New report says R.I.’s property tax system is ‘out of balance,’ hindering affordable housing construction, economic development

A cafe employee works in the window at right as a people clear snow from the sidewalks in Central Falls, R.I.David Goldman/Associated Press

PROVIDENCE — Property taxes are the largest source of local revenue in Rhode Island, but yet, are causing imbalances in municipal services, like the construction of affordable housing, K-12 education, and economic development, according to a newly released report by the Rhode Island Public Expenditure Council (RIPEC).

The report, “A System Out of Balance: Property Taxation Across Rhode Island,” which was released early Tuesday morning, found there’s a striking difference among tax burdens of resident homeowners, nonresident homeowners, and businesses.

“Rhode Island’s least affluent communities simply do not have the property wealth to adequately fund municipal services — particularly K-12 education,” said Michael DiBiase, RIPEC’s president and CEO, and pointed to Central Falls, Pawtucket, and Woonsocket having the least property wealth to help fund schools. “This severe lack of property wealth has led these communities to impose relatively high taxes on residents, and particularly on renters, least able to afford to pay.”

And municipalities that levy higher tax rates on businesses discourage economic development, he said.

Tax policy choices, classification differences and homestead exemptions shift the tax burden away from resident homeowners and toward businesses and renters, said the report. Higher nonresident tax burdens and commercial rates applied to apartment buildings make housing less affordable to “those most in need,” and they discourage the development of more affordable, higher-density housing, said DiBiase.

He said the report also found that tax burdens shifted to businesses will raise additional equity issues.

DiBiase explained in an interview with the Globe that while looking back at Rhode Island’s history, most property taxes were paid by large industrial properties. But over time, a business and industry-based system moved to a less property-based system and more value was placed in the hands of residents. Then, he said, it became difficult to respond to homeowners shouldering more of the tax burden.

“In a post-industrial society, [businesses] have more options as to where to locate and expand their business,” he said. “Business property tax incentives for specific projects have sought to provide relief, but have failed to address the core issue — the high tax rate burden imposed on businesses.”

Now that many businesses can “work from anywhere” with the promotion of remote work, DiBiase said it’s one of the issues RIPEC has been worried about.

“Commercial property is stagnant, but there’s an uptick in residential values,” he explained. “We’re worried that this is going to go into a direction where we can’t straighten things out.”

RIPEC provided a number of recommendations for state and local policymakers in the report. DiBiase said state policymakers should consider how the state’s education funding formula may be reformed to better respond to disparities in property wealth, and should promote tangible reform by reducing municipal reliance on property tax collections.

The report also said municipalities should seek to “minimize the use and impact of property tax classification and homestead exemptions.”

“We need a system that is going to be more equitable. Less affluent towns already have high tax rates and don’t have the resources to raise the money,” he said.