Bishop: The Peculiar Providence Tax Minuet

Saturday, June 22, 2019

Brian Bishop, GoLocalProv MINDSETTER™

 

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It is necessary to profess a personal stake in the outcome of  Providence’s budget battle. My father, having had the lack of good sense to buy an ark on the east side for $170,000 that the tax assessor now conceives to be worth a cool $2 million thus possesses one of the most expensive owner-occupied properties in the city. That said, we’re actually inured to some shifting of tax burden from challenged neighborhoods that the reevaluation tells us have risen to the challenge. The question is what mechanism and extent ought to be involved.

This phenomenon has lead the Providence City Council to propose turning the historically flat property tax into a tool of progressive policy. I’m ironically unconcerned about the high stakes last-minute political maneuvering involved. That is, after all, politics.

Senator Frank Ciccone comically suggested that the mixed devotion of his Hispanic constituency to yard pride could not possibly justify those increases in value. That, of course, suggests enabling a more aggressive appeals process. I’d be only too happy for a receptive appeals board that understands the concept of deferred maintenance in valuing 350-year-old properties. Instead, a hastily proposed state law embracing an eat-the-rich strategy is the antidote the Senator proposes.

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The ad valorem tax was actually America’s first progressive tax. Own a more expensive house, pay more for the same services. And if the tax increases too much, you sell the property to someone who will make it serve a more economically commensurate purpose. Of course, if the real concern were the road kill in such detached economics, e.g., old ladies living out their retirement in triple deckers being run out of town, the city could have asked for a notable expansion in its ability to exempt seniors on fixed incomes. But that would not accomplish the purpose of the council to shift the burden to the East Side.

Now don’t get me wrong, nobody deserves it like the East Wide who support progressive candidates as long as it doesn’t too greatly impact their pocketbook. Suddenly plans for a citywide neighbor association seem less the focus of East Siders who hoped to get poorer neighborhoods to support their nimby tendencies. It’s every man for himself, as East Siders properly recall that when the economy was weak and values shifted to the East Side, little concern was expressed for the hefty increases felt there. As the phenomenon has reversed though, hand wringing abounds.

One of very few times I agreed with former councilman Sam Zurier was his proposal that such swings be handled not be gerrymandering the tax base, but by the best practice of using a running average for the tax valuation. Big changes would have been spread out over 4 or 5 years but property owners would still have been liable for the increases. Some think this could be done without enabling legislation. If so, that would be on the basis of generic authorization to rate the property. But it is equally conceivable that submission of an 11th hour enabling statute to this effect would have actually given more immediate relief to property owners facing large increases without raising the neighbor on neighbor spectre.

While Senator Ciccone did not have notable policy arguments for his ‘solution’, he had one rhetorical winner that captured even exurban Republican Gordon Rogers: If we don’t give Providence this power, then the state will have to give them more aid.

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This is a complete falsehood. This argument is about the distribution of taxes between city taxpayers. The seeds of this ‘class’ warfare began as the state allowed different classes of property to be taxed at different rates. This was derivative of the homestead concept that emerged in the mid-1800s in various states and was meant to insulate owners from losing their domicile. With a long trajectory, it has lost a tether from that original purpose. Senator Rogers, for instance, was convinced this had been an almost eternal broad policy tool rather than a circuit breaker for homelessness.

In classic “first they came for” style, my east side brethren shed few tears when the use of classification favored them. In the last half of the 20th century, commercial property in Providence came to pays twice the rate of residential property and nobody thought that was majoritarian class warfare, when, in fact, it was. And the failure of the legislature to reign this in has lead to a circumstance where developers must be induced to build in Providence by enormous tax abatements while the existing commercial tax base shoulders a grossly disproportionate burden.

In 2010, as a campaign tactic that served the council and a mayor running for Congress, the city abruptly and unpredictably added 50% to the tax bill of non-owner-occupied property. Owner occupants saw no tax increase and had no complaint. Now the ‘bill’ comes due on the residential side and this is for Providence, not the state, to solve.

What the Senators don’t appear to grasp, because you don’t really have to know the law to make it, is that Providence already has the power to impose this tax system. The generic authorization for a homestead credit at RIGL 44-5-11.8 is the same authority used by the city since the 1990s to operate a multi-class homestead including both value and use tiers. No one ever considered those earlier iterations of the homestead to be unsupported by state statute.

Further, the change to that statue in 2013 provided for a “non-owner” and “owner-occupied” classes “in lieu” of a homestead credit. This is further evidence that the homestead currently accomplished that purpose, despite lack of explicit authorization. The law didn’t favor the use of one mechanism over the other or state a prohibition on such use of the homestead.

It seems that the city’s lawyers are instead convinced by the plethora of ‘enabling’ legislation adopted both before and after the 2013 statute -- that gave relatively explicit direction to the operation and range of tax classes and homesteads for specific towns -- that explicit authorization is needed, or perhaps advisable for the present Providence approach. Of course, they say so without explaining why this was not needed for the same system prior to 2013. This is akin to what is known in federal law as a “dormant commerce clause” theory: if the federal government makes law in an area that covers interstate commerce, this can prohibit the state from making laws that could affect interstate commerce even if the federal government has not explicitly addressed them. Those cases are predominated by what federal courts see as pretextual protectionist legislation masquerading as police power enactments. The history of state/municipal relations regarding taxing authority tells a different story here, despite the plethora of individualized treatment of various towns. We have no intrastate commerce clause. While our courts are solicitous of the General Assemblies power to run things they tend to look for the expressed power and not the unexpressed.

It is true that the helter-skelter approach to tax classification and homestead has made this section of the state law a hot mess. The newly proposed statute for Providence would be the 87th subsection! Classic enabling legislation on this topic ought to sport a half dozen subsections, generically enabling all municipalities to use the same mechanism across the same ranges. Thus, legislators voting to subject the taxpayers in Providence to a certain range of policies from their council would likewise subject their own constituents to a similar set of policies. Instead, the legislature has been doing just what it claimed it was not, sitting as super town council in all communities making a different range of provisions for each municipality.

And this mishmash of law crosses itself like waves falling back from shore to such extent that the legal geniuses who challenge the council’s power to adopt this budget have missed the true statutory violation. The tax classification statute has changed in one respect since Providence used the homestead: the provision exempting Providence’s homestead rate from being the base for calculating the limit on Commercial property rates. Thus, both the Mayor’s budget and the Council Plan, to a greater extent, violate state law, but not for lack of authority to create bifurcated homesteads.

If the state wants to rush to do something, the solution should be enabling running-average assessments, a simple best practices approach for which there is a fair amount of documentation. It irons out burden shifting without undermining the classic ad valorem system.

Meanwhile, the city has many mechanisms at its disposal, including the authority to offer exemptions for the homes of low to moderate income citizens. Or, it can adopt its proposed strategy without legislation. Yes, someone might sue . . . someone might always sue. But the likelihood of success for such a challenge does not seem great, from the eyes of this nonlawyer who plays one on the internet (‘legal’ disclaimer: this opinion is of course worth what you paid for it.)   

 

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Brian Bishop is on the board of OSTPA and has spent 20 years of activism protecting property rights, over-regulation and perverse incentives in tax policy.

 

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