Rulings enforcing stricter laws on property tax exemptions pose a serious threat to nonprofit housing in Madison, and by December 2009 more than 1,000 housing units could lose the exemptions that have kept their rent low.
Previously, a 1983 state law permitted a range of property tax exemptions for benevolent institutions like low-income housing providers. However, a 2003 state Supreme Court ruling and later Dane County cases interpreted the law more strictly. Now exemptions are only allowed for properties that use rental income for building maintenance.
For years, many housing providers used rent income to cover expenses such as insurance, mortgage payments, social and health services for residents with disabilities and a number of other operating expenses outside of physical maintenance.
Howard Mandeville, executive director of Movin' Out, one of Madison's low-income housing providers, said those who must cover the hole between what rental income can legally cover and their total expenses are left with few options.
They've got us kind of in a corner,"" Mandeville said.
Colossal fundraising is one option, and another is to pay property taxes and give up exemptions. The second option would force providers to increase rent, but because of restrictions in the subsidies they obtain from the state and city, even that would not cover the cost of taxes. The last option is to sell their buildings, or otherwise confront foreclosure.
Mandeville said that with no source of income to cover those other costs and no margin that would allow Movin' Out to pay property taxes, the business would cease.
""Some of the most vulnerable citizens would not have the stable or affordable housing they have now,"" Mandeville said. ""They'd have to find something else that would no doubt be more expensive and probably not as desirable.""
City Assessor Michael Kurth said the city had no options on the issue. He told The Capital Times that the city had to defend itself as challenges arose from those it had denied exemptions.
""We hoped to have some clarifying legislation prior to any court cases, but we had one filed against us, and we had to try to prepare a case,"" Kurth said.
After one case was filed, the city had to prepare a list of all properties that fell under similar conditions.
Although the rulings could tax over 1,000 housing units, some think an effort to collect taxes would actually cost money. The purpose of subsidies and tax exemptions is to create motivation for nonprofit housing in tough areas. In turn, as these nonprofits come into neighborhoods, police calls, building inspections and other city services go down.
""It would be a serious problem for the individuals, but also a serious problem for our community,"" Mandeville said. ""We don't need to add to the number of homeless people who are on the streets now.
