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International Property Tax Institute

IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

UNITED STATES - October 2018

Contents

WISCONSIN - LOCAL GOVERNMENTS PUT SO-CALLED 'DARK STORE' LOOPHOLE BEFORE VOTERS THIS FALL ........ 1

OHIO - SUPREME COURT CLARIFIES RULE ON APPRAISAL EVIDENCE AS WINDOW TO CONTEST PROPERTY TAX VALUATION NEARS ................................................................................................................................................ 2

NYC’S PROPERTY TAXES ARE GOING TO REMAIN A TOTAL MESS ........................................................................... 3

NEW JERSEY - DO YOU UNDERSTAND HOW YOUR PROPERTY TAXES WORK? ........................................................ 4

FLORIDA - AMENDMENT 1 PROPERTY TAX BREAK WOULD GIVE HOMEOWNERS $250-$750 ................................. 4

CHURCH ORDERED TO PAY $13,000 IN PROPERTY TAXES HEADS TO COURT .......................................................... 5

TEXAS PROPERTY TAX REFORM NEEDED ................................................................................................................ 6

NEW YORK - PROPERTY TAXES: COULD MARC MOLINARO REALLY CUT THEM BY 30%? ........................................ 6

ILLINOIS SUPREME COURT NARROWLY UPHOLDS 2012 HOSPITAL PROPERTY TAX STATUTE, HOLDS ULTIMATE QUESTION FOR EXTRA INNINGS ............................................................................................................................. 8

ILLINOIS NONPROFIT HOSPITAL PROPERTY TAX EXEMPTIONS UPHELD ................................................................. 9

HAWAII - BATTLE LINES DRAWN OVER PROPERTY TAX AMENDMENT ................................................................. 10

FLORIDA - RICK SINGH APPEALS DISNEY RESORT MARKET VALUE DECISION........................................................ 11

FLORIDA’S AMENDMENT 2 WOULD CEMENT EXISTING LIMITS ON SOME PROPERTY TAX ASSESSMENTS ............ 12

NEW YORK - NIAGARA FALLS EYES NEW $198 GARBAGE FEE TO REPLACE LOST SENECA CASINO REVENUE ......... 12

MINNESOTA - STUDY TAKES DIM VIEW OF ECONOMIC DEVELOPMENT TOOL COMMONLY USED IN MINNESOTA ............................................................................................................................................................................ 15

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WISCONSIN - Local Governments Put So-Called 'Dark Store' Loophole Before Voters This Fall 22 Counties, Cities And Villages Put Advisory Referendum Before Voters Twenty-two Wisconsin counties, cities and villages are asking voters this fall to decide whether lawmakers should close the state's so-called "dark store" loophole. Barron County is among 17 counties asking voters through an advisory referendum whether lawmakers should end a policy that allows operating stores to take vacant stores into account when assessing their value for tax purposes. Under state law, assessors consider the value of property based on what a buyer may pay for it, sales comparisons, and the income property may generate.

https://elections.wi.gov/elections-voting/elections

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Barron County Board Chairman Louie Okey said assessing commercial properties like they're vacant doesn’t make sense because the stores are generating revenues. "If we do not close that loophole, those places will have their property tax burden reduced, and, therefore, push more of the burden on the residential property owner," said Okey. However, Corydon Fish, director of tax for Wisconsin Manufacturers and Commerce, argues it’s the other way around. "They talk about a tax shift to homeowners when there’s no such tax shift," he said. "The tax shift is actually from homeowners to businesses." Fish said wording in the advisory referendums put forth by counties is "incredibly biased" and reflects model language supplied by groups like the Wisconsin Counties Association. Kyle Christianson, the association’s director of government relations, said the referendums represent a "grassroots movement" by counties. "An initiative not really driven by statewide associations, but more so by individual counties who have recognized clearly there’s a problem here with our assessment laws," Christianson said. Fish argued data from the Wisconsin Department of Revenue shows commercial properties have paid an increasing share of property taxes while residential property taxes have declined in recent years. Christianson acknowledged property values may fluctuate, but he said residential taxpayers still pay more than two-thirds of property taxes statewide. An August memo from the nonpartisan Legislative Fiscal Bureau memo states both residential and commercial properties have shouldered an increasing share of the tax burden in the last decade. At the same time, manufacturing and other properties have seen their share of taxes decline.

