In a new study that’s sending shock waves through local business and political circles, the commercial property tax burden in Providence ranks fifth highest among the nation’s 55 biggest cities, behind Chicago, Detroit, New York City and Des Moines. Boston ranks sixth.
To put the picture into even starker context, Providence’s commercial tax burden is 70 percent higher than the average of the 55 surveyed cities.
Providence also leads all New England cities surveyed.
The study, “The 50 State Property Tax Comparison Study,” is based on 2004 statistics and is being officially released to the public today (Jan. 17) by the Rhode Island Public Expenditure Council – a non-partisan, nonprofit organization with the goal of improving government services. Providence was the only city in Rhode Island surveyed. An advance copy of the report was given to Providence Business News.
“I think it raises a lot of serious questions about the tax burden that businesses are shouldering in Providence,” said Peter Marino, director of policy at RIPEC. “Why is the tax burden so high? A lot of it depends on what’s growing. Residential properties are growing in value, whereas commercial values are growing less strongly. If the city did nothing to alter the equation, that additional tax burden would shift to residential properties. But the city has made a conscious decision to maintain the same level of taxation on business and residential properties, despite the difference in valuation, which means percentage-wise the burden falls harder on commercial.”
City Hall’s response was candid and unequivocal.
“This report by RIPEC confirms what we all know, property taxes in Rhode Island are too high,” said Providence Mayor David N. Cicilline. “The state’s current educational funding system places an unfair burden on property owners in every city and town in Rhode Island. The RIPEC study underscores the need for a fair and equitable state education funding system. The absence of a fair funding formula forces local communities to rely excessively on local property taxes.”
The business community also responded strongly to the report.
“When you’re one of the highest-taxed cities in one of the highest-taxed regions in the country, it’s pretty difficult to attract investment and to even keep the investment you have,” said James G. Hagan, president of the Greater Providence Chamber of Commerce.
Hagan pointed out businesses are the engine of economic growth and consequently require a less punitive tax environment. “We must create a tax environment that’s conducive to doing business here and creating jobs,” he said. “If you tax businesses to the point where they can’t compete or attract investment, they no longer will be the engine, and then where do you turn?”
Hagan asserted that the city must cut spending and negotiate better labor contracts.
“We need to get government spending down to under reasonable levels,” he said. “This report is yet another concern for any business that wants to relocate here. Providence is a great place to live and go to school, but it’s a high-cost place, no question.”
RIPEC’s Marino added that private-sector forces play a key role. During the 1990s, commercial property values dropped and only recently recovered to post modest growth. “That’s why business taxes have gone up,” Marino explained. “However, higher taxes also reflect municipal budget growth. There is no question that the burdens of providing public safety and related services to residents, businesses and workers places a significant demand on the city’s coffers. This is on top of providing an adequate educational system for nearly 27,000 students. It is difficult for the city to meet these needs while relying on property taxes as a major revenue source.”
There’s an old saying: You get what you pay for. It appears that the much-vaunted “Providence Renaissance” didn’t just occur in a vacuum. It costs money. Yet the RIPEC study begs an important question: Will the city’s inordinate property tax burden kill the proverbial goose?
Marino said that, to begin dealing with the high property tax burdens faced by Providence and other Rhode Island communities, it will be necessary to take steps to further control costs, particularly in public educational systems. On average, school spending is growing 2.5 times the rate of inflation and is projected to continue this rate of growth through the rest of the decade.
“As Providence and other Rhode Island cities struggle with high property tax burdens, policy-makers may want to begin reviewing existing property tax limitation policies to consider strengthening existing limitations as well as pursuing reforms in educational finance structures,” Marino said.
Among the report’s other salient findings:
– The high property tax burden in Providence is clearly felt by both homeowners and businesses, regardless of the value of their respective property.
“The high level of property taxation places the city in a non-competitive position, making it increasingly difficult to attract and retain business investment in the city,” Marino said.
– The city’s property tax burdens, regardless of class, ranked among the top 12 among the 55 cities surveyed.
– Providence’s tax burden on commercial property is the highest among surveyed New England cities, with Boston ranking second among its neighbors. Providence’s commercial property tax burden is 17 percent higher than Boston’s commercial property tax burden.
– Providence’s industrial property tax burdens also are the highest in New England and are more than 60 percent higher than the 55-city surveyed average.
– Commercial and industrial property values have only recently recovered from difficult times in the 1990s, but their values are still growing at modest rates compared to residential property values.
Hagan said businesses are taxed at a higher level to spare homeowners. “The city obviously has experienced some financial challenges,” he said. “One of the things Providence did last year was to create a several-tiered property tax classification system that, in my opinion, forces businesses to pay property taxes on an inflated valuation level. The city didn’t want to put more of a burden on residential taxpayers.”
