Increasingly homeowners, renters and businesses are subsidizing services to tax
exempt property within their community — even when the tax-exempt entity competes
with private business and/or serves the elite. Owners of tax exempt property are not
required to pay for any of the services they receive. The Legislature must bring some
logic to the tax-exemption issue.
Background
The Department of Revenue estimated the value of tax exempt private real property in Wisconsin in 1998 at more than $14 billion, with 8.4% in cities, 5.1% in villages and 2.3% in towns. A few municipalities have more than half their tax base in exempt property. Whether tax exempt or not, the same municipal services are provided to all property, shifting the cost of services provided to the owners of tax-exempt property to the owners of taxable property.
The Problem
Communities fund services to citizens and property through the property tax and municipal aid. The price of services has increased — for example health insurance costs are experiencing double-digit increases; state aids remain flat — shared revenues have not increased since 1995 while the Legislature creates new property tax exemptions. As a result, homeowners, renters and businesses pick up a larger share of the cost of providing municipal services.
During the 1997-1999 budget debate, the governor and Legislature took computers off the property tax. Convincing policymakers to provide a hold harmless was difficult, although ultimately successful. The question is for how long will the state provide replacement revenue?
Five new tax exemptions were added in the 1999-2001 biennial budget. No make-up revenue was provided to offset that lost tax base.
Contributing to the municipal services a tax-exempt property receives through a payment in lieu of taxes (PILOT) is voluntary. PILOTs are sometimes hard fought and decided more on the basis of local political climate than on the principles of fairness.
The Solution
- Adopt a moratorium on new tax exemptions, both real and personal, until 2010.
- Sunset all tax exemptions in 2010 unless reauthorized by the legislature.
- Provide a clearer, more equitable definition of "benevolent" to apply to organizations that qualify for a tax exemption based on their charitable nature.
- Authorize local governments to require payments in lieu of taxes for services provided to owners of tax exempt property.
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