City Council to Battle Taveras Over Residential Tax Rate

The battle over an ordinance to change the city's non-owner occupied residential tax rate is slated to go back to the Providence City Council -- and both the council and Mayoral candidates are divided over the proposal.

Providence Mayor Angel Taveras vetoed the ordinance -- which would reduce the real estate tax rate on non-owner-occupied residential buildings from 175 percent of the owner-occupied rate to 160 percent of the owner-occupied rate - just prior to the 4th of July holiday.

The City Council now has the power to override the veto at a meeting on July 17, and supporters and opponents are making their case for -- and against -- the ordinance.

"The tax rate on investor owned residential property has been a gigantic drag on the Providence housing market since mayoral candidate Solomon foolishly created this crazy tax structure, without public notice or a public hearing, in 2010. Taveras has had four years to fix the situation, and has done nothing about it," said Providence real estate investor and broker Ric Santurri. "There's a reason why eleven out of fifteen councilpersons co-sponsored this ordinance. The know how this draconian tax structure is negatively impacting their neighborhoods. Take a look at all the boarded up and distressed properties that are languishing because investors don't want to invest in a city where the tax structure is so ridiculous."

Taveras, in his veto message to the Council, said that the measure would amount to over $6 million for the FY 2016 budget -- and would be passed along to homeowners.

"Make no mistake: This ordinance, which limits the tax rate for rental properties to not more than 60 percent of the rate for owner-occupied properties, would very likely result in a tax increase for the approximately 19,500 homeowners who live in their homes."

One voice in the discussion, however, is questioning the conversation altogether -- former Providence Mayor and Mayoral candidate Vincent "Buddy" Cianci.

"It's not hard -- it's a moot point," said Cianci. "The Mayor's veto? This is talking about [Fiscal Year] 2016. The point is moot. There will be a new Mayor and new leadership. Not to mention a new reevaluation. It's like saying you want to buy a 2016 Ford right now -- but we don't have the model yet. Would you want to do that? I wouldn't."

Supporting the Ordinance

Councilman Luis Aponte, who is among the council members who supported the measure when it was approved, made his case for the reduction in the tax rate for non-occupied residential in the city -- and said that he believes the council would have the votes necessary for the veto override.

"It becomes a question of tax policy," said Aponte. "I hear from landlords who want to buy and fix up three deckers -- so many of which are vacant or in disrepair -- and they opt to go to Cranston or Pawtucket instead, because of the [now-owner residential] tax rate."

"We're already rent burdened as it is," said Aponte. "The evidence is there, regarding the numbers of Providence residents spending 30%, 50% of their income on housing. Then there are the indirect costs, of families constantly moving, and children having to change schools multiple times throughout the year. When we're talking about tackling our education system, that's an issue."

With Cianci stating that he was in favor of cutting property taxes across the board ("Taxes on all tiers need to be reduced," said Cianci), fellow Independent candidate for Mayor Lorne Adrain announced outright that he was in support of the ordinance.

"I support the ordinance and further, will pursue important early action to review and restructure the Providence tax code to promote both fairness to homeowners and a more attractive and competitive place to invest and do business," said Adrain. "While increasing taxes on landlords may be politically convenient, the higher costs are passed on to renters and/or reduce the profitability that allows landlords to maintain properties and an attractive city. Too often, policy is set based on short-term political gain rather than on long-term, responsible stewardship. The Providence housing market needs a balanced and competitive tax structure across the board to be healthy."

Opposing the Measure

In addition to Taveras, those opposing the tax reduction include City Council President and Mayoral candidate Michael Solomon, and Democratic opponents Jorge Elorza and Brett Smiley, as well as Republican candidate Dr. Daniel Harrop.

"Affixing the non-owner occupied rate to the owner occupied rate does little to promote homeownership or rebuild our middle class," said Solomon in a statement. "And, while we should not discourage non-owner occupied investment in our city, no one has shown that tethering one rate to another will result in increased investment in rental properties or lower rents."

Harrop questioned where the money would come from for such a reduction -- and called out the measure as playing politics.

"I support a reduction in all tax rates -- including this one -- but not this bill and agree the Mayor should have vetoed it. Because it strikes $6.6 million from the budget (or up to $7mil; estimates vary) without a corresponding cut in expenses, the bill is irresponsible, and appears to me to be an election year ploy so City Council members can tell renters (to whom the increase gets passed along) and the owners who are Providence residents that they cut their taxes," said Harrop. "However, the taxes are going to have to be made up somewhere -- probably on an increase of other residential taxpayers. The claims that "increased tax collections" will cover this have not proven true with past cuts. Tax cuts (good!) must be paired with spending cuts to be responsible."

Democratic candidates Jorge Elorza and Brett Smiley said that they are both opposed to the ordinance, but had reservations.

"I can't, in good faith, support the current ordinance because it doesn't clearly identify a method of payment, and we can't risk forcing our homeowners to bear the burden of financing this in the future," said Elorza. "That being said, I am very concerned about the rate that our non-resident owners pay because it gives a strong disincentive to invest in our housing stock – just as our commercial tax rate discourages investment from businesses and developers. "

According to Smiley, addressing the tax debate is secondary to the underlying issue.

"All of our taxes are maxed out, and the City has cut basic services to the bone. The City Council has irresponsibly failed to pay for this landlord property tax rate cut, and it's likely that the next mayor will need to pay for this cut by increasing the tax burden on homeowners, many of whom are already struggling to make ends meet," said Smiley.

"The non-owner occupied rate is not competitive, but neither are any of our other taxes. We can't keep lowering one tax rate by raising another. The only way to move forward is through broad-based economic growth, for which I have comprehensive plan at smileyformayor.com."

Looking Ahead

In light of the ordinance battle, Councilman Sam Zurier broached an alternative to the current choices.

"A city council majority could consider the alternative of approving a tax rate freeze for the non-occupant property owners. A number of proponents of the ordinance pointed to the seven year commercial tax rate freeze as a precedent for the ordinance they passed. In fact, however, the commercial tax rate freeze is quite different, as it seeks a gradual adjustment over a period of years, rather than a 5% one-time increase to the homeowner taxpayer whose share of the tax burden already increased as a result of the 2013 revaluation," said Zurier. "It also is different because it can lead to the creation of jobs, which is unlikely to occur from an adjustment to the nonowner occupied apartment tax rate"

While Elorza said that he opposed the current ordinance, he added that he wanted to work to address the issue for landlords. "There are hundreds of blighted homes in Providence that have been vacant for years, and we need to work with non-resident homeowners if we hope to bring them back to life," said Elorza. "I fought against abandoned properties as a Housing Court Judge, and I look forward to working creatively with non-resident owners to provide them incentives to invest."

Looking forward, Adrain, who said that he supported the tax cuts, offered proposals to address cutting spending costs to do so.

"As a part of any balanced plan, the City should consider temporary tax incentives for new businesses that will expand the tax base in coming years, and use the City's available resources to help develop and attract start-ups and high growth potential companies," said Adrain. "In order to lower the burden placed on residents, Providence must make budget cuts by streamlining city services and introducing and using technology to generate cost savings - savings that will negate the need to raise property taxes to plug holes in the municipal budget."

And one Mayoral candidate -- Harrop -- advocated for receivership as being in the city's best interest.

"I continue to say the only way we can get out of our near-highest-in-the-nation commercial tax rats and high residential tax rates is through receivership: we need to shed the $1.6 billion deficit we have in our pension plan and claw back various tax "stabilization" (giveaways) awarded over the years," said Harrop. "Only then can our commercial tax rates especially be brought under control so Providence will look like a good bet for developers."

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