I am writing in support of the Mayor’s proposed budget. I appreciate the significant fiscal constraints on the city’s budget and support the concept of the overall increased tax levy. We all need a quality school system, roads and sidewalks in good repair, and functioning city services. However, in reviewing the newly proposed tax rates, I have some concerns.
The proposed tax rates represent an historic move in the right direction, but much more needs to be done. Currently, Providence’s commercial tax rate (which applies to apartment buildings as well) is $35.10/$1,000. According to a report by the Lincoln Institute of Land Policy that compared commercial tax rates for the largest city in each state, Providence has the 3rd highest nationally, between Detroit and Bridgeport, CT. Under the new proposed commercial rate of $27.75, our position improves, but only a little bit to the 5th highest in the country, edging out Bridgeport and Des Moines, Iowa. Boston’s property tax rate is $17.80, 40% lower than the new, lower commercial rate in Providence.
Under the proposal, the proposed tax rate for a twelve-unit apartment building ($27.75/$1,000) is three times that on an equivalently valuable owner-occupied mansion ($8.25). Small business owners ($28.80) are paying a rate more than three times the rate of condo owners ($8.25). The result is that renters, who are by-and-large lower income and less wealthy, are paying a disproportionate share of the cost of operating the city.
Reviewing the latest tax revaluation and rates, our largest investor’s comment was, “it’s hard to see how we can build anything in Providence without a special tax deal” (like a tax stabilization agreement).
One recently developed property has seen its property assessment increase 40% in the last year. Even with the lowered rates, the property tax bill would have increased 12% if we didn’t already have a Tax Stabilization Agreement. That kind of large swing in project operating costs can put a property into financial distress, potentially resulting in foreclosure. If the project had been developed without a TSA, under the new assessment and tax rate it would lose 30% of its value, wiping out more than half the investor equity. Each individual apartment would be paying over $12,000 a year in Property taxes. As we look forward to developing new residential properties, we will be limited in our ability to build by whether we can obtain tax stabilization agreements or 8% law treatment.
‘We can’t build new homes without a special tax deal’ is a bad way to run an economy.
We all agree that RI has a shortage of homes, resulting in cutthroat competition that drives up prices. For over a decade, RI has built new homes at the lowest rate per capita in the county. The city’s new comprehensive plan is broadly unzoning the city, allowing more density, and that helps. The General Assembly is advancing a range of bills to make it easier to build. Yet Providence’s tax policy clearly says “build less,” “build smaller,” and “think twice before investing here.”
For example, we have a parcel and a design for a 21-unit mixed-use apartment building that we are seriously considering scrapping to subdivide the land and build four smaller, cheaper four-unit buildings (16 units, or 20% fewer homes) because it will reduce our tax rate by 66%. Instead of “form follows function,” it’ll be “form follows taxation.”
We’re not going to address the City’s housing shortage or grow to 250,000 people if we’re inhibiting the development of mid-sized apartment buildings. The proposed tax rate changes are an important step forward, but we should restructure our tax rates to more fairly distribute the tax burden between apartment buildings and luxury million-plus-dollar homes.
If we do, we will make Providence a great place to invest in building new homes and reduce our reliance on special tax deals.
Seth Zeren
Armory Management Company
West Broadway
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