PORTSMOUTH — Fearing it would disproportionally hurt small business owners, the Town Council Monday put the brakes on an idea to lessen the tax burden on residential homeowners by creating a separate — and higher — tax rate on commercial property.

Still, council members agreed that something needs to be done soon to give residential property owners more tax relief, such as a potential homestead exemption for longterm residents. Nothing will be further explored, however, until after the next fiscal budget goes into effect July 1.

The town has the ability to impose three different property tax rates: a residential tax rate, a commercial tax rate, and a tangible tax rate. The latter is assessed by a city or town on all personal property owned and used in connection with a business. Eleven of the 39 municipalities in Rhode Island have different tax rates for residential, commercial, and tangible property. 

Portsmouth has traditionally instituted the same tax rate for all three categories. On April 24, however, the council approved a motion by Keith Hamilton to provisionally lock the tangible tax rate at the current $15.65 per $1,000 of assessed value for next fiscal year to give some relief to residential homeowners who saw their property values increase sharply under this year’s revaluation. (Under the provisional budget, the tax rate for next year — adjusted for the property revaluation — would be $12.865.)

On April 26, council member David Gleason suggested to also freeze the commercial tax rate at $15.65 to give even more relief to residential property owners. He pointed out that residential taxpayers saw their property values hiked an average of 29 percent under the revaluation, while commercial property went up by an average of just 7 percent. 

Town Administrator Richard Rainer, Jr., Finance Director Ryan Kilpatrick, and Tax Assessor/Collector Matt Helfand were tasked with coming up with different scenarios and reporting what the implications for each would be on both residential and commercial taxpayers. They reported their findings Monday.

In each scenario, however, Gleason and all other council members agreed that commercial property would take too great a tax hit — an increase ranging anywhere from 19.5 to 32 percent — so no action was taken. Some council members said they were particularly concerned about the impact on small businesses. (The report can be found here.)

Members said they will need to explore other methods of lowering the tax burden on residential property owners going forward, but not until after the next fiscal year begins on July 1. A public hearing on the spending plan will be held at 7 p.m. on Wednesday, June 14, at Town Hall, and the council will formally adopt the 2023-24 budget on Monday, June 26.

Council member J. Mark Ryan said one of the major problems Portsmouth faces is the recent trend of wealthy, out-of-staters purchasing property here as investments or second homes, which is driving up property values.

“(Rather than) punishing people who have an investment with the town, who live here, who work here, I would rather see an increase on taxes on people who are just using our property as an investment but who otherwise have very little to do with the town,” Ryan said.

Residents comment

Larry Fitzmorris, president of Portsmouth Concerned Citizens, said the real reason the tax levy is going up so much is because the town’s budget is rapidly growing.

“The council’s not even considering economizing on the budget,” he said. “We have a 5.55-percent increase in the proposed residential property taxes. That is an historical high. We’re spending more money; that’s the real driver here.” Mr. Fitzmorris agreed, however, that the three scenarios presented by Rainer would create tax rates far too high for commercial property owners.

Council member Daniela Abbott countered Fitzmorris by saying the town is dealing “with historic inflation at 7 percent,” and has done a good job in reigning in expenses for next year. “We haven’t really added anything,” she said.

Craig Clark, owner of Ocean State Air Solutions, which is constructing a new building just north of Ace Hardware on East Main Road, urged the council to explore ways to make it easier for businesses to set up shop in Portsmouth.

“I can’t stress enough how difficult it is to find a property and start a business in Portsmouth, or grow a business in Portsmouth,” said Clark, adding the town needs to find another 50- to 100-acre site for a second industrial park because the current one off Hedly Street is built out. “That’s the only way to offset this (residential tax) cost we’re talking about.”

Another resident, Arthur Smith, told the council he’s had enough.

“I’ve lived here 47 years, and taxes keep going up and up and up,” he said. “What you do is keep spending, spending, spending. I got my revaluation. I anticipate that my taxes are going to go up considerably. After living here for 47 years, I’m making a decision to get out of this corrupt little town.”

Rainer responded to Smith’s accusations later in the meeting.

“The tax rate, when you go back over 20 years, has actually declined when you take into account the inflation value of money,” he said. “The inflation value over 20 years has been, cumulative, 64 percent. So, we’re not a corrupt little town. We are a town that is doing everything we can to keep spending under control. The overall budget went up less than 2 percent over the previous year in an era of 7- to 8-percent inflation.”

Council member Charles Levesque also defended the provisional budget, saying Rainer’s spending plan has managed to keep the property tax cap below the 4-percent increase limit as mandated by the state, even though the state has decreased the amount of money it’s giving the town because Portsmouth’s property values have gone up so much. 

“They’re essentially saying, ‘You’ve been so successful, we’re not going to give you all the money we have historically given you,’” said Levesque, adding that he expects nothing will change next year.