It’s not often that politicians preemptively push for more taxes.
Yet a new report adopted by the Providence City Council on Thursday, Jan. 4, recommends potential tax hikes and new tax categories. The report by the city’s Special Commission for Taxation and Revenue aims to stabilize the city’s budget, which is projected to face a $7 million deficit in fiscal 2025, according to the city’s five-year financial estimates.
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Among the nine-member panel’s proposals: new taxes on ticketed events like sports games and shows, parking, and short-term rentals [separate from properties that people live in or rent as traditional landlords.]
The report does not explicitly call for raising taxes on residential properties. However, it makes the case for a five-year, phased-in reduction in the commercial tax rate to be “more competitive and less punishing” to businesses and developers. One way to make up the difference: higher taxes on some types of residential properties, a swap the Rhode Island Public Expenditure Council has championed for years.
“Despite having a low tax base and a lot of expenses, Providence has decided to tax homeowners very lightly,” said Michael DiBiase, RIPEC president and CEO, and vice-chair of the commission.
Indeed, even after raising the residential tax rate by 55 cents [to $18.35 per $1,000 of assessed value] in its fiscal 2024 budget, the city has the seventh highest residential tax rate among the state’s 39 cities and towns.
By contrast, the city’s fiscal 2024 commercial tax rate of $35.10 per $1,000 is the highest in the state, and among the highest of cities nationwide according to at least one analysis from 2021.
“That just discourages investment,” DiBiase said of the city’s commercial tax rate.
It’s also forced the city to rely on additional incentives to lure developers, like individually crafted property tax agreements that phase in increases in assessed value over a longer period of time. Some also blame the hefty commercial tax rate for hurting renters, since any apartment building with more than five units is taxed at the commercial rate.
After years of sounding the alarm over the “imbalance,” between Providence’s residential and commercial taxes, DiBiase has picked up support from key Providence officials. Councilwoman Jo-Ann Ryan, who chaired the commission, backed all the proposals in the report, including reducing the commercial tax rate.
Josh Estrella, a spokesperson for Mayor Brett Smiley, also said via email that the administration supported the recommendations.
The report doesn’t offer any numbers such as new rates, or revenues from those rate changes. Absent these calculations, some city officials and commission members remain reluctant to back any of the recommendations, especially a cut to commercial tax rates because of its ripple effect on residential taxes.
“It’s easy to try and say this is the thing impeding business development,” Councilwoman Sue AnderBois, who also served on the commission, said of the commercial tax rates. “It could be a whole range of other things. I was not given enough compelling evidence that it’s the tax rates, versus sidewalks in disrepair, or something else. Other cities have high commercial rates and it doesn’t mean there is no business there.”
On the prospect of raising residential taxes, she said, “People are struggling. Imagining adding any additional burden to their tax bill would be a hard pill to swallow. I don’t want to see us do that again, at least in the next fiscal year.”
Acknowledging how renters have been forced to foot the bill on higher commercial tax rates, the report attempts a remedy through a new tax category for apartment buildings with six to 10 units, at a presumably lower rate than what is imposed on large-scale commercial and housing developments.
The Providence Apartment Association blamed the city’s high commercial tax rate coupled with a homestead exemption that only gives a discount to people who live in their homes, for what it considers a “crisis” for city landlords.
“It is any wonder with these disincentives that apartment supply in Providence is insufficient and that dense building or renovation is not being pursued to the extent needed to bring the supply of apartments into balance with demand,” the association wrote in testimony to the commission at its Nov. 27 meeting.
Yet AnderBois was skeptical that the separate tax rate for small apartment buildings would actually help renters who live there, since the landlords could just pocket the savings rather than keeping rents affordable for their tenants.
“That’s a protection I would want to see put in place before I was comfortable,” she said.