OHIO - Supreme Court clarifies rule on appraisal evidence as window to contest property tax valuation nears The Ohio Supreme Court recently reaffirmed a new rule allowing property owners to rebut the presumption that a recent, arm’s length sale is the best evidence of value for real property tax purposes. Last year, we reported on the court’s decision in a case called Terraza 8, LLC that required tax boards to consider an owner’s appraisal evidence when determining value despite a recent, arm’s length sale of property encumbered by a lease. The recent, arm’s length sale is still presumed to be the best evidence of true value, but property owners may overcome that presumption with appraisal evidence. Recent, Arm’s Length Sale Not Conclusive Evidence of True Value The rule could have big implications for taxpayers planning to challenge auditor valuations this winter, particularly for leased properties. For tax purposes, property values are based upon the unencumbered, fee-simple value of the property. County auditors may fail to take into account how the creditworthiness of existing tenants can affect the sale price for recent, arm’s length sale of leased properties. The Terraza 8 case gives owners the opportunity to present appraisal evidence to show that the sale price may not reflect the true value of property as if unencumbered. Last month, in Westerville City Sch. Dist. Bd. of Ed. v. Franklin Cty. Bd. of Rev., the Supreme Court reaffirmed the Terraza 8 rule and clarified when owners may present appraisal evidence. The court explained that owners do not need to make a threshold showing before a tax board must give full consideration to appraisal evidence. Appraisal evidence must be considered even where there is a sale of the property and the sale’s voluntary, recent, and arm’s length character have not been “impugned.” Window to File Complaint Nears

https://www.revenue.wi.gov/DOR%20Publications/tvc12.pdf

https://docs.legis.wisconsin.gov/misc/lc/study/2018/1786/020_september_6_2018_meeting_9_30_a_m_room_412_east_state_capitol/06sept_lfb

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The window for filing formal challenges to a county auditor’s real property valuations generally begins on or about January 1 and ends on March 31 of every year. The auditors in several counties recently finished reappraisals and valuation updates that may result in increased property values and tax burdens. Property owners in those counties should see the new values reflected in their 2018 property tax bills that they receive in December 2018 or January 2019. While property owners in any county may file a complaint to their valuation, owners in these counties may be particularly interested. The Tax Appeal Process Property owners dissatisfied with their assessment because it assigns an improperly high value to their realty may file a complaint with the county board of revision in the county where the real estate is located. The complaint sets forth the reasons why the property is overvalued. If the property owner is a business, an attorney must sign the complaint in most situations. Attorneys may work with property owners to hire a qualified appraiser to appraise real estate and determine if it is overvalued. If so, the appraiser generates a report describing the real property and its value as of the “tax lien date.” For example, Jan. 1, 2018 is the tax lien date for the 2018 tax year. Within months after the complaint is filed, the county board of revision sets an evidentiary hearing, where an attorney appears on behalf of the property owner to present evidence and witness testimony regarding property value. The appraiser typically testifies on their appraisal report at the hearing. Following the hearing, the board of revision issues its decision regarding the value of the real property. If necessary, the board of revision’s decision may be appealed to the Ohio Board of Tax Appeals or the county court of common pleas where the property is located.

NYC’s property taxes are going to remain a total mess Everyone knows New York City taxes are high, but that’s not the only problem: They’re also complicated, confusing and unfair — especially property taxes. Which is why Assemblywoman Nicole Malliotakis (R-SI) just rolled out a plan to overhaul Gotham’s property-tax system. And why a newly formed panel is holding hearings to come up with fixes. It’s also why a tax-reform group is suing the state and city (a judge just gave the suit the go-ahead). And why the Citizens Budget Commission — which has documented property-tax inequities for years — put out another report on them just last month. How complex is it? The city divides property into four tax “classes”: small homes, apartments, utilities and commercial and industrial real estate. Each class is taxed based on different rules, rates and possible exemptions. Thus, each class winds up with a different average “effective tax rate” (i.e., a property’s tax bill as a percentage of its market value). A 2016 CBC report notes that small homes are hit with the lowest ETRs, 0.74 percent. Small rental buildings average more than twice that, and larger ones five times the rate. Tenants feel the pain when landlords fold their tax bills into the monthly rent: If the rent is too damn high, it’s in large part because the tax is too damn high. Meanwhile, commercial property-tax rates are even higher, hurting job providers. Single-family homes do OK compared to elsewhere in the region and even the nation. But as a Lincoln Institute study found some years back, the effective rate for a 20-unit rental building here is twice the national average for a big city. And ETRs on commercial property run 76 percent above the US big-city average. Equally troubling: Within classes, rates vary widely. ETRs for small homes run from nearly zero to as much as 1.2 percent, the CBC report said. “A single-family home worth $500,000, for example, could see a tax bill anywhere from less than $100 to $6,000,” it observed.

