For the last 18 months, policymakers, tax experts, and non-profit housing providers have been grappling with the impacts of a Wisconsin Supreme Court decision that voided property tax exemptions for affordable rental housing developments. These efforts provide useful guidance to others as they attempt to reform property tax exemption statutes to benefit housing for low- and moderate-income households.

Columbus Park Housing Corporation v. City of Kenosha

In November 2003, the Wisconsin Supreme Court held that a benevolent association which leased property to tenants lost the ability to claim that the property was exempt from property taxes. In the Columbus Park Housing Corporation v. City of Kenosha, the city argued that the owner of certain rental property in the city had to meet three conditions in order for the property to be eligible for a property tax exemption. The property would be exempt if the occupant owned the property, rather than renting (referred to as the lessee identity condition); that the owner used all of the income for maintenance or debt retirement; and that the owner did not discriminate on the basis of race. The court held that because the tenants would not be entitled to a tax exemption if they owned the land, then the benevolent association that leased the property to the tenants also was not entitled to the exemption.

Legislative Reforms in 2004

In response to the Court’s decision, several legislators introduced Senate Bill 512 to eliminate the lessee identity condition, provided that the property is residential housing and the owner uses all of the lease income for maintenance or debt reduction. The original bill also contained a sunset provision, effective January 1, 2006. According to a staff report on the bill’s public hearings, most of the discussion centered on whether the tax exemption should be limited to property serving low- or moderate-income families (known as a means test) and whether the sunset should be removed. Again, according to the report, those commenting on the bill thought that a means test was a worthwhile idea, but that there was not time to craft such an amendment. The final legislation, 2003 Wisconsin Act 195, deleted the sunset provision, contained no means test, and became effective in April 2004.

Reform Efforts Continue in 2005

The 2004 legislation also directed the Special Committee on Tax Exemptions for Residential Property to consider further reform measures. During the public discussions on property tax exemptions, the need for assistance to affordable housing was only one of many issues that concern stakeholders and decision makers. Owners of nursing homes, homes for the disabled, benevolent lodges, and others who own property that may or may not qualify for a tax exemption have offered suggestions for improvement. In addition, the Wisconsin Association of Assessing Officers made recommendations on the administration of these exemptions. After hearing from various interest groups, staff of the committee crafted legislation that would allow certain types of property to qualify for the tax exemption automatically. Other types of property owned by these beneficial associations also would qualify but only under certain circumstances. Owners of…

• Nursing homes;
• Community based residential facilities;
• Adult family homes;
• Residential care complexes;
• Domestic abuse shelters;
• Shelters for the homeless;
• Housing for low-income persons that complies with section 3 of IRS revenue procedure 96-32; and
• Residential facilities that provide alcohol or other drug abuse services…

…would receive automatic property tax exemptions.

Residential property owned by a benevolent association that does not meet the criteria listed above might still qualify for an exemption under a new section (i). However, the proposed legislation requires that such properties have a value of less than a specified amount and must apply for an exemption each year. Owners of such residential property are also required to pay for municipal services if at least one of the occupants is not below a certain income threshold.

Conclusion

Allowing property tax exemptions for affordable housing might seem like a simple concept. In Wisconsin, however, many owners had property that qualified for the exemption and wished to maintain that benefit. Others who did not qualify sought to be included. Those who administered the statute examined the administrative demand that the new draft legislation would place on local assessors. Those who attempt to modify or reform these tax benefits must consider the full range of competing needs. For more information on the Wisconsin property tax exemption debate, see http://www.legis.state.wi.us/lc/2004studies/TAX/index.htm.

Two bonus points doesn’t sound like much, but for a community seeking HUD’s discretionary funding, those points can make a big difference. Staff at the City of Boise, Idaho and at the New Hampshire Housing (NHH) helped applicants apply for the bonus points available to applicants who can demonstrate a tangible commitment to affordable housing through regulatory reform by completing a questionnaire developed by HUD’s America’s Affordable Communities Initiative.

