until that law gets changed, our hands are really tied.”

Originally passed in 1995, 8-Law allows developers across Rhode Island to pay 8 percent of their expected annual rental income in lieu of paying the going commercial rate on their property value, as long as the development is restricting either the incomes of the tenants or the rent price or both, according to the statute.

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But despite being designated for “low-income” housing, the 107-word law does not define how “affordable” the apartments have to be, nor does it explicitly say that all the units in the building have to be affordable in order to get the tax treatment.

“It’s not very clear,” said Janesse Muscatelli, the city tax assessor. “Is it the entire building, is it just on those units?”

A Globe review of the 618 properties receiving the tax break in Providence shows the vast majority — 97 percent — are fully affordable housing developments, with no market-rate units in the building, such as the Wiggin Village apartments in the West End, and the Charlesgate Apartments on North Main Street.

But developers have started to realize that they can get the tax treatment even if only a portion of the apartments are affordable, Smiley said in an interview with Globe, a departure from how the law was historically utilized.

Joseph Paolino, a major downtown real estate developer and former Providence mayor, said he recently learned about the 8-Law. He has two applications in to the city to receive the tax treatment.

“Word has spread pretty quickly,” Smiley said.

The Lapham Building (second building from the corner) at 290 Westminster owned by Cornish Associates, L.P which is receiving tax breaks meant for affordable housing even on first-floor retail sections of the building. Photo by Matthew J. Lee/Globe Staff Matthew J. Lee/Globe Staff

Just 19 of the 618 buildings that currently receive 8-Law in Providence have market-rate units in addition to income-restricted ones. Ten of those are owned by Chace and his firm, Cornish Associates.

The Chace-owned Alice Building on Westminster Street, for example, has 10 income-restricted apartments out of 39 total, and a retail store, Symposium Books, on the first floor. The property is assessed at more than $7 million, which would result in a tax bill of about $262,000 at the regular commercial rate. But the building’s tax bill was $85,000 last year because of the 8-Law tax treatment.

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At the Peerless Lofts, another Chace property on Westminster, a $787,500 tax bill is cut by two-thirds to $238,700 when the 8-Law tax treatment is applied. The lofts have 97 apartments, 24 of which are income-restricted, and there is retail on the first floor.

A one-of-a-kind deal

Chace’s tax deal was the result of a court settlement with former Providence Mayor Jorge Elorza in 2021. But it wasn’t clear until now how unique his deal actually was compared to the other properties receiving the 8-Law treatment in Providence. When the Globe initially asked for a list of 8-Law properties last fall, a city spokesperson provided a list but said the number of affordable units in each building was not being tracked.

Muscatelli, at Smiley’s direction, spent months compiling the data. The final list provided to the Globe shows 6,707 housing units receiving 8-Law are affordable, while just 481 are market-rate.

Chace’s buildings are the only ones in the city that receive the 8-Law tax treatment on the commercial sections of the buildings, according to Muscatelli.

For other 8-Law properties that have commercial sections, Muscatelli sends two separate tax bills. For example, the property at 121 Washington St. owned by AS220, home to The George restaurant, has 21 affordable apartments and one market-rate unit, according to the city’s data. The residential section of the building received a $13,000 tax bill last year with 8-Law tax treatment, while the commercial section got a $15,000 tax bill using the full rate.

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Chace’s 30-year agreement also does not require him to limit the actual rents paid by the tenants, according to copies of the restrictive covenants filed with the city, a departure from the norm for the other 8-Law properties. It requires only 25 percent of the apartments be deed-restricted to tenants making no greater than 100 percent of the area median income, which is currently $74,200 for a one-person household.

”It is a gross and outrageous abuse of the affordable housing law,” said state Senator Sam Bell, a progressive Democrat from Providence. He accused Chase of being “a very wealthy developer [who] simply just doesn’t want to pay taxes.”

The other 8-Law properties in the city typically have deed restrictions through RI Housing, a quasi-public agency, and are required to limit both the rents and the incomes of the tenants. Chace’s properties are the only ones where the city of Providence oversees deed restrictions rather than a housing agency.

The average rent of an income-restricted one-bedroom apartment in the 10 Chace buildings is $1,851 not including utilities, according to Cornish Associates’ spokesperson Patti Doyle, compared to $2,518 for a market-rate apartment. The highest rent for his one-bedroom affordable units is $2,120, calculated using a tool from Novogradac.

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City Council members, including Council President Rachel Miller, have expressed outrage about Chace’s deal ever since it was first reported by website UpriseRI in 2022. The settlement deal was never formally brought before the council, though Chace’s lawyers have said in court filings that previous council presidents Sabina Matos and John Igliozzi were both involved in the discussions.

Matos, now the lieutenant governor, has denied involvement in developing the agreement, while Igliozzi has declined to comment, citing the ongoing court case.

Miller declined to be interviewed for this report, citing the ongoing legal battle. The City Council in November won the right to intervene in the original 2020 lawsuit, and is seeking to overturn the tax breaks in Rhode Island Superior Court. Arguments are scheduled for Feb. 16 on the city’s motion to stay discovery in the case while they ask the state Supreme Court to weigh in.

“We’re in this legal fight to protect all Providence taxpayers and all families in the city,” Miller said in a statement. “We will fight to make sure the outcome is in the best interest of working people in Providence.”

Smiley noted that he was trying to claw back part of the deal when the council took legal action. But he also defended the choice to back Chace in court.

“I thought that was an overly generous settlement arrangement and I would not have made the same settlement offer had I been mayor,” Smiley said. “But it was a legally valid agreement.”

Chace also declined to be interviewed, citing the legal case. But his spokesperson said: “Cornish Associates participated in a highly transparent, legal process with the prior council and administration on its 8-Law properties that was subsequently validated by a court order.”

Is it time to change the 8-Law?

Smiley is already facing pushback from developers on his proposal to modify the 8-Law, which he said will be introduced at the State House by yet-to-be-named lawmakers before the February break later this month.

The bill will propose to apply the 8-Law treatment only to the affordable sections of a building. So if 20 percent of the building is made up of affordable housing, then 20 percent of the building would get the 8-Law tax treatment.

“That’s now fair for the taxpayers, and still provides the benefit to the developer to make a certain number, or 100 percent of the units, affordable,” Smiley said.

Still, developers argue they need the entire residential portion of the building to get the preferential tax treatment in order to make a development worth building.

“I think the mayor is being short-sighted about this,” said Barry Preston, a developer who co-owns Armory Revival Company. The company has redeveloped dozens of vacant properties in Providence including the Rising Sun Mills in Olneyville.

Only one of Armory Revival’s properties has the 8 percent tax treatment, the Calendar Mills at 52 Valley St., which is one of the 19 buildings in Providence with 8-Law that restricts only a portion of its units. Five out of 25 units are affordable, according to the city. The commercial section of the building pays the full tax rate.

“Taxes in the city are very high, and they are in many ways prohibitive to development,” Preston said. “I get it that the city needs taxes, but the way to do it is not to stop those developers who are expanding the tax base.”

Paolino, a Smiley supporter, said he is fine with retail sections of properties being excluded from the preferential tax treatment, but not the market-rate residential portions. He is seeking 8-Law treatment on two properties, the Case Mead Lofts and the Studley Building, both of which will restrict 20 percent of the units to middle incomes. He said he is willing to give up an existing tax stabilization agreement in exchange for the 8-Law tax treatment.

But, Paolino said, “If you take the law away, I’m not doing any of my projects.”


Steph Machado can be reached at steph.machado@globe.com. Follow her @StephMachado.