PROVIDENCE, R.I. (WPRI) – Democratic Gov. Gina Raimondo is looking to invest more into the development of affordable housing, paid for in part with a new tax on all real-estate sales totaling more than $500,000.
The second-term governor for months has indicated housing would play a central role in her fiscal 2020-21 budget, and specific details emerged on Thursday when state officials unveiled Raimondo’s $10.2 billion tax-and-spending proposal.
The budget, which will now be vetted by lawmakers during the coming months, suggests creating a two-tiered tax system that doubles the so-called “conveyance tax” to 0.92% on all property sales – both residential and commercial – totaling more than $500,000. The current rate — 0.46% — would apply to the first $500,000 of any transaction.
As a result, homebuyers would pay nearly $1,000 more when purchasing a $700,000 home and about $1,300 more for a $800,000 home.
State officials estimate the new tax would generate about $3.6 million in state revenue next fiscal year, and $8 million in each budget year afterward. The money would create a dedicated funding stream that would go into a restricted receipt fund at Rhode Island Housing, a quasi-public agency, and be controlled by the Housing Resources Commission.
Officials say the money would be enough to create 250 affordable housing units for low- and moderate-income Rhode Islanders each year.
Commerce Secretary Stefan Pryor said the new, two-tiered tax system would bring Rhode Island in line with neighboring states, including Connecticut, New York, Vermont and New Jersey.
In Massachusetts, Cape Cod has a similar regional tax, and the Boston City Council has proposed a similar assessment in the capital city much to the chagrin of real estate trade groups.
“Rhode Island is the only state in the Northeast without such a dedicated funding stream,” Pryor said.
Pryor estimates the new tax – which would affect future transactions, but not current homeowners – would impact about 11% of housing sales.
R.I. Department of Administration acting director Brett Smiley, who has been nominated to assume the position permanently, said the state chose the $500,000 threshold because it was roughly double the median sales price. The Rhode Island Association of Realtors on Thursday reported the median sales price totaled $285,000 in December.
State officials also insist the new tax will not damage the housing market.
“This approach will have a limited to no effect on the market,” Pyror said. “It will not weaken our competitiveness.”
When asked about the prospect of a new real estate tax Thursday night, Democratic House Speaker Nicholas Mattiello expressed some doubts.
“I look skeptically at creating any new taxes, but I will reserve judgment until the House Finance Committee holds a hearing on the proposal,” he said.
Democratic Senate President Dominick Ruggerio, meanwhile, offered supportive comments.
“I think a funding stream is necessary, whether you go a bond route or the conveyance tax,” Ruggerio said earlier in the week. “I think we have to do something for housing, not just the affordable housing but also low-cost housing so people who would not necessarily fall under the affordable housing would have a mechanism where they could get the housing.”
Other housing initiatives
In addition to the new tax, Raimondo has proposed five other housing initiatives as part of her budget.
The first is a $25 million housing bond, reflecting how the state has traditionally invested in affordable housing. The bond would require both legislative and voter approval, and is tucked into a larger $87.5 million housing and infrastructure bond that will also go toward funding early-learning facilities, Quonset Pier, industrial site development and art and historic infrastructure.
Raimondo is also proposing a new housing incentive for municipalities to build more affordable housing.
That initiative, which was inspired by a Massachusetts incentive program known as Chapter 40R, would provide money to cities and towns that create more affordable housing. But only after local leaders can show the influx of new residents has resulted in an increased cost to the local schools system.
“We’ve heard a number of municipalities would like to plan for new housing, but are concerned that certain expenses might increase and burden the town, for example, educational expenses, but it’s not automatically the case,” Pryor said.
Another proposal by the governor is to eliminate a so-called duplicative tax on investors who purchase and then sell affordable housing development projects. Pryor said he’s heard anecdotally from the investment and business communities that the double tax is burdensome, but could not point to a specific example of how it has deterred affordable housing development in the past.
The elimination of the double tax would cost the state about $100,000 in revenue.
The budget also includes a provision that would create an inter-agency coordinating council, along with an executive director position, which would – in theory – establish more unity in the effort to create more affordable housing.
The provision would also make a little-known R.I. Office of Housing Community Development into a division under the umbrella of Commerce RI. Pryor said the governance of housing development is outdated.
“It has not changed since 1998,” he said.
Finally, Raimondo is looking to continue a $1 million initiative she launched last year that helps cities and towns identify potential development sites that need a little extra cash to get shovel ready. The governor is proposing an additional $1.4 million.
“We’ve seen a very significant demand for those monies,” Pryor said. “We’re tremendously oversubscribed.”