Two Sides to Every Bill: Low Income Housing Taxes

A hyperbolic editorial in the Providence Journal calls legislation that increases the allowable taxation on certain affordable housing units an “attack on housing”:

It would raise the payment to cities and towns in lieu of taxes by nonprofit housing developments from 8 percent to 10 percent — and it would not only ensnare new developments but those already in operation …

Before rushing this legislation through, the Assembly made no analysis of its impact on struggling neighborhoods and those who depend on affordable housing. …

Private investment has helped build affordable housing throughout Rhode Island, generating tax revenues and providing construction work. Complex arrangements have been made to provide the funding for these developments and make them sustainable. Many of the legislators obviously had no idea what they were doing when, in a mad rush, they voted to pass legislation that would upset these arrangements and chill such investment in Rhode Island construction and housing.

While we’re on the subject of doing no research, the Projo editorial board appears to have dug no more deeply into the topic than consulting with an activist who’s right in the middle of those “complex” financial arrangements.  None should question the complexity, but one would think seasoned journalists would wonder (1) whether that complex nature creates opportunity for numbers games and (2) whether the system is run on as tight and precarious a budget as the editors’ harangue implies.

It could be that these projects are highly profitable.  After all, much of the complexity has to do with pulling in subsidies from various sources, creating incentives to make the housing “affordable.”  Those incentives last for a limited time, after which property owners can cross out that charitable adjective.  Long-term investment systems (like, ahem, pensions) can dabble in supplying the funds for such projects because they know in 30 years or so the investment will come to maturity, as it were, and be salable or rentable for much more than their “affordable” status would currently suggest.

It could also be — indeed, it is unarguably true — that the complex deals are built on the backs of taxpayers, at various levels of government, whose ability to survive and advance in life is becoming more complicated by the month.  One needn’t do more than some rough research and back-of-the-envelope calculations to get a sense of what I mean.

First you have to understand something that the editorial does not explain very well (perhaps indicating that the writer didn’t bother to read the supposedly outrageous legislation for him or her self):  The tax rate is not determined by the property, and the editorial never tells readers what it is 8% of.  The answer, as helpfully provided right there in the bill, is “the property’s previous years’ gross scheduled rental income.”  In other words, it’s not a “property tax” at all; it’s a rent tax.

Let’s do the quick comparison.  The residential property tax rate in Woonsocket (the district of bill sponsor Lisa Baldelli-Hunt) is $34.56 for every $1,000 of property value.  According to William Raveis Real Estate data, the median sales price for a single-family house in Woonsocket averaged $125,000 over the past 12 months.

So, if we assume that the sales price tracks pretty closely with the assessed property value, we’re looking at an annual tax bill of $4,320.

Now, according to RentRange.com, the average rent for a two-bedroom home hovers around $800 per month, or $9,600 per year. HousingWorksRI puts the average rent for a two-bedroom apartment at $968 per month, or $11,616 per year.  To be conservative, we’ll go with the higher number.  Keep in mind that it’s the overall average, not a subsidized “affordable housing” average, which would presumably be significantly lower.

At 8% tax, that comes out to $929.28 per year, which the General Assembly wants to increase to $1,161.60, or $232.32 additional per year, which is $19.36 per month.

Because cities and towns in Rhode Island have adopted a backwards budget-then-tax approach of figuring out what they want in property taxes and then dividing it up based on property values, one can say that the (conservatively estimated) $3,158.40 difference between the property and rental taxes above is being paid directly by the other taxpayers in the city.  Woonsocket, by the way, still has double-digit unemployment, at 11.4%.

The Providence Journal editors make it sound as if the legislation appeared out of nowhere on the last night of the session, but a quick check of the legislature’s Web site would have shown that it was introduced in February and heard in committee in April (in the Senate) and May (in the House).  The final bill that passed the legislature represented a compromise that dropped the new rent-tax rate from 15% to 10%.  That the editorialist was ignorant of the legislation until the very end doesn’t mean the process was any more opaque than for just about every other bill, including ones that the Providence Journal likes.

In a final analysis, asking the heavily subsidized developers to pick up another $232.32 per year of the burden is hardly an “attack on housing,” no matter how complex the financing scams schemes arrangements may be.  Greedy developers may sue over having to absorb some fair share of Rhode Island’s economic languish, but then, we’re seeing lots of threats of litigation from the special interests whom Rhode Island’s suffering is finally beginning to reach.

Disclaimer: The views and opinions expressed in The Ocean State Current, including text, graphics, images, and information are solely those of the authors. They do not purport to reflect the views and opinions of The Current, the RI Center for Freedom & Prosperity, or its members or staff. The Current cannot be held responsible for information posted or provided by third-party sources. Readers are encouraged to fact check any information on this web site with other sources.

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