A special commission's recommendations that the city of Providence revamp its tax structure and lower its "punishing" commercial property tax rate over five years is winning support from the local business community, but it remains to be seen what effect such a cut would have on the tax bills paid by residential property owners.
The Special Commission on Taxation and Revenue also called for creating new “consumption-based taxes” on special event ticketing and parking as a way of diversifying city income "so as to reduce the burden on property owners," said a report received by the City Council on Jan. 4.
In addition, the nine-member commission that included three council members recommended that the city create new residential tax categories based on the size of apartment buildings, whether homes were owner-occupied, and whether properties were being used as short-term rentals.
City Councilwoman Jo-Ann Ryan, who served as the commission's chairwoman, said the council is now working on requesting legislation in the General Assembly that would enable the city to create new tax categories and exemptions for homeowners in need.
The report avoids putting specific numbers to new rates and revenue, but one thing is clear: the city has looming financial problems. Projections estimate Providence could face a $7 million deficit in fiscal 2025, which would climb to a $14.5 million shortfall by 2028.
Last June, Providence's $583 million fiscal 2024 budget came with a 55-cent residential tax rate hike to $18.35 per $1,000 of assessed value, but the City Council also lowered the commercial rate to $35.10 per $1,000, a 30-cent cut.
While some expressed concern that a further commercial tax rate reduction might further shift the burden onto homeowners, the Greater Providence Chamber of Commerce lauded the recommendation to lower the city's commercial tax rate incrementally over five years.
"As prospective developers and business leaders across the country make strategic investment decisions, tax rates and rankings heavily influence their decisions," said Laurie White, Chamber president. "A fair, equitable and predictable tax system promotes private sector growth, expands the overall tax base and makes Rhode Island, as a whole, more competitive."
Property taxes are no doubt on the minds of Providence business owners. Businesses responding to a 2022 community survey conducted by the city listed tax burdens as the second most important concern after public safety.
Providence’s commercial rate for years has led the pack among Rhode Island municipalities and remains one of the highest in the country, described in the commission's report as “punishing” and “a significant barrier to entry and detrimental to our economic development.”
A report by The Lincoln Land Institute on commercial real estate taxes in each state’s largest cities found Providence’s rate was higher than all except Chicago and Detroit. The average annual commercial tax bill has increased from $19,495 in 2015 to $26,404 in 2023, according to city data.
Ryan said the commission recommendations are meant to reduce both commercial and residential property taxes generally, and she believes it can be accomplished.
For his part, Mayor Brett P. Smiley has thrown his support behind all the recommendations in the report. Spokesperson Josh Estrella said the administration’s goal “is to ensure that the city's tax rates are competitive with other similar-sized cities and other Rhode Island communities.”
“Last year, the city was able to better balance the tax rates in order to provide a reduction to commercial property owners while maintaining one of the lowest tax rates for owner-occupied properties in Rhode Island,” he said, vowing the fiscal 2025 tax rate proposal will “produce a balanced and responsible budget.”
Commission member Jane Driver, associate broker with Residential Properties Ltd., said the city should focus efforts on identifying tax revenue it's failing to collect. For example, she believes many residential property owners are improperly using the city's homestead exemption.
“We need to get businesses to move here, but we also need to tighten up a few things,” she said. “I think there is a lot of fraud that happens. It's very easy to submit [false applications] and not be caught. There are plenty of folks that move out of [multifamily homes who] can still get the homestead while charging huge rents and not paying their share in taxes. There is a lot of money being lost.”
Driver suspects a similar problem with owners renting on third-party platforms, which the commission recommended be taxed at a higher rate.
And taxing parking lot operators could be a good source of revenue so long as city officials can do everything in their power to prevent costs being simply passed to customers, she said.
An analysis from the nonprofit Parking Reform Network said that close to 25% of downtown Providence was dedicated to parking. And a 2016 report by the National Resource Network concluded that a 12% parking tax could yield approximately $4 million per year; a 5% admission tax levied on ticketed entertainment would generate approximately $2.8 million “using a 95% collection rate and assuming a reduced demand as a result of the increased ticket prices.”
Ruth Ferrazzano, co-owner of Murphy's Delicatessen and Irish Pub, agreed with the parking tax. She said operators have been “price gouging” for years and don’t invest enough in upkeep.
“The lots have doubled their prices over the past 10 years,” she said. “People don’t come into the city because of the trouble parking.”
