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Controversial tax exemption for low-income housing providers survives in budget bill

Steven Elbow  —  5/15/2008 7:02 am

A provision included in the budget repair deal passed by the state legislature this week has taxpayer advocates, legislators and city officials scratching their heads because nobody seems to know who put it there or what it will do.

The provision, inserted quietly in a legislative proposal to fix a $527 million hole in the budget, would expand property tax exemptions for low-income housing, but would have no effect on the state's budget because the provision does not compensate local governments for the exemptions.

"This does not belong in a budget repair bill," Superior Mayor Dave Ross said. "This bill needs to be fully vetted, it needs to have hearings. There needs to be a very careful process to make sure that this bill is not going to harm communities that have a substantial amount of low-income housing in their communities that are on the tax rolls, like the city of Superior."

The bill is similar to one that passed last session in the state Senate but died in the Assembly before it was brought to a vote. Even the Department of Revenue reported that it "does not have data to permit a reasonable estimate of how much property could become exempt under the bill," a press release from the Wisconsin Alliance of Cities noted.

There was no immediate word from the governor's staff as to how he would deal with the provision. "We will be reviewing the language of all the specific items," said gubernatorial spokesman Lee Sensenbrenner.

The bill was backed by the mayors of Madison and Milwaukee, even though the cities stand to lose property tax revenue.

"These low-income housing providers serve a public good," said George Twigg, spokesman for Madison Mayor Dave Cieslewicz. "Places like Habitat and Commonwealth Development offer something that's valuable to the city, and the shift of the tax base to help them in that mission is minimal."

Michael Kurth of the city Assessor's office estimates that the city could see $30 million drop in assessed value on the property tax rolls, resulting in about $600,000 being shifted to other taxpayers.

In a city the size of Madison, he said, "$30 million, in terms of the total tax base, it's not that much."

But he said the wording of the law is open to interpretation, so its effects are hard to foresee.

"Anything's possible," he said. "You never know what someone's going to come up with after a law has been changed as to how it fits their property."

The law would expand the property tax exemptions for low-income properties and would include any housing projects financed by the Wisconsin Housing and Economic Development Authority. It would also widen the exemption, currently capped at 10 acres, to 30 acres, for a low-income housing development.

The measure would also lift restrictions on revenue earned by leases from such properties, which are currently restricted to maintenance and debt financing.

Michael Birkley, a lobbyist for Wisconsin Property Taxpayers, Inc., said some cities might see a significant tax shift. "In the out-state areas, beyond Madison and Milwaukee, it will have a more significant effect," he said. "We still can't quantify that. Nonetheless we know there will be an impact."

"We're all in favor of expanding the exemption, as long as the state fully compensates the jurisdictions in which they are located," he added. "But there's nothing in this budget repair bill that would offset the impact on property tax payers."

Birkley and other advocacy groups said they had no warning that the tax exemption was going to be included in the budget deal.

"We are concerned and a little puzzled by the city of Madison and Milwaukee giving the go-ahead at the request of, frankly, I don't know who," he said. "Who is pushing for this?"

It's a good question, and one that's difficult to answer.

"I was not in specific negotiations, but clearly it was important to somebody," said John Murray, spokesman for Assembly Speaker Mike Huebsch, R-West Salem, who with Senate Majority Leader Russ Decker, D-Weston, and Assembly Minority Leader Jim Kreuser, D-Kenosha, hammered out the deal, which was passed Monday by the state Senate and by the state Assembly Wednesday.

Even Senate President Fred Risser was taken by surprise.

"They acted without even conferring with the caucus," he said. "I do not know who put that in or how that got in."

Like everyone else, Risser said he doesn't know what the law would do.

"I've had several different interpretations of it," he said. "I don't really think it was really necessary or appropriate to put into a budget review bill, because it doesn't relate to the question of balancing the state budget."

The tax exemption would be a boon to larger low-income projects, including the new Pres House student dorm, which, with 176 rooms in the 400 block of North Murray Street, would take $12 million off Madison tax rolls, Kurth said.

Ross, Superior's Mayor, said his city has been locked in disputes with the city's non-profits over tax exemptions in the past.

He said the easing of restrictions on how non-profit low-income housing providers use their revenue invites abuse, and he expects some of them to take advantage of the law.

"Giving them the right to exempt their properties from property taxation is not going to lower the rental costs of those who are living in this kind of housing," he said.

Steven Elbow  —  5/15/2008 7:02 am