Housing Groups: Proposed Tax Changes Could Hurt Prov. Development

Wednesday, January 08, 2014


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While the Providence City Council has begun addressing changes to granting tax stabilization agreements to developers, community housing groups are raising concerns that a proposed ordinance would possibly halt the construction of an affordable housing project on Dexter Street in Providence -- and could have a negative impact on the future affordable housing in the state as a whole

In a letter addressed to Councilman David Salvatore dated January 2, RI Housing expressed concerns that the City's offer to grant a tax stabilization agreement in lieu of the existing 8% tax treatment for deed restricted -- i.e. affordable housing properties -- could halt the progress of a proposed fifty-unit affordable housing development, Sanofka Apartments, in the West End.  

"By declining to acknowledge new construction projects as eligible for eight percent tax treatment, the City reverses a position espoused by every previous administration since the enactment of the 8% law," wrote RI Housing's Director of Development, Carol Ventura.

Read the Letter HERE

"While a municipality's refusal to afford eight percent treatment does not disqualify a project from HTC (Housing Tax Credit) funding, it could adversely affect a projects's ranking for financial feasibility and readiness to proceed," wrote Ventura. "Moreover...the City would set a troubling precedent that could be used by other Rhode Island communities that may be intent on discouraging the development of affordable housing."

Last May, GoLocal reported that the majority of Rhode Island’s cities and towns were failing to meet the ten percent federal and state Affordable Housing Mandate. At the time, only six of Rhode Island’s thirty-nine municipalities had met the required standard.

A report issued by HousingWorks RI entitled, "The Complete Approach to Funding Affordable Housing" in May 2012 showed that half of Rhode Island renters are cost-burdened, which means that they spend more than a third of their income on housing. Moreover, a quarter of all Rhode Island households pay over fifty percent of their income towards housing costs.

Housing Network of RI Voices Concerns

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"The proposed ordinance would definitely cause problems for the development of affordable housing," said Chris Hannifan, Executive Director of the Housing Network of Rhode Island. "We've worked well since the 8% law, and we have a system in place. My membership would consider this change to be very hard."

Hannifan addressed the ramifications such a change could have on affordable housing developers. "In a market rate development, if the taxes go up, the rents go up. When these [affordable housing] developments are underwritten, it's with the understanding they've got a locked-in tax rate. They can't go and raise rents. I'm not a developer, but I would say that I would bet that it would make a big difference to developers if they didn't know what the taxes were going to be on the development."

"In Rhode Island, there is a great need for affordable, rental housing. We are a low-wage, high cost state, " continued Hannifan. "We have a lot of people that are paying more than 50% of their income for rent. We know that there is a currently a great need for affordable housing."

West End, Future Developments at Stake

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RI Housing's Mike Milito explained the scenario facing the Dexter Street project, in light of the proposed ordinance.

"West Elmwood Housing Development Corporation has applied to Rhode Island Housing for an award of federal housing tax credits under a very competitive funding process. We received applications seeking about $11.1 million in housing tax credits, but only have about $2.4 million available to allocate. Put another way, total credits requested are more than 4 1/2 times the credits available," said Milito. "One of the criteria used to evaluate the proposals is whether the local municipality in which the proposed development located has confirmed that all deed-restricted properties will be given 8% tax treatment. If West Elmwood is unable to provide confirmation that it will be given 8% tax treatment the development will be at a competitive disadvantage when weighed against proposals from other communities that have already confirmed the 8% approach."

Furthermore, Milito saw further implications on the potential for affordable housing developments. "Development of affordable homes relies on a mix of public funding sources and private investment," said Milito. "Private investors may be hesitant to invest in developments if they are not confident that the project will receive consistent tax treatment in accordance with state law for the entire term of its financing and deed restriction. This would have the potential of curtailing new construction of affordable homes in the City, which in turn may impact job opportunities and revitalization in those neighborhoods where the housing would be located."

City Councilman David Salvatore said he would look closely at the concerns as the Council considers the proposed ordinance. "I've got specific questions on tax stabilization measures for the West Elmwood project," Salvatore told GoLocal.  

Milito added that the proposed ordinance could mean more work -- for the city.  

"If the City decides not to apply the 8% tax treatment to any property and instead assess taxes based on the value of the development, the tax assessor will have to review the specific deed restriction, determine the nature of the limitations imposed on the property, and analyze the reduction in value caused by the deed restriction," said Milito.  "Each property must be analyzed individually since the deed restrictions are not all identical. The 8% law avoids this outcome by specifying a simple, consistent approach for all deed-restricted properties."

A spokesman for the Mayor did not return request for comment.  


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