All HUD competitive award programs include “bonus point“ or ‘incentive criteria’. In its April 21, 2004 announcement, the Department established two sets of questions regarding regulatory barriers that could lead to one or two bonus points, based on the number of questions answered affirmatively. The first set of questions, known as Part A, is for local jurisdictions, counties exercising land use and building regulatory authority, and others applying for projects located in such jurisdictions or counties. The second set of questions, known as Part B, is for state applicants, as well as those applying from unincorporated areas. Both sets of questions allow applicants to score up to two extra points in the scoring matrix. HUD added bonus points to its grant application process to recognize communities and states that are actively reducing or eliminating state and local government regulations that impede the creation of affordable housing. To receive the points, applicants describe the reforms that have been undertaken by the local or state government on the application form for the Notification of Funding Availability (NOFA).

City of Boise, Idaho

Gary Hanes, Community Development Coordinator with the City of Boise, Idaho, saw an opportunity to help organizations located within the City be more competitive in the NOFA funding round. He asked the City's Planning and Development Services Department to answer the Part A questions. Staff then placed the completed Part A document on the portion of the City's Web site devoted to a "Grantee Toolbox". Hanes then contacted local fair housing and homeless organizations, and the housing authority, to inform them of the posted document and to enlist their aid in sharing that information with other potential applicants. At least three applicants used the information from the City to increase the likelihood that their applications would be approved and funded.

New Hampshire

The New Hampshire Housing (NHH) serves as the state’s lead agency for HUD’s Consolidated Plan. As such, applicants ask the Agency to provide them with a letter indicating that the activity proposed by the applicant is consistent with the State’s Consolidated Plan. According to Bill Guinther, Program Planning Analyst with NHH, “Agency staff considered that making their completed Part B questionnaire available to other applicants was an extension of their leadership role as both the State Housing Agency and Consolidated Plan lead agency.” He went on to say, “They were also aware that many grant applicants, although experts in their own fields, were not particularly well-informed about the state’s actions to remove regulatory barriers, and had some concerns that potentially incomplete and conflicting responses to Part B could negatively impact the competitiveness of New Hampshire’s grant applications.”

Mr. Guinther said that it took approximately four hours to research and complete the sections of the questionnaire that they could answer affirmatively. He estimated that the Agency’s work saved applicants a day or longer in application preparation time, and provided them with a more accurate and concise response. He also estimated that approximately 30 applicants in the non-entitlement areas requested the incentive bonus points.

Typical Answers

An example of the Part A application, available on the Boise Web site, contains detailed answers and supporting information. For example, in response to question one, “Does your jurisdiction’s comprehensive plan include a housing element?” staff responds by citing the Idaho statute that regulates the housing element portion of the comprehensive plan. They also include a link to the appropriate legislation.

In response to question five concerning impact fees, Boise included the code citation and the link to the local legislation authorizing the use of impact fees. For question six, which asks about an ordinance that establishes a relationship between the impact fee and the development, staff discusses how to estimate the impact of the development on the community and therefore the amount of impact fee that can be charged to the development. If Boise had not undertaken an activity listed in the scoring matrix, staff also answered those questions so applicants would know not to claim credit for those activities.

NHH provides answers to only those questions that could result in the state or unincorporated areas’ securing the bonus points. For example, in response to question six concerning technical assistance to local governments, staff indicates that the state offers training conferences and online training on a number of issues, including identification of regulatory barriers and removal strategies. They include Web links to both the technical assistance programs and to the online materials and also provide a name and number for those interested in contacting NHH. They also identify a specific State publication that addresses regulatory barriers and provides a link to the document. In response to questions seven and eight concerning impact fees, the staff cites the specific enabling legislation for local impact fees and provides a link to the state statute.

Conclusion

The City of Boise and the NHH recognized the importance of the two bonus points being offered as part of the incentive criteria developed by the America’s Affordable Communities Initiative at HUD. They chose to assist applicants securing these points by completing all or a portion of the incentive criteria questionnaire. If your state or community took part in a similar exercise, we’d appreciate hearing about it. Please tell us about your experience by writing to rbcsubmit@huduser.gov or by calling us at 1-800-245-2691.