PROVIDENCE –
The R.I. Public Expenditure Council on Thursday will release a new report on property taxation across Rhode Island that it says is “rife with disparities" that have shifted more of the tax burden on the commercial sector.
The report, “Shifting Burdens: An Updated Analysis of Rhode Island’s Property Tax System,” says the property tax regime –
representing 88% of all locally generated revenue in fiscal 2022 and the largest single source of revenue in the state overall has “fallen victim to considerable distortion.”
The report found that the historic increase in residential property values over the past few years “has led to an acceleration of inequities" that has "exacerbated obstacles to growing the economy and making housing more affordable.”
Property taxes comprise on average 19% of mortgage-holding homeowners' monthly housing costs. And the burden on businesses makes up close to 40% of all state and local taxes paid by businesses.
Rhode Island is unique, according to the report, because it depends more on property tax revenue than many other states, collecting $2.7 billion in fiscal 2021, making it the 14th highest in the country in terms of proportion of state and local revenue. When measured on either a per-capita basis or percentage of personal income, the picture is worse, with Rhode Island ranking 9th and 7th most, respectively.
In fiscal 2024, the tax burden for a Rhode Island resident homeowner with a property assessed at $425,000 ranged across municipalities by more than $7,000, and was much higher in some cases.
For a business with $1 million in real estate value and $200,000 in tangible property, the range has reached $40,000.
Rather than address the issue in any substantial manner, RIPEC said state lawmakers have instead chosen to give local municipalities a “wide leeway” that has “created greater disparity among the rates applied to different classes of property."
Currently the commercial property rate is 49.5% higher than the rate applied to residential property, on average. However, the rapid growth in statewide residential real estate values – increasing 23.3% between 2022 and 2024 alone – has led to a reduction in the residential property tax rate relative to commercial or tangible property, with 14 cities and towns exceeding the statewide percentage.
This gulf between residential and commercial rates has grown 8.2 % since 2022, with the gap between effective tangible and residential rates growing 11.3% over the same period.
RIPEC CEO and President Michael DiBiase says property tax burden inequities continue to contribute to historically high costs for both residents and businesses, hurting affordability and economic development and creating "obstacles to addressing these pressing challenges.
“Despite some important policy developments [such as] the state’s new tangible exemption, Rhode Island’s property tax system overall is unfortunately trending in the wrong direction," he said.
Today, a Providence resident-owned property valued at $1 million faces a tax bill of $10,280 in fiscal 2024 and $18,350 if owned by a nonresident, while the same six-unit dwelling classified as commercial property would be on the hook for $35,100.
The report called Providence “a national outlier in terms of both its tax burden on businesses and its unequal treatment of taxpayers.” It cites a study by the Lincoln Institute of Land Policy of the largest city in each state that found in fiscal 2023 the city had the third-highest effective tax rate on commercial property, after Chicago and Detroit.
Johnston has decreased its residential rate by 34.2%, an amount RIPEC called “striking,” while reducing its commercial rate by a mere 3.2%.
In addition, the report notes concern among reform advocates that some municipalities may be exceeding the 4% state cap on levy increases by failing to include in its calculations all revenue from payment in lieu of taxes agreements, tax stabilization agreements or other similar agreements.
Legislation was introduced in 2023 to address this by creating more stringent reporting requirements but failed to pass.
RIPEC said revenue received under these agreements “are neither specifically excluded nor included” in state law, and “there appears to be a lack of consistency in terms of how municipalities account for such revenue.”
The report recommends the following policy changes:
- Consider reforms to Rhode Island’s education funding formula that better respond to disparities in property wealth among cities and towns.
- Maintain and strengthen the 4% levy cap by ensuring that it applies to all property tax revenue and provide agencies with more resources for enforcement .
- Minimize the use of classification differences and homestead exemptions by cities and towns.
- Increase the tangible personal property exemption and reduce the administrative burden of the tangible tax on municipalities.
- Adopt separate tax rates for apartment buildings.
- Expand or implement means-tested tax relief programs, especially for the elderly and disabled.
- Hold local fire districts to the same reporting requirements as cities and towns.
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
