Musings on the Homestead Exemption
Guest Post by George Tremblay
Rhode Island authorizes each municipality to grant a reduction in property taxes on owner-occupied residential properties, including multi-family dwellings. Such a reduction, called the homestead exemption, was proposed by the Charlestown Democratic Town Committee, but rejected by the Charlestown Town Council on 12 Dec 2011. Since this might be resurrected as a campaign issue in the upcoming election, an examination of the impact of the homestead exemption seems timely.
The budget for municipal operations is met primarily through property taxes levied. As with all tax policy, when a select group gets an exemption, the rest of us have to ante up more to cover the costs. The arithmetic leading to the bottom line is not forgiving, and the public has to make a judgment call on whether the benefits to the chosen are worth the added burden to the rest of us. The modest deductions in property taxes allowed military veterans and economically stressed seniors apparently pass the test, since we hear no protest over these exemptions. The homestead exemption is, however, a very different story for Charlestown.
Housing statistics from the 2010 U.S. Census show that 5% of residential properties across RI are vacant, but the number is 37% for Charlestown, as might be expected of a seasonal resort community (www.factfinder.census.gov). The census data show 53% of residential properties in Charlestown to be owner-occupied year-round, which would qualify their owners for the homestead exemption. Tenants account for about 16% of housing occupied year-round, but their owners are not eligible for the homestead exemption unless they also live on the premises. These numbers indicate that about half of all homeowners in Charlestown would qualify for a homestead exemption, to be purchased by higher property taxes imposed on the half that did not qualify. It is difficult to imagine a more divisive measure to impose on the harmony and good will of a community, especially when one considers the added fact that most of those paying for the exemption are ineligible to vote on it. Others would also contribute to the costs, namely, residents of rental properties whose increased rents will reflect their landlord’s higher taxes, and owners of commercial properties. Proposals to shield any one of these categories from paying the subsidy would only add to the burden of those remaining.
It’s a given that eligible homeowners will welcome tax relief, whether they need it or not. Most of us live in Charlestown for the treasured rural and recreational environment it provides, but also because it is affordable. Census data show that 84% of housing occupied year-round in Charlestown is owner-occupied, 30% of homeowners carry no mortgage, 2/3 of those with a mortgage pay less than 30% of household income, and fewer than 2% of families live below the poverty line. The homestead exemption would penalize seasonal residents who account for 1/3 of our housing units, fuel the local economy by patronizing our retail outlets and local skilled labor, subsidize our municipal services by paying most in taxes for least in services, and have no vote on this issue. Perversely, the homestead exemption will also raise the cost of housing for renters, who number among those least able to afford it. Landlords who do not live on the premises are ineligible for the exemption, and will pass their added costs on to their tenants. Finally, the homestead exemption would penalize owners of commercial properties, a measure businesses can ill afford, especially in this economy. Shielding businesses from the added taxes is a misguided attempt to finance the measure on the backs of some of their best customers. The above findings do not support the homestead exemption for Charlestown. To the contrary, they suggest enactment will erode the cohesiveness and economic welfare of the community.
Candidate for Town Council