Property taxes, fire codes mark legislative session

This year’s legislative session was fairly quiet for the real estate industry,
as a number of proposals to lower property taxes across the state failed to
gain the momentum needed to pass into law and home sellers continued to sort
through the fire code regulations passed in the wake of The Station nightclub
fire.




Susan Arnold, CEO of the Rhode Island Association of Realtors, and Monica Staaf, the association’s legal counsel, said the majority of real estate bills introduced in the General Assembly this year were aimed at accomplishing the ultimate goal of lowering property taxes.



According to an August report released by the Rhode Island Public Expenditure Council, Rhode Islanders have the sixth-highest tax burden among the 50 states when the share of local and state taxes is expressed as a percentage of personal income.



“Rents are so much higher, but at the same time you’re trying to keep housing affordable, you’re asking property owners to do so much more,” Arnold said. “And just look at what it costs to become a landlord today.”



Staaf added: “The fire codes and the lead paint law (passed in 2003) were really a one-two punch for homeowners. You start adding up a lot of these other proposals and it doesn’t really add up to affordable rents.”



The RIPEC report again sparked talks of replacing local property taxes with a statewide property tax to solve problems of school funding. That proposal is pretty much off the table now, Arnold said. While the concept may have been good, she said without a solidified funding formula, questions of how the revenues would be divided between the state’s cities and towns persisted.



And Arnold said as applied in other states, the money collected by such a tax can be used for any purpose once it is forwarded to a municipality. She said the end result of the proposal didn’t allow for any way to effectively mandate that a municipality restrict its use of the revenues to education.



“Our feeling is that we have to target where the problem lies,” Arnold said. “The proposal that was introduced this year is probably not the best vehicle for that.”



Staaf said at the end of the session, a task force for studying the proposal was formed. Generally, Staaf said mayors of the state’s larger cities were supportive of the statewide tax, but in looking to neighboring states that have tried implementing a tax, local taxes don’t ever really disappear. The task force is scheduled to report its findings a year from now.



Other stalled measures included a move to increase the real estate transfer tax or earmark it for affordable housing and open space and a proposal to impose a special tax on summer rentals.



“It’s been an ongoing issue for a long time,” said Staaf of the real estate tax. “While the goal (to make property taxes and housing more affordable) is certainly admirable, whenever you divert or earmark revenues, that’s less money towns have to spend on whatever they were spending it on before. … Another tax, any way you look at it, is going to put a burden on the owners, and a burden on the tenants.”



Staaf said the cottage tax is driven by a perception that the owners of summer homes in South County and Newport are a wealthy, unknown, out-of-state entity, which Arnold said is not entirely true. Staaf said a similar proposal that was floated several years ago in the Massachusetts Legislature was turned down, for fear that the summer visitors who flock to Cape Cod and the islands would head to Rhode Island in search of cheaper rentals.



“For working families, planning a vacation, that something that tips them over to renting here or elsewhere could be that tax that gets passed on,” Staaf said. “Every penny counts when you’re planning a vacation.”



The biggest legal changes continue to come out of the impact of the revamped fire safety codes. The changes, which Arnold described as “very, very ambitious,” continue to be picked apart by enforcement officials at the state and local levels. While the effects on single-family homes have been relatively minimal, Arnold said there’s been some confusion over some inherently conflicting parts of the codes.



The association was involved in lobbying the state attorney general’s office to provide copies of the full text of the new fire codes, which were copyrighted because they had been written by a commercial firm. Both women said there’s been more communication about the laws and most of the uncertainty now seems to be in the past.



Building inspectors were interpreting the laws differently, which Arnold said was occasionally impacting house sales that were tied up without building inspectors being able to sign off on the placement of smoke or carbon monoxide detectors. Staaf said the effects on three-family homes (which are often owner-occupied) are where the big changes will kick in. The units are now required to have hard-wired smoke detectors, something that could necessitate a home being gutted for installation.



“Those homes are really not a commercial venture from our viewpoint,” Staaf said.



Looking ahead to next year’s session, Staaf said she expects a number of the same proposals to be bandied about again. And while she said the bulk of the association’s participation at the State House has been “playing defense,” the association is already starting work on some legislation it hopes to file during the 2005 session.


“Our members can only do well when property owners do well,” Arnold said.
“I think a lot of what we hope to accomplish is really going to run parallel
to what the constituents of the General Assembly want.”



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