Is it time for nonprofits to pay property taxes?

By JAY MILLER | Feb. 3, 2015

Among the over 3,000 counties in the United States, Milwaukee County has the nation's second-highest property tax rate as a percentage of home value, according to Zillow, the online real estate database. That’s a staggering statistic -- second out of over 3,000 in the 2012 survey, trailing only Allegany County in New York. On a statewide basis, too, Wisconsin’s property taxes rank near the top.

Although Democrats and Republicans alike decry Wisconsin’s astronomically high property taxes, precious little is done about it. Yes, last year’s property tax bill may have dipped slightly, thanks to the state picking up a piece of the funding for its technical college system (including Milwaukee Area Technical College) that otherwise would have been paid for by local property taxes. Still, these taxes remain beyond outlier status.

The causes are many, including excessive spending and an over-reliance on property taxes for revenue. Another issue may be that too many properties are exempt from being taxed in the first place, thereby increasing the load on others.

Wisconsin state statute (Section 70.11) lists about 40 categories of specific exemptions. They include not only churches and schools but also benevolent institutions, memorials, fire companies and cemeteries, to name a few.

Exempting many of these nonprofit institutions from income taxes makes some sense. But the same rationale does not apply to property taxes that pay for schools, local public safety and infrastructure costs for the benefit of all property owners, including nonprofits.

Tax-exempt institutions pay utility fees for their use of electricity and water. Shouldn’t a tax for their ownership of property be viewed in the same light?

To aggravate the situation, the trend in urban areas across the country is toward an increase in tax-exempt properties, commensurately shrinking the tax base. As of 2005, about one-third of the property in the city of Milwaukee was deemed to be tax-exempt.

Aside from the number of exemptions themselves, in Milwaukee at least, it appears that abuse is rife with respect to properties that claim to qualify. A few years ago, the Milwaukee Journal Sentinel reported on lax regulation in this area and discovered upon inspection that a number of properties were not being used as stated in their applications. The article went on to say that exemptions, legitimate or otherwise, drive up the tax bills of average Milwaukee homeowners by nearly 20%.

Paul LePage, the governor of Maine, another high-property tax state, is proposing to tackle this issue. He is calling for an overhaul of taxes that would, among other things, require colleges, hospitals and other large charities to go on the property tax rolls. Churches and governmental entities would continue to be exempt.

Other states and localities have begun to negotiate with nonprofits for payments in lieu of taxes.

Wisconsin should take a serious look at what’s happening in Maine and elsewhere. Indeed, arguably, our situation is more acute than Maine’s based on the aforementioned rankings.

Additional steps are also warranted. Long-suffering property owners in Milwaukee County will notice that the portion of their overall tax bill attributable to county government continues to spike relative to the other components. Despite County Executive Chris Abele’s attempts in recent years to keep taxes flat, he routinely is overridden by a County Board that lives in an alternative universe. To combat the problem, electing new County Board members may be in order.

Sometimes an idea such as that being considered in Maine seems strange, primarily because no one has done it before. Yet, the real mystery is this: Why hasn’t it been done before? At a minimum, local and state leaders here need to do a lot more than pat themselves on the back for a one-year dip in property taxes. We are not close to solving the problem.

Jay Miller of Whitefish Bay is a tax attorney and an adjunct professor at the University of Wisconsin-Milwaukee’s Lubar School of Business. This column expresses his personal opinion.