Then there are the prospective homebuyers, especially first-timers, who might not be able to shoulder the already hefty price tag of buying a house if taxes go up, said Jane Driver, a real estate agent with Residential Properties Ltd. and commission member. Driver also feared how tax hikes would degrade the appearance and upkeep of Providence’s historic neighborhoods, like her own in the West End.
“I think it will cause people to do fewer improvements on their houses, like landscaping and such, if they are paying more in taxes,” Driver said.
Before potentially upping what homeowners pay in taxes, Driver wanted to see the city improve on its collection of unpaid fees, fines and tax bills, which is expected to increase from $3.5 million to $4 million in fiscal 2025, according to city budget projections.
That doesn’t account for the taxpayers who pay their bills, but at lower amounts than they actually owe because they are, for example, receiving a homestead exemption discount when they actually don’t live in the home.
Tom Sgouros, a fellow at Brown University’s Policy Lab and research associate in computer science, said the city has virtually no way to track whether a taxpayer claiming they live in their home is telling the truth. Which means the city could be unfairly losing money based on the 57% of 35,500 single and multi-family homes and condos that currently receive a discount on their property assessment through the homestead exemption.
Sgouros suggested better technology and surveillance of taxpayers who claim the homestead exemption, as well as easier incentives like asking taxpayers to sign a sworn affidavit attesting to the accuracy of their tax classification.
“People do what they are permitted to get away with,” he said. “But there’s stuff we know from behavioral decision-making studies that can at least nudge them to do the right thing.”
AnderBois considered increasing enforcement and surveillance on tax payments, fees and fines an easier, though partial, solution to the city’s funding woes. But other longer-term fixes could be a harder sell, including new “consumption” taxes on ticketed events and parking.
The report does not specify the amount of the tax, though a prior, 2016 analysis suggested a 5% admissions tax could generate $2.8 million a year, using fiscal 2018 numbers. A 12% parking tax rate, meanwhile, imposed on surface lot and garage operators, was expected to bring in another $4 million a year to city coffers, according to the 2016 National Resource Network report.
Those recommendations never got off the ground, but Ryan considered the proposals worth revisiting, despite anticipated backlash from tourism and events groups.
“The Patriots don’t play here, but there are opportunities for earning revenue off of the fact that Providence provides really great services to people who are both residents and non,” AnderBois said.
She also expressed enthusiasm for taxing large surface lots and parking structures, though she wanted more information about how these extra taxes might affect demand for entertainment venues and nearby restaurants.
Kristen Adamo, president and CEO of the Providence Warwick Convention & Visitors Bureau, declined to comment, saying she wanted to wait for input from her board of directors.
Further complicating the puzzle: an admissions tax, along with most of the other tax changes, requires state-enabling legislation for the city to implement. Which means that potentially unpopular tax increases have to pass muster with members of the City Council and the Rhode Island General Assembly.
Sgouros criticized state lawmakers for a history of stinginess with its capital city on aid for schools and its reimbursement rate for tax-exempt properties, many of which are owned by the state. Adding insult to injury: the lack of local sales taxes, which prevents Providence from generating more local tax revenue.
“Everybody wants a government that can run on nothing,” he said. “State policy over the past 30 years has been all about cutting taxes on the wealthy and stiffing poor cities like Providence.”
Sgouros was uncertain whether Smith Hill would change its attitude. But he didn’t think the commission’s work, and recommendations, were made in vain, especially because Providence could offer a blueprint for other cities and towns across the state grappling with their own tax and revenue shortfalls.
“As the capital city, what Providence does matters to all the other cities and towns, either as a model for them or as a counterexample sometimes,” he said.
DiBiase acknowledged that the debate over tax reform will be political, and may take years to implement. But he’s playing the long game.
“It’s not that the city is going to collapse if they don’t get the revenue situation in order right now,” he said. “It’s a longer term issue, where they can really invest in a lot of infrastructure, borrowing money. They just can’t prosper. They’re too tight.”
Nancy Lavin is a staff writer for the Rhode Island Current.
