Put the moving trucks on notice.
Gov. Dan McKee has a plan to save the state money on office leases and building repairs by relocating up to 800 state employees and millions of dollars in IT equipment.
The great state office reshuffle included in McKee’s fiscal 2026 budget proposal would cost the state $52 million in operating and capital costs over the next five years, including the still-undisclosed price to buy a former Citizens Bank loan office in East Providence.
After five years, the state would break even, and begin to see some unspecified amount of annual savings, according to calculations from the Rhode Island Office of Management and Budget.
“Consolidating operations at this property would allow the State to achieve long-term savings by forgoing an expensive lease and other capital costs,” Olivia DaRocha, a spokesperson for McKee’s office, said in an emailed statement on Tuesday. She declined to comment further, citing ongoing negotiations.
McKee unsuccessfully tried to sell lawmakers on the proposal to buy the 210,000-square-foot Citizens building last year. His May 2024 budget amendment was met with skepticism among lawmakers, who fretted over Washington Bridge-related traffic, lack of nearby public transit, and the state’s power to negotiate for a good deal.
This year’s pitch is the same, except it calls for using the state’s long-term capital expenditures fund, rather than debt financing.
Sweetheart deal for Citizens?
Citizens has been looking to sell its 115 Tripps Lane office in Riverside for nearly three years without success. Last year, the financial services giant flexed its muscles hard, threatening to abandon its Johnston headquarters and move to Massachusetts if the General Assembly didn’t change the state tax code. Lawmakers crammed the tax rewrite into the fiscal 2025 budget in the final week of the legislative session.
The 1979 building includes a “state of the art” data center and room for up to 800 state office workers, according to McKee’s budget proposal.
Rory Sheehan, a Citizens spokesperson, said the property has been shown to “several interested buyers,” but didn’t specify how many. Roughly 500 Citizens employees still use the building, down from 900-plus workers pre-pandemic, he said. Remaining employees would move to the bank’s Johnston headquarters if and when the building is sold.
Sheehan referred questions regarding the property sale negotiations to McKee’s office.
Agents with Hayes & Sherry, the broker for the property, declined to comment.
McKee’s plan sticks with a real estate strategy that has spanned decades, and administrations. But the commercial market, flipped on its head by the pandemic, has not turned right side up again.
“The preference of the state has generally been to own rather than lease,” said Kevin Flynn, former associate director of the Rhode Island Division of Planning who also chaired the State Properties Committee from 2006 to 2010. “The benefit of owning is that the overall costs can be more manageable and predictable. On the flip side, you have to pay for that maintenance.”
McKee’s budget assumes costs will go up in the trio of long-term leases up for renewal in 2026 and 2027. The average cost for office space leases in Rhode Island fell from $22 per square foot to $21 at the start of 2025, said Paul Harrison, director of commercial real estate for Narragansett-based Abbott Properties LLC, and president of the Rhode Island Commercial and Appraisal Board of Realtors.
“I should think on leases, the market is poor right now, so some office owners would be happy to keep a tenant even if the negotiated lease is less than what they’re paying now,” Flynn said.
Three state leases are set to expire in the next two years. The largest is the $2.6 million a year, plus utilities, the state pays to rent 126,000 square feet in part of The Foundry complex in Providence. The renovated Promenade Street space houses 300 workers with the Rhode Island Department of Environmental Management and the Division of Statewide Planning. When the 10-year lease agreement expires in July 2026, McKee proposes moving DEM employees to the Citizens Bank building, while 25 state planning employees would move to the state-owned William E. Powers building, across from the State House.
The state pays another $75,000 per year to a subsidiary of The Foundry to rent a 3,000-square-foot office at 555 Valley St. in Providence for the Rhode Island Executive Office of Commerce. When the lease expires in July 2027, McKee proposes moving 12 Commerce employees to adjacent Rhode Island Commerce Corporation offices.
Under a third rental agreement with Dorwest Associates, the state pays $186,000 a year for 10,000 square feet at 180 Westminster St. in downtown Providence for the Human Rights Commission’s office. McKee proposes moving the 15 employees there to the nearby, state-owned Shepard building when the lease ends in August 2026.
The Foundry and Dorwest Associates did not respond to multiple requests for comment.
Avoiding the cost of fixing aging buildings
Then there are maintenance costs for aging real estate in the state’s portfolio. The Warwick building that houses the state’s IT servers needs a $10 million HVAC upgrade. One of the largest state-owned buildings in the Pastore complex in Cranston, formerly known as the Rhode Island State Hospital for Mental Diseases, is in such disrepair, it may need to be demolished, state budget officers said in a Jan. 16 budget briefing.
The cost of repairing the 1938 building is unknown, though the state is seeking bids to commission a study on the cost of renovating the building. The deadline for responses to a request for proposals is March 11. But McKee isn’t waiting; his budget proposes relocating 200 Department of Human Services and Office of Healthy Aging workers to the Citizens building, as well as the state data servers.
One cost not recognized in the administration’s napkin math is the city of East Providence’s tax rolls. Citizens Bank pays $405,000 in annual property taxes to the city based on the $16.9 million assessed value as of fiscal 2024. More noteworthy is the $1.78 million annual tangible property taxes paid to the city for the computer systems, furniture and other taxable equipment in the building.
“The city of East Providence is going to take a big financial hit when Citizens decides to leave that facility,” East Providence Mayor Bob DaSilva said. “No matter who moves in, we’re not going to get $2 million in taxes unless they have that same type of equipment.”
The state is exempt from commercial tax rates, instead paying a sum in lieu of taxes equal to about 27% of the bill. DaSilva hoped the administration might consider a transitional approach in which Citizens could keep some of its equipment on site as state workers begin to move in, phasing out the tax payments to the city over several years.
Rep. Matt Dawson, an East Providence Democrat whose district includes the Citizens property, welcomed the opportunity to revive the loan office complex with workers ready to shop and dine in nearby local businesses.
“Empty buildings are a blight on this community,” Dawson said. “It’s a good building, it’s a functional building, and it just sits there.”
Dawson hoped the state tax change enacted by lawmakers last year would persuade Citizens to give the state a break on the purchase. Gary Sasse, former state administration director under Gov. Don Carcieri, saw things in a different light.
“What commitments did the governor make to Citizens to keep them here and was buying this building one of them?” Sasse wondered.
Karen Greco, a spokesperson for the Department of Administration, said in an email that the Citizens complex was one of the three “viable properties” that emerged in the state’s 18-month search. Greco declined to say which others were considered, citing confidentiality.
None of the 32 office buildings listed for sale in the private, real estate database for Rhode Island were comparable in size to the 210,000 square feet offered by Citizens, Harrison said.
Unlike other major state purchases, there’s no requirement for competitive bidding when the state buys new buildings or land. But any purchases, leases or sales must be vetted by the State Properties Committee, which considers recent appraisals as part of its review, Flynn said.
The state paid to have the Citizens Bank complex appraised in 2024, with a new appraisal underway to reflect updated estimates, Greco said. She declined to share the results of the 2024 appraisal, again citing confidentiality.
House Speaker K. Joseph Shekarchi and Senate President Dominick Ruggerio in a joint emailed statement said they were open to McKee’s proposal, awaiting further review in upcoming legislative hearings.
This article was originally published by the Rhode Island Current.
