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PROVIDENCE, R.I. (WPRI) – When Mayor Brett Smiley announced last week his plan to cut the commercial tax rate while raising residential property rates, he pitched it as a way to reduce costs for renters.
“We know too many of our neighbors are burdened by high rent,” Smiley said in his budget address to the Providence City Council. “These properties will see a $1,900 decrease in their taxes annually, which should be passed on to their renters.”
Asked by Target 12 after the speech about renters who live in smaller multi-family buildings, which would get a tax hike under his plan, the mayor said: “The majority of tenants in Rhode Island, and in Providence, live in properties that pay commercial taxes.”
The Smiley administration is now acknowledging the opposite is actually true; there are more rental units in smaller residential properties, according to the city assessor’s estimates, than there are in commercial apartment buildings in the city.
While the city doesn’t precisely track the number of renters in the city, tax assessor Janesse Muscatelli estimates there are about 36,000 units in multifamily properties, more than three times as many as the approximately 11,190 units in commercial buildings, according to spokesperson Patricia Socarras.
The clarification on the potential impact of the tax plan on renters comes as the Providence City Council Finance Committee has begun vetting the budget, which must receive council approval.
Smiley is proposing to raise the residential tax rate by 5%, which will increase the tax bills for all residential properties including single-family homes, condos and multifamily properties with five or fewer apartments.
The proposal would also decrease the homestead exemption, a tax break for owner-occupied properties, from 45% of the home’s value to 40%.
The commercial tax rate would be slashed by nearly 4% under Smiley’s proposal, benefiting businesses and apartment buildings with six or more units.
Target 12 asked the city for the list of properties that led the mayor to conclude that most renters live in commercial buildings, prompting Smiley’s office to correct his remarks.
“Upon further analysis, there are more people living in small scale apartment buildings than large buildings,” said Socarras, the communications director. “However, those smaller buildings received a significant rate reduction last year when residential property taxes reached historic lows and the renters who live in Providence’s commercial properties paid taxes that remain the highest in the state.”
While the tax rate was cut for residential properties last year, it happened in concert with a citywide revaluation. The rise in property values meant many homeowners and residential landlords received a tax bill increase, not a decrease.
Commercial property owners also saw an increase, as the city raised the commercial tax rate last year.
“The proposed budget rebalances these taxes and better prepares Providence for a potential recession,” Socarras said.
Commercial apartment buildings with tax-stabilization agreements, or TSAs, will not be impacted by the cut to the tax rate. Those such buildings, which get a tax break, have a set schedule of tax payments until they reach full taxation at the end of the agreement.
Pushback from city councilors
Councilors at Monday night’s Finance Committee meeting pushed back at the idea of raising the residential tax and lowering the homestead exemption in the same year, since both actions will drive up tax bills for residential homeowners.
“We have to find the money somewhere, but doing both of those at the same time in the same year, I don’t think I can support that,” said Councilman Miguel Sanchez, D-Ward 6, who said he was “99% positive” he would not support the plan as written.
“I’ve already received countless calls and emails over the weekend from people saying this is devastating,” said Councilor Sue AnderBois, D-Ward 3, another member of the Finance Committee.
“That is not something that I support,” she added.
Members of the Smiley administration defended the tax plan, citing a $22 million deficit that was left after initially crafting the spending plan. About half of that will be covered by one-time funds from the American Rescue Plan Act, with the rest raised through the tax increase.
“Without a tax increase, we have an $11 million deficit,” said Courtney Hawkins, the city’s chief operating officer. “That was daunting, and we had to look at our tax rates and where we were competitive and where we were not.”
Defending the proposed commercial tax cut, Hawkins also pointed to empty offices and retail spaces in buildings that pay commercial taxes. “We’ve got to figure out a way to be more competitive,” she said.
The spending plan includes increased funds for sidewalk repairs, graffiti removal and a new 311 system.
“You will not find shiny objects in this budget,” Hawkins said. “You will find core city services.”
The average owner-occupied residential property will see an increase of $404 in their tax bill under the plan, according to the Smiley administration.
But in areas where home values are higher, homeowners will see much higher increases. The average tax bill in Ward 2 on the East Side — represented by Councilwoman Helen Anthony, the Finance chair — will see their bills rise by $1,203 on average, according to a new analysis provided by the mayor’s office.
The average homeowner in Council President Rachel Miller’s ward in Federal Hill and the West End would see a $598 increase in their tax bill this summer, according to the analysis.
Anthony said Tuesday the tax plan is likely to change before passage. She also echoed doubts that commercial landlords would pass on tax savings to their tenants.
“I just don’t think that premise is correct,” she said.
But she said the council will need to make difficult decisions if they opt not to raise taxes as high as Smiley is proposing.
“I’m very pleased that we had this honest discussion right up front,” Anthony said. “If we’re not raising taxes, then we’re going to have to be making some proposed cuts.”
The first public hearing on the budget is scheduled for 5 p.m. on May 16, where residents can testify in person or in writing on the proposal. (A second hearing is expected to take place in June after the council amends the budget.)
Smiley in part has blamed the administration of former Mayor Jorge Elorza for needing a tax increase, pointing to the use of one-time COVID relief funds to balance the budget. Smiley also pointed to the aforementioned cut to the residential tax rate, which Elorza did in response to skyrocketing property assessments from the revaluation.
“We have no choice but to raise taxes this year,” Smiley said last week. “I’m not enthusiastic about proposing to raise residential taxes. But it’s the responsible thing to do.”
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