When Providence hiked property taxes and slashed the exemption on multifamily homes in 2010, many apartment-building owners were blindsided by soaring tax bills that in many cases were double what they had once paid.
Providence’s unusually high, 50 percent homestead exemption for owner-occupied properties provided some refuge and was attractive because the city required hardly any proof of residency for those who claimed it.
Now that the city has cracked down on homestead-exemption abuse, as many as 4,000 Providence properties that took advantage of the homestead exemption last year may not have been eligible for it.
Since the city required all homeowners to register their car in Providence to claim the exemption (or provide other proof of residency), the number of homestead properties this year has dropped from 21,000 to 17,000, according to the Director of Administration Michael D’Amico.
As a result, the city is projecting at least $5 million in new revenue for fiscal 2013 from properties that no longer claim the exemption on their taxes and from new vehicle taxes from owners who used to avoid the city’s steep rates by registering elsewhere.
And that figure is likely understated. It assumes as many as 2,500 property owners will belatedly apply for the exemption, (the city is allowing late applications) although only a trickle of new exemptions are coming in, D’Amico said.
“It is our belief that many of these people weren’t entitled to the exemption and, as part of the new application process, knew they weren’t going to qualify,” D’Amico said.
The homestead crackdown, approved by the City Council last year, is a major element of Mayor Angel Taveras’ plan to balance next year’s budget without filing for bankruptcy or seeking a property-tax hike.
Especially when previous tax hikes are taken into account, the new rules have effectively added investor landlords to retirees, public-safety workers, colleges and hospitals digging deep to help keep the city solvent.
But although tightening the homestead rules is providing the city a boost in the short run, many in the real estate world say it overlooks an imbalance in Providence’s current property-tax system that is dragging down the already depressed multifamily housing market in ways that could hurt in the long run.