A correspondent tells me that last week there was a meeting over at University Heights where some residents got bad news about their rent. University Heights was built in the 1960s as a mixed development, split about half and half between market rate apartments and subsidized apartments, available to poor people and families. It’s had quite a history since then, including a period in the early 1990s when it was owned by the tenants’ association.
The recession of the early 1990s brought that dream to an end, and Rhode Island Housing became the owner. In 2006, they sold the project to Fairfield Residential, securing a promise that the affordable units (175 of them) would remain below market rent for forty years.
Now there are a couple of things you have to understand about the practice of affordable housing. One is that almost all the housing out there built under the title “affordable” has a term, at the expiration of which it converts to “market rate” housing. The term might be for 20 years, 40 years, or whatever, but after that, the landlord can rent it for whatever they can get. Sometimes the affordability is extracted from the landlord with a promise of rent subsidies. Other times it’s made in exchange for lower acquisition cost, low-rate financing, or some other way to save money on the project. For an older project like University Heights, most of these ways are not possible, since the project was built long ago. This leaves rent subsidies as the only practical option.
Last week, though, RI Housing announced to some distressed tenants that the apartments they live in have to be transferred to another, less generous subsidy program. Essentially the agency cannot afford to keep the subsidies at the level they had been, so in 2014, the rents for 48 of the apartments will rise substantially.
Why can’t RI Housing afford to keep the more generous subsidy? Well, in the winter of 2008, as Governor Carcieri looked to the end of the year, there was a looming shortfall. Not only was it the second year of the “flat” tax cutting into revenues, but the coming recession’s bite was already being felt in sales tax collections, too. Rather than admit that the state couldn’t afford the tax cuts under the current conditions, the Governor looked around and noticed $26 million on the balance sheet of RI Housing. So he scooped it out of the housing agency and into the general fund, in order to balance the state’s budget that year.
Why was there a deficit in the winter of 2008? Partly because of the recession, but also because some of the tax cuts for rich people turned out to be too big. The historic tax credit was too popular, and the renovation of the Masonic Temple hotel used them heavily. The tax credit program was ended that year, because so many credits were outstanding. The data can’t tell us exactly how much these cuts cost, but the income tax receipts that year came in $23 million less than predicted. Personal income in the state didn’t begin to fall until months later, so it’s hard to attribute the loss of income tax collections to the faltering economy.
The $26 million lifted from RI Housing was to fill a small part of a budget hole due in no small part to income tax cuts for rich people. But it wasn’t lying in RI Housing’s accounts unused. It was money intended for the purchase of housing, for subsidizing rents, and for the construction of new units. In other words, it was intended for the benefit of poor people, but Governor Carcieri — and the willing General Assembly leadership — redirected it for the benefit of rich ones. Can there be a clearer example of our state’s priorities over the past decades?
Neat little narratives that blame all budget shortfalls on “the rich” are why I fully support repealing the flat tax. The Carcieri “tax cuts” have functioned as the progressive scapegoat for everything wrong with Rhode Island for the past half decade. They are of such limited benefit to anyone, and their repeal would have the benefit of forcing progressives to finally take a hard look inward at the fundamentally flawed economic policies of the state.
Oh, who am I kidding? 20 years from now the story would still be “If the flat tax hadn’t crippled our economy back in 2008, we would be so much more prosperous now and able to compete with the other states.”
Your prayers have been answered, and the flat tax has been repealed, though its cuts have been incorporated into the current income tax rates. To support “repealing” it now, you would have to support one of the Cimini, Valencia, or Guthrie income tax bills introduced this session.
Indeed it’s true that the flat tax had little or no effect on the economy, but it has had a significant impact on government finances, as have all the other tax cuts we’ve enacted. I’m sure it’s as boring for you to read the same thing time and again as it is for me to write it. But again, we got here because no one — even fiscal conservatives like yourself — sees a problem with passing tax cuts without compensating cuts in spending. I take no joy in documenting these decisions, but these are the decisions our government has made over the past couple of decades.
Again, per usual, if you have a comment to make about a fact I got wrong, please say so. Or present some reasoning to say my conclusion is wrong. I’m afraid your impatience with the facts isn’t much of an argument, though.
I and other fiscal conservatives have been advocating for permanent spending cuts for the past decade. I’m not surprised that the fiscally irresponsible General Assembly has refused to tie tax cuts to spending cuts, but please don’t assume that this is what fiscal conservatives want. I’ve never heard anyone on Anchor Rising advance such a position. “Living within our means” is a commonly heard phrase.
As it so happens, I think giving people free or subsidized housing simply for keeping their reported income under a certain level is a recipe for rampant abuse and counterproductive incentives, so this would be a good area in which to make cuts or significant reforms. Based on everything I’ve read, economists have overwhelmingly come to view rent controls and similar programs as destructive.
