Ideas. Action. Results.

By Amy Anthony

Who are unconventional stakeholders who can help rally support for housing?

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On July 17 Rhode Island Governor Lincoln Chafee vetoed H5404, a bill that had passed the Rhode Island legislature that would have destabilized affordable housing in that state. In his veto message, Chafee listed some impressive fiscally prudent rationales to oppose the legislation.

Under the guise of trying to find needed revenues to deal with a financial crisis, legislators tried to impose the quick fix of raising property taxes – failing to take into account the economic impact of transferring the financial burden to current and prospective providers of affordable housing.

H5404 would have increased the maximum tax that could be charged to qualifying low- and moderate-income housing from 8% to 10% of gross rental income. State law currently requires that rent-restricted residential properties that have been issued an occupancy permit on or after January 1, 1995 be taxed at a rate not to exceed 8% of the property’s previous years’ gross scheduled rental income. This law was passed by the General Assembly after a number of court cases affirmed that rent-restricted properties should not be taxed like similar market-rate housing because the deed restrictions they carry reduce the value of these properties and limit their ability to raise rents.

In opposing the legislation, Chafee said the bill would destabilize the affordable housing market, reduce the fair market value of these properties, result in foreclosures, and fail to remedy fraud and abuse within the system. Those sound like fiscally responsible concerns.

Chafee was right to consider the state’s low-income housing market because the state already faces a severe shortage of such housing. This scenario would have forced owners to cut costs – by laying off property management staff, deferring critical maintenance items, or missing loan payments and facing foreclosure, which could have wiped out significant pre-existing public investments.

“Moreover, it is likely that future affordable housing development would stall due to the increased cost and uncertainty this change would introduce into the affordable housing market, and developments that did move forward would require significant increases in scarce state and federal subsidies in order to come to fruition,” said Chafee. In other words, the tax would create more dependency on public funding by prospective developers at a time of diminished resources.

The governor also pointed out that high rates of default would force ownership onto the state which holds the lion’s share of the affordable housing mortgages. Chafee said that once that happens, “they [properties] will become tax-exempt and cities and towns would cease receiving payments on them.” He called the prospect of shifting privately owned real estate to the government sector the “negative net revenue effect”.

Low income residents in Rhode Island were fortunate to have someone with clear thinking to stop this bad proposal. His veto proves that prudent fiscal conservatism and helping seniors and low income families are not mutually exclusive.

Amy Anthony is president, founder and executive director of Preservation of Affordable Housing (POAH).

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic. Guest posts will feature prominently on BPC’s website, as well as be shared regularly with Housing Commissioners to help inform their work.

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