Proposed changes to "8-Law" at the General Assembly may make it easier for Atlantic Mill owners to evict artist-tenants

“This bill, in particular, is for a commercial building, so it does not require that the commercial building be vacant.” “Correct,” said Mayor Smiley.

Providence Mayor Brett Smiley was at the General Assembly on Tuesday pushing modifications to legislation known as “8-Law” (a form of tax stabilization established by State law) to make it easier for developers to secure favorable tax rates for affordable housing. House Bill 5688, introduced by Representative June Speakman, “would provide an 8% tax rate [hence the term 8-Law] for those properties encumbered by a deed restriction for low-income housing set at 80% or 60% of adjusted median income [AMI] established by the United States Housing and Urban Development (HUD), and would provide a tax stabilization schedule for those buildings which are converted to residential properties starting at 8% of rent rolls and gradually increasing over 30 years.”

8-Law has been misused in Providence, most notably when the Elorza Administration secured a secret $30 million tax break for one of the richest men in Providence, Arnold “Buff” Chace. Chace received a deal so good he gave up his coveted tax stabilization agreements [TSAs] with the City of Providence in favor of being taxed under 8-Law. The deal was problematic because the Elorza Administration applied the 8% tax to all the units in Chace’s ten buildings. Under 8-Law, only those units considered to be affordable should have been taxed at the lower rate. Chace secured a deal that even included commercial spaces.

The legislation changes make what developers call “welcome changes” to the law, as Representative Speakman and Mayor Smiley outlined during the House Municipal Government and Housing Committee hearing. Here’s the video:

The partial transcript below has been edited for clarity:

“This law has been on the books since the mid-1990s. It offers property tax stability to affordable housing developments by limiting property taxes on these units to 8% of the property’s previous year’s gross rental income,” said Representative Speakman. “In broad terms, these proposed changes before us tonight clarify what has been unclear as to which units the 8% apply to.”

"The bill “clarifies that Eight-Law can be expanded and used for new construction, which is unclear in the current bill,” added Mayor Smiley. “We think it is good for affordable housing development.”

The issue with the bill, and the reason I’m writing about it, is a second part crammed in that has no bearing on affordable housing.

“There’s a second piece to this that expands the tax relief to a new category: residential units created by converting commercial buildings to residential,” said Representative Speakman. “We have empty commercial and a need for residential, so that’s what that part of the bill seeks to facilitate.”

“Tonight’s bill also adds a new component to allow eight law treatments for converting commercial property to residential property,” repeated Mayor Smiley during his testimony. “It’s primarily but not exclusively in the City of Providence where there is a looming crisis: vacant commercial office buildings. [Emphasis mine] It’s a nationwide problem that I’m sure folks are familiar with why. This is a slow iceberg that we are headed towards where empty commercial office buildings will lose value. They will start to create tax crises for my community and all of your communities if you have commercial properties, while at the same time we have a housing crisis and a shortage of housing that we want to develop.

“So, working with the private development community who are here to testify as well tonight, the simplicity, predictability, and ease of financing of 8-Law can and will be applied to conversion of commercial properties to residential properties to solve those two problems at once to soak up or eliminate some of the excess commercial property on the market and create new housing, which we know we have a shortage of in the City.

“We would be the first State to try to use 8-Law treatments for conversion. And in speaking with the development community, at least here in Rhode Island, they believe this would be a workable and valuable incentive to create new housing and eliminate the risk of the surplus of commercial property.”

Representative David Morales pointed out the obvious issue: 8-Law is about creating affordable housing. The second part of the law, which would incentivize the conversion of commercial spaces into housing, has no affordable housing component. It offers all the tax savings to developers without the affordability requirements of 8-Law that might serve consumers.

“When it comes to adaptive reuse of converting commercial structures to residential and the eight-law treatment that would be applied, would these new residential units have to have an affordability requirement?” asked Representative Morales.

“It would not be required, nor would it be prevented,” answered Mayor Smiley. “As is the case in many developments, there is a layering of incentives and structures, and if this were to pass, you’re eligible for the 8-Law treatment for the conversion. But if you chose to do deed restrictions and make affordable units, you could go to Rhode Island Housing or apply for LITECH credits. So, some of these conversions may have affordable housing units, but they are not a requirement of the bill.”

“So a commercial building would be able to get adaptive reuse and a generous tax subsidy even if the residential units are going to take the form of market rate or above market rate housing,” noted Representative Morales. “There is no affordability requirement in this portion of the bill.”

Representative Morales then raised a second problematic issue with the bill. It could upend the efforts of the 90 or so members of the Atlantic Mills Tenants Union (AMTU) to reach a deal with their landlord and stay in their artists’ spaces.

“There’s a lot of discussion around Atlantic Mills in the Olneyville neighborhood, and there have been concerns that Atlantic Mills, which is currently a commercially zoned property, will be transitioned into some form of market rate and/or luxury housing,” said Representative Morales. “If this bill were to pass and the new property owners of Atlantic Mills decided that they wanted to adopt adaptive reuse, would they be able to get this tax subsidy if it were to pass?”

