Who Pays for Tax Cuts to the Rich?
The Poor
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
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?