Students living in off-campus residences could see their rent increase in 2011 as a result of a recent restructuring of the city's tax code that would raise property taxes on rented homes. Providence City Council members voted 8-7 this summer to eliminate the homestead tax exemption on rental properties, sparking outrage among local landlords.
Originally, the 35 percent tax exemption applied only to single-family, owner-occupied residences, but in 2001, Mayor David Cicilline '83 extended homestead exemptions up to 33 percent on non-owner-occupied properties to encourage landlords to lower their tenants' rent and invest in unit improvements.
According to Michael Patch, a real estate investor who owns multiple properties across Providence, neither the City Council nor the mayor's office publicly announced any plan to repeal the exemptions before the July 14 finance committee hearing at which Chairman John Igliozzi proposed the repeal.
Igliozzi did not respond to an e-mail request for comment and could not be reached at his listed phone number. Several other council members who voted to repeal the exemption also did not respond to requests for comment.
"It came completely out of the blue," Patch said.
Patch and a consortium of Providence landlords formed the Providence Apartment Association to fight the measure, claiming that the Council "illegally slipped a Tax Levy" into the budget without proper notification, according to the group's website. The Providence Journal reported that the city's solicitor general maintains that the manner in which the exemption passed was illegal because there was no public announcement before the hearing on the measure took place.
On July 26, the City Council voted 8-5 to end exemptions on non-owner-occupied property with two council members absent. A final vote the next week upheld that vote 8-7. Council members and landlords alike complained that the vote was unfairly rushed to meet the July 31 budget deadline.
"It was taken straight from one party to another party without a proper discussion," said Councilman Seth Yurdin, who voted against the repeal. Yurdin's district, Ward 1, includes Brown's campus and the adjacent Fox Point neighborhood and is densely populated with apartment units rented to students. The majority of the citywide tax burden, he said, would fall directly on his constituents.
Cicilline opposed the measure, accusing the council of passing a "budget levy that imposes an unnecessary and onerous tax increase on Providence residents." In an official press release, he vowed to veto it.
But he didn't. Michael Patch and the Providence Apartment Association allege that the administration knew about the council's plan to repeal the exemption, but expressed public opposition to avoid supporting a tax increase during his campaign for Congress.
"It was unquestionable that the administration was aware that this was the option," said Patch. "I believe the administration supported the idea."
Karen Watts, communications director for Cicilline, denies the administration's involvement in the proposal. The City Council "manipulated the timing of the hearing," she said. "Why, when a proposed budget was handed to them in April, did they wait for the last possible week?"
For landlords and tenants around Brown, the new budget is especially worrisome. Tax bills for this fiscal year are based on a 2010 assessment that saw property values fall 10 percent on College Hill and as much as 40 percent in the rest of the city, Yurdin said.
"The value of the property on the East Side increased proportionally," he explained, which will result in higher taxes for landlords renting to Brown students.
According to Patch, in the long term, if all owners are hurt, they will pass the cost on in the form of higher rent. He estimated tenants "could see 5–10 percent increases" in their rents.
