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Blanket tax breaks knocked

Nonprofits should chip in, report says

Wednesday, March 16, 2011
By Bruce Eggler
The Times-Picayune

With Mayor Mitch Landrieu’s Tax Fairness Commission continuing to examine New Orleans’ property and sales tax systems, a governmental research organization issued a report Tuesday urging major changes in the system of routinely awarding property tax exemptions to private schools and universities, churches, charities and other nonprofit organizations.

“Addressing local government’s fiscal woes will ultimately require a significant contribution from properties that are off the tax roll” even though they benefit from government services financed by property taxes, says the report released by the Bureau of Governmental Research.

The report discusses several ways in which such a contribution could be required, such as eliminating the nonprofit exemption entirely, tightening the eligibility requirements, taxing nonprofit groups at a reduced rate or — the likeliest option — imposing specified service charges instead of taxes on nonprofits’ property.

Many of the ideas are unlikely to come to fruition, for legal and political reasons. Some would require amending the Louisiana Constitution, and major nonprofit groups have fought past attempts to make them pay taxes, even on property not being directly used for educational, religious or other presumably desirable purposes.

Some nonprofit groups have argued that income-producing property they own, such as for-profit housing, contributes to their overall mission and so should be shielded from taxation.

The BGR report dismisses one often-suggested idea, voluntary payments in lieu of taxes, or PILOTs, as “unlikely to yield fair or significant results” because “only a handful of institutions” are likely to agree to make such contributions and the amount generated is not likely to be large.

According to the 2011 property tax rolls, the report says, 43 percent of the total assessed value of property in Orleans Parish is exempt from taxation, with nearly one-quarter of the exempt property escaping taxes because it is owned by nonprofit groups.

However, the report says, those figures appear to significantly understate the true value of the exempt property because such property, unlike taxable property, is not regularly reassessed. In fact, since 1996, the total assessed value of nonprofit groups’ exempt property has fallen by nearly 20 percent even though the number of parcels with the exemption has increased by 60 percent.

Assuming that the value of tax-exempt property increased since 1996 at the same rate as that of non-exempt property, then 60 percent of the city’s real property value is off the tax rolls today, with nonprofit groups accounting for a third of that, or 21 percent of the value of all Orleans Parish property, BGR says.

But even the adjusted numbers “do not account for the value of 2,000 nonprofit exempt properties that have been added to the rolls since 1996,” and there is no way of knowing whether the 1996 figures were themselves accurate, the report says.

In addition, it says, “the tax-exempt roll contains obvious errors. For example, the portion of Tulane University’s campus between St. Charles Avenue and Freret Street has a land value of $58 million. The adjacent and larger parcel, owned by Loyola University, inexplicably has a land value of zero.”

If the nonprofit exemption is not eliminated entirely, the report says, “it becomes critical to target the exemption more precisely to nonprofit activities that the government considers deserving of an indirect subsidy.” It also says that local governments, “which bear the brunt of property tax exemptions, should have the power to decide which exemptions to allow within their jurisdictions.”

After rejecting other alternatives as impractical, at least in the short term, BGR recommends service fees as “the most practical approach to solving the revenue and fairness problems.”

For example, it says, a drainage fee or street maintenance charge “would require action only at the local level” and “could raise significant revenue to meet local needs” while distributing the cost of essential services “more fairly than is currently the case.”

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