“I and other fiscal conservatives have been advocating”
”Based on everything I’ve read, economists”
This is the weirdest thing about your bizarre and overzealous posts: you write as if you’re a famous authority. A spokesman for a movement.
You’re an anonymous poster: by definition, you, personally, have not advocated for anything, ever. Also, by definition, you are not an authority on anything. It does not and cannot matter what you have read.
Yet, your every screed relies entirely on the presumption that your word carries weight, because of who you are. Your attitude is one of the strangest and most illogical I have ever come across.
I have to think that this same divorce from reality explains your position on economics. You constantly endorse policies based on what you want to be true, rather than what is true, just as you employ rhetoric that would work only if you actually were, recognizably, the authority you want to be.
Of course, in this way, sure, you are representative of fiscal conservatives.
I’m scanning your post for anything resembling an actual point, besides four paragraphs essentially saying “you suck.” Nope, nothing as usual, so I’ll just go ahead and ignore it like the rest of your trolls and irrelevant attacks on me.
No one can claim to have advocated for permanent deep spending cuts who has not actually listed what should be cut, in proportion to the tax cuts advocated. I’ve seen more than enough calls to rein in spending that omit all the detail with which someone could actually judge the wisdom of the call. If you have made such a list, feel free to post it here.
I’ve posted ideas for spending cuts in multiple other threads, as have a number of other posters. Every time I do so, my suggestions get no comment from the progressives here, so I see no need to repost them again. I believe I posted a somewhat long list on a previous entry of yours in particular.
“Why can’t RI Housing afford to keep the more generous subsidy?”
WRT spending cuts, how about cutting the generous subsidies to other citizens? Or better yet, lets simply re-adopt the budget from 2000 ( we have about the same population, ok we can correct it up for inflation ).
Tom -
I have a problem with your basic premise – and your second to last paragraph.
Starting with that paragraph, you state that ”The data can’t tell us exactly how much these cuts cost” yet in the next sentence you imply that the cuts must have cost something less than $23 million since “personal income didn’t start to fall for months later”.
As I am certain that you know – any reporting of revenue numbers and economic trends is an extraordinarily inexact science – especially in RI where we do not have a good data collection and reporting mechanism in place. You cannot put income earnings and decline on an exact timeline and you know it.
How about graphing job loss on a timeline from 2000 through now – and also graphing the number of job-producing businesses during the same timeframe? This will give you a much better indication of the ‘health’ of our economy and remove us from the fruitless debate of tax policy changes measured in time increments too small to matter.
There is no way to avoid the fact that RI competes in a regional economy and that we measure up dead last in a great many areas that are important to business owners and investors. Until and unless we solve these problems, which act negatively in terms of marketing our state as a place to start new businesses, our economy will suffer.
Most importantly, without tax stability and certainty, we will have an increasingly hard time getting many new businesses to set up shop within our borders. We just cemented in a competitive income tax rate one year ago and this year the business community is fighting off 5 bills to place our income tax rate worst in the region. This only sends a message to those outside our borders to stay there – and that hurts everyone at all levels of the socio-economic ladder.
Personal income data is gathered by the national Bureau of Economic Analysis, and there is no more reason to distrust numbers from Rhode Island than from anywhere else. Personal income tax data is reported by the state revenue officials.
As for the rest, you are free to believe that the tax cuts are good for everyone at all levels of the socio-economic ladder, but the evidence is awfully thin.
Tom -
You mis-state me. I said that RI has an image problem that deters businesses from coming here. You jumble that statement all up to say that I said that tax cuts benefit everyone.
No one wins if there are not jobs here for people to work in. And I firmly stand behind the statement that “RI’s historically high marginal tax rate and current income tax uncertainty act to dissuade business owners outside our borders to consider moving their businesses to inside of our borders”.
So – how do you solve that problem? RI should not be on the bleeding edge of tax policy – especially if that edge acts as a brake on the creation of new jobs – the only thing that can cause an economic turnaround in our state.
I’m jumbling something? Don’t be silly. You’re claiming that tax cuts benefit us all. You’re a little vague about whether you mean past cuts or cuts yet to come, but that’s all the wiggle room you’ve left yourself.
Let’s restate the point: we have cut taxes over and over again over the past 15 years. And I don’t see the prosperity I’ve been promised every step of the way, though I do see a fiscal disaster. But all I ever get from you guys is claims that tax cuts are the only sensible way forward. I invite you to prove it with something more than just increasingly hollow claims of future benefits. You have data you think would make your case? Show it.
[...] RI Future, you wouldn’t get to read Tom Sgouros’ insightful pieces on the state budget or Samuel G. Howard’s interesting reads on political [...]