Elorza Proposes 150% Increase in Hotel Tax to Help Balance Providence’s Budget Problems
Wednesday, March 08, 2017
Providence Mayor Jorge Elorza is asking the Rhode Island General Assembly to pass legislation that would place an additional 1.5 percent tax on hotel rooms and increase in the tax of 150 percent. The hit would be absorbed by the hospitality industry and tourists.
One of the sponsors of the legislation calling for the hotel tax increase, Providence State Representative John Lombardi, said, “Obviously we've been meeting with the executive branch. We were told this would generate around $2 million. Clearly, we need to derive revenue from other sources."
In addition to Lombardi, the legislation is sponsored by Edith Ajello, Aaron Regunberg, Joe Almeida, and Anastasia Williams.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“I think we'll get pushback from suburbs, hotels -- but you're always looking for alternative revenues,” said Lombardi.
Former Providence Mayor and downtown developer Joe Paolino, however, criticized the proposal and said it is shortsighted and a blow to the efforts to revise the struggling Providence economy.
“Sometimes people look at downtown and think it's doing great, but the vacancy rates are high in office buildings, and hotels are somewhat seasonal and really rely on the universities,” said Paolino.
“Just to raises taxes to fill holes -- they might get more revenue by lowering the hotel tax.”
High Taxes, Poor Business Rankings
Providence ranks poorly in almost every business ranking and lags far behind the rest of the region.
Last May, WalletHub ranked Providence the second worst city in America to start a business and the worst city in America for Hispanic business owners.
Providence has one of the highest commercial real estate tax rates in the country. The Lincoln Institute writes, “The highest rates were in Detroit, New York City, Providence, Chicago, and Bridgeport, all of which had effective tax rates that were at least two-thirds higher than the average for these cities.”
Today, a debate is emerging as to whether the City of Providence should declare bankruptcy.
“Are they going to review the pensions? Are they going to review the unfunded liability?” asked Paolino. "I think everyone is well intentioned, but to increase taxes without seeing the economic impact with regard to bringing in tourism -- is somewhat short sighted. We need to grow the economy in order to get out of the budget problems the only way to grow the economy is by bringing people in.
"Just to raises taxes to fill holes -- they might get more revenue by lowering the hotel tax," said Paolinon of the city.
Providence Costs Are The Same As Boston, But Revenue Much Lower
"In Providence, what's the average rate in downtown, versus Boston? To a developer, the cost to build a hotel is the same. But the rate for a room is probably on average in the low- to mid-hundreds in Providence, but the average rate for Boston is around the $300 range a night -- I don't know if the elected officials can understand that it. It's just as expensive for a developer to build, but the return is much less in Providence," said Paolino.
"So if they think it's a good idea just to fill a budget hole, they really can't look at it as a revenue grab with and recognizing that in Boston the hotel developer costs are the same in Providence," said Paolino.
Presently, there are five new hotels in some level of being developed in Providence, including a Homewood Suites hotel, Best Western GLo hotel, Marriott Residence Inn, Holiday Inn Express and Aloft hotel.
"We need to realize that Providence is a wonderful city -- but its not a city of great economic growth. People continue to invest here because its where we live...if I lived somewhere else and invested somewhere else, the margin would be so much greater. Here it's so much more minimal," said Paolino
Martha Sheridan who heads the Providence Warwick Convention and Visitors Bureau, said she could not comment on the proposed hotel tax increase -- yet.
“Right now, we don't have a position on [an increase in the hotel tax]. We have a board meeting coming up where we will discuss -- again, we don't have a formal position at this time," said Sheridan.
Related Slideshow: Providence Finances - Benchmark Report - 2016
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