“I believe they would,” said Mayor Smiley. “We’d have to look at the specifics when it came forward, but we’ve not received any application. But generally speaking, any commercial existing commercial office building that wanted to convert to residential would be eligible.”

Remember when I emphasized the word “vacant” in Mayor Smiley’s statement above?

“Another question of clarity then,” said Representative Morales. “This bill, in particular, is for a commercial building, so it does not require that the commercial building be vacant.”

“Correct,” said Mayor Smiley.

Note that the new owners of Atlantic Mills have already evicted some members of the AMTU from their spaces.

“I would recommend that you go back to the bill and look at adding affordability requirements, in addition to clarifying directly whether or not this applies to just commercial existing structures or those that are vacant, because in the testimony there were a lot of references to vacant commercial property, but it is important to acknowledge that this would also apply to existing commercial property,” said Representative Morales.

“I’m also concerned about the lack of safeguards and guardrails because what is happening in Olneyville around Atlantic Mills, where we have affordable artist studios that are currently registered as commercial spaces being bought up and are potentially going to be converted into a luxury development - and to add a tax subsidy on top of that for the developer is just an insult to injury for the artists that would be impacted or any of the other commercial tenant.

“I think that this should take the form of two bills. If we talk about adaptive reuse, it shouldn’t be within the bill about traditional residential 8-Law.”

During his testimony, Attorney Rob Stolzman, a real estate lawyer at Adler Pollock & Sheehan, attempted to downplay the danger of this bill to Atlantic Mills, even as he demonstrated that he did not know about the specific issue. He also made guarantees on the part of the Mayor, confident that Mayor Smiley would do something to help the arts community find space in Rhode Island. It was all smiles and confident statements with no substance.

“Representative Morales, I had not considered the notion of an artist’s loft being converted,” said Attorney Stolzman. “If it’s a live/work residence, it would be a residence. If it’s just commercial, that’s a philosophical problem I haven’t encountered in the housing discussion. That is where housing competes with commercial housing; frankly, that’s a higher-level problem. If we have commercial property in competition with residential, we can probably solve that differently because there are plenty of underutilized commercial spaces. Maybe we could create incentives to create artist lofts in commercial space, because that’s important.

“I’m a big fan. The art community is a huge asset in Rhode Island. We can’t hurt the arts community. In those instances, I guarantee the Mayor would want to figure out how to create more artist loft space with the Council and other elected officials and tax officials. But we have a lot of commercial space. If that space is better used for affordable housing and even market rate housing, which will help raise the stock of housing at all levels, we’re all better off.”

“I want to clarify our Providence community,” said Representative Morales. “We have lots of mill spaces that are regarded as commercial property, which, unfortunately, serve as some of the most limited commercial spaces for artists to have studio space. Unfortunately, we’re seeing property management companies buy out some of these historic mill buildings, and there have been discussions and nervousness from commercial tenants that they will be booted out in favor of luxury development.

“My concern with this legislation as written is that there is no affordability requirement—those concerns are coming true right before our eyes through this legislation. We will not only enable adaptive reuse for commercial real estate that currently houses artist studio space, but also lead to direct displacement through the creation of housing that artists won’t be able to access.

“I hope we amend this bill so there is an affordability component. [Right now] we’re just granting tax subsidies,” continued Representative Morales. “I understand the need for housing, we need housing without question, but there has to be some lever of affordability to ensure that residents in our City can benefit directly from these new developments instead of just welcoming working professionals from Boston to come here and occupy these spaces. That’s my concern with this bill. If we’re going to grant some level of tax subsidy, there has to be an element of affordability that the developer has to work with.”

“I understand that comment,” said Attorney Stolzman. “I think a broader view of investing in housing is more helpful in creating more housing stock. I understand the desire to protect the artist community and create more affordable housing. Multiple Secretaries of Housing and multiple experts and economists have told you our housing production at all levels is insufficient. The more we can invest in adaptive reuse - in the long run, and I don’t mean a hundred years, but in a decade - you’ll see a turnover of buildings that will create more units and more affordable opportunities. I would argue you want all three legs of the stool in Rhode Island. I think the economics prove that out.”

Whether or not the economics prove that out is an open question I hope to explore.

“We’ve been trying to make progress on the 8-Law for a long time. It’s not exactly a third rail, but I’m glad we’ve opened up this conversation,” said Representative Speakman. “This legislation alone will not get units to pop up, right? I’ve learned many things in my work here so far from the experts - capital stacks that have 17 sources of funding, and the kinds of things you have to put together to complete one of these deals. This is not giving away the store - I’m convinced of that. I’ve studied it a lot, and as a sponsor, I hope the committee will support the bill.”

“Regarding General Law 44-5-13.11 Qualifying Low-Income Housing, it makes perfect sense to work around subsection A and clarify the requirements around 8-Law for existing units,” said Representative Morales. “My concern is that subsection B has nothing to do with low-income housing but instead is focused on any housing that could be developed as part of adaptive reuse.

“When we start moving forward on this bill, I would ask that we be thoughtful about putting in an amendment that either requires an affordable housing element for one to be able to access a tax subsidy or strips subsection B out completely because otherwise, it does not make sense for that to be part of this general law.”