Residential Taxation in Rhode Island Municipalities, Part 1

Everything up until now has basically been the prologue. Now on to the real thing.

Commercial property tax revenue is a relatively small portion of how RI municipalities generate their funds. The major part of the story involves residential tax revenue plus state aid.

An important quantity that needs to be taken into consideration, usually entirely neglected in Rhode Island taxation debates, is the degree that communities actually tax their own residents to pay for local services. Presently, the measures of "tax effort" that the state uses for various bureaucratic purposes (including calculation of the education aid "funding formula") seem to lump residential and commercial taxation together, meaning that a community can inflate its appearance of "tax effort" by raising taxes on commercial properties. There is a fairness issue here tied directly to an economic one -- if a community makes short-sighted decisions that run a bunch of businesses out of town because of high commercial tax rates that keep residential taxes low, is that community then entitled to demand that the state make up the difference in some kind of "funding formula"?

Data is available for painting a better picture of what is happening on the residential side. In terms of residential tax levies in each RI city and town, 3 components will be considered:

1. "Residential" real property levies, provided by the RI Division of Municipal Finance for the year 2011, with the usual caveat that apartments and mixed-used properties which can officially be classified as commercial will all be treated as residential.
2. Fire-district levies in communities where they occur, using the most recent data available from the Division of Municipal Finance from the year 2010 and that I will just move forward for the purposes of this particular analysis. I believe that fire levies are applied to both commercial and residential properties in the places where they are used, so the official figures will be pro-rated by the percentage of residential valuation.
3. Car-tax levies, provided by the Division of Municipal Finance for the year 2011

(See Table 1, below the fold)

The U.S. Census Bureau American Community Survey provides mean income data for all 39 Rhode Island cities and towns, based on a 5-year data span (and I can hear the skinflint pseudoconservatives shrieking: What? We spent money to pay for 39 estimates. We should consolidate everything, and then we'd only have to pay for 1 estimate).

(See Table 2, below the fold)

Based on those numbers, local taxation in Rhode Island can be calculated in terms of the income of local residents. There are some interesting variations in the results.

We're not done yet (hence the "part 1" in the title of this post), but I will make two immediate comments:

1. A major factor that's missing that's really needed to complete this analysis for Rhode Island is the contribution made by summer residents. In effect, in communities that have a large number of summer homes, there is more property value than residents, which makes the final percentage appear higher than it should. A strong case can be made for backing that number out to calculate the percentage of year-round resident income that is collected in local taxes.
2. We've got a couple of more posts to go, to contribute to a fuller understanding of the revenue side in each RI city and town...

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Table 1:

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Table 2: