A Big Providence Tax Battle Could Be Looming
GoLocalProv News Team
A Big Providence Tax Battle Could Be Looming
Legislation introduced this year at the State House by the Smiley Administration would change the tax structure for residential properties into different classes. Specifically, there would be one rate for residential real estate consisting of fewer than six units; one for six to ten units, and one for more than ten units.
There would be separate classes for “commercial and industrial real estate” — and “properties containing partial residential and commercial or business uses.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTIn Smiley's Fiscal Year 2025 budget proposal, taxes are slated to remain “even” — the residential tax rate for owner-occupied properties would be $10.46 per $1,000, and the non-owner-occupied rate would remain $18.35 per $1,000. The owner-occupied rate accounts for a 43% break that now comes with the homestead exemption.
It was a recent amendment to the underlying General Assembly bill, which passed overwhelmingly on the Senate side, that would codify the new proposed tax structure according to classes — and according to State Senator Sam Bell, would “lock in” residential tax increases enacted by the Smiley administration in 2023.
“I was against the underlying legislation in the first place because it was designed to raise homeowners taxes,” said Bell. “I mean, that’s pretty clear that’s the purpose of it. It’s designed to allow the big apartment buildings to get a different rate — I mean, it could be used to give them a higher rate, but I think everyone knows that the intention is to give them a lower rate.”
Bell addressed his concerns with both the proposed changes at the state level — as well as the amendment intended to alter the new tax structure accordingly.
Specifically, Bell took issue with how the legislation separates tax rates.
“I do think it’s reasonable to create an intermediate [tax] rate for the medium-sized apartments, [but] the cliff at five units isn’t good public policy. Having that intermediate rate makes sense, but what I don’t support is allowing them to lower the rate for the big apartments,” said Bell. “Mathematically, the only way it works is if they lower the rate for the big apartments, it's going to mean that homeowners or the small apartment that pay the non-owner occupied rate will see their taxes go up.”
Bell said he spoke with Smiley, who he said told him the General Assembly legislation “did not reflect [Smiley’s] FY2025 budget proposal”, as the state legislation has yet to be enacted.
“The amendment does Affect this year’s budget proposal though — because if this bill gets signed into law before the council has the chance to change the tax rate, meaning the existing tax structure, what this amendment did basically is say you can’t undo the tax increase he did last year,” said Bell. “And so that would prevent the council from undoing that tax increase which was accomplished by cutting the commercial rate, so that homeowners went up.”
“If the council wanted to undo that — lower the rate for homeowners and raise the rate for commercial to back to where it was, they would run into violation of this “3.5” rule introduced in the amendment,” said Bell, of the amendment that stipulates that “class 2” — the commercial rate — “shall not be more than three and a half times the effective owner-occupied tax rate of class 1, whether by homestead exemption or separate rates.”
“It would basically make it so that the council could not undo Brett Smiley’s property tax increases on homeowners in this next budget, and absolutely does affect the budget process,” said Bell. “I don’t pretend to know what the council wants to do but I do know that the council reduced Smiley’s tax increase last time and might potentially therefor not agree with the policy of raising taxes on homeowners to fund a reduction in the commercial rate. I can’t speak for the council but they certainly they had reduced the extent of Smiley’s homeowner tax increase.”
In 2023, in his Fiscal Year 2024 budget proposal, Smiley put the blame for the tax increase on previous Jorge Elorza’s administration, referring in prepared remarks to what he said were "irresponsibly low tax rates” he inherited, when he proposed his tax increase on Providence homeowners.
“I think the big part of this is the big push for higher taxes on homeowners, and as a policy [standpoint] I don’t agree with the Mayor, who said that he found that the tax rates [under Elorza] were “irresponsibly low” — he blamed Elorza for irresponsibly low tax rates. I did not believe Providence taxpayer paid irresponsibly low tax rates,” said Bell. “I think if you’re wealthy, it doesn’t maybe matter as much. Most Providence homeowners have a very low income as it relates to home value. There are a lot of homeowners in Providence who have homes that are “worth” $400,000 and their income might be $30,000 a year. A lot of Providence homeowners have seen home values skyrocket and if the taxes continue to go up like this, they’re going to get forced out.”
Smiley defended the proposed changes to the tax structure, as well as the amendment, in a call with GoLocal.
“Providence, along with a couple of other communities — West Warwick’s one of them — our tax classifications are set in state statute, so in order to change our tax classifications we need to modify state statute. I don’t know the history of how or when that happened originally. I do know that during the Taveras administration, the city changed state law to allow for a bifurcated residential rate. Then, the Elorza Administration with Council President Igliozzi, they changed it back and undid it,” said Smiley. “And so one of the recommendations out of the City Council’s tax commission last year was to do it again, which is what we’re seeking legislative permission to do. So it’s an amendment to the existing state statute — again, I can’t answer the answer of why historically we’re in state law and other communities aren’t, but we’re not the only ones.”
When asked if the amendment effectively locks Smiley’s homeowner tax increases from last year, he said the following.
“This is an opinion expressed on Twitter, which I’m sure you seen, which is a mischaracterization of what is happening,” said Smiley, in an apparent reference to Bell. “It is currently law — this is actually just the status quo that the commercial rate cannot be more than twice the residential rate. But today we have this homestead — so then you take the residential rate, if you’re owner occupied, you take the homestead exemption and you get a lower effective owner-occupied residential rate. Because we are seeking to go to a bifurcated rate, so instead of there being a homestead, there’s an owner-occupied rate and a non-owner-occupied rate, all of which are the exact same rates as today, so that ratio that is currently in existence needed to be updated to reflect the new classifications. Under this proposal, the commercial rate cannot be more than twice the non-owner occupied residential rate, which effectively is a homestead list rate is.”
“So today, if you do the math, the commercial rate is 3 and a half times the owner-occupied rate, so that is now codified in the legislation because the was a calculation that never needed to have been made before because there was the homestead. So all this does is codify the existing ratio, which has been in state law and city ordinance for decades,” said Smiley. “What it does is continue the longstanding practice we already have, which is to say that if you’re trying to raise the commercial rate, or cut the residential rate, it can only be within this established ratio. The council was always living under these rules for a long time. I do believe that our commercial rate is not competitive and there’s ample data to support how high our commercial rate is to other cities.”
“For those residents who see their house value go up, we’re still prioritizing keeping our residential tax rate low. Our owner-occupied residential tax rate is the 8th lowest in the state — there are 29 communities with higher residential tax rates than Providence,” he added.