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One key factor: Hikes in assessments are capped, so they phase in slowly. Yet caps help those who least need it: homeowners whose property values are rising fast, such as those in gentrifying neighborhoods. Point is, it’s all a big mess. And property taxes only add to the crunch of all the other taxes: on businesses, incomes, sales . . . Clearly, reforms are in order — not just to lower taxes but to simplify them and make them fairer. Yet, for all the renewed interest in doing that, don’t expect much to change. For one thing, the city’s spending growth means City Hall can’t afford to cut tax rates. And any attempt to level the playing field will create armies of winners and losers; what New York pol is willing to risk the political consequences? No, sad to say, New Yorkers will be stuck with crazy property taxes until their leaders find the courage to upset the apple cart by finally taming the city budget.

NEW JERSEY - DO YOU UNDERSTAND HOW YOUR PROPERTY TAXES WORK? It's no secret that New Jersey has the highest property taxes in the nation. On average, a Jersey homeowner pays $8,400 a year compared to the nationwide average of $3,400. But do you know how your property taxes are allocated and what's at work when you pay your tax bill? The New Jersey Society of Certified Public Accountants has teamed up with New Jersey Realtors and the Association of Municipal Assessors to publish The New Jersey Homeowner's Guide to Property Taxes. CEO and Executive Director of the New Jersey Society of CPAs Ralph Albert Thomas said it's a guide to what goes into the property tax calculation and how it's done. The 16-page guide talks about the assessment, when the payment is due and the billing. It explains how property taxes are calculated based on the value of a property. Your tax bill starts with a certified municipal assessor establishing the value of your property. After the municipality, school district and county adopt their budgets that determine how much money they will need to raised through taxes, the municipality determines a tax rate. The tax collector uses the rate to determine what each property owners owes for each quarter of the year. The more a property is worth, the more it will owe. After taxes are collected, the appropriate amount of funds are split among the taxing entities, such as the school district, county or fire district. Thomas says the guide stemmed from when the CPAs put together a task force to think of ways to reduce property taxes. Thomas said many of its members didn't even understand it. He said if the citizens are more educated about how property taxes are done, then perhaps they can appreciate what the recommendations that may come out about how to reduce property taxes.

FLORIDA - Amendment 1 property tax break would give homeowners $250-$750 Constitutional amendments require 60 percent of vote for approval Amendment 1, a proposed constitutional adjustment to the maximum homestead exemption allowed for Florida homeowners, would create a financial backlash for cities and counties across the state, according to anti-amendment circles. The Florida Association of Counties calls the $75,000 "super exemption" an amendment that is “robbing Peter to pay Paul.”

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The association projected a “negative fiscal impact of $752.7 million in the first year.” The proposed constitutional amendment would increase the current homestead exemption by $25,000 for the first $100,000 of value up to $125,000. A $200,000 home would see the exemption change from $50,000 to $75,000. Orange County senior public information officer Doreen Overstreet told News 6 on Monday that the latest increased property values in Orange County point to an anticipated loss of “approximately $25 million in property tax revenue should Amendment 1 pass.” According to county data, lost tax revenue would break down like this: county, $16 million; fire, $5 million; and sheriff, $4 million. State Rep. Bob Cortes, of Seminole County’s District 30, co-sponsored the amendment and said he understands there will be adjustments for taxpayers and local governments. “I believe it (Amendment 1) is a plus,” Cortes said, “because this isn’t something the Legislature is imposing. This is something the taxpayers have control over.” Amber Hughes, of the Florida League Cities, said passage of the amendment would be a mistake. In an email to News 6, Hughes said: “Florida's property tax system is already a complicated mess and Amendment 1 makes it worse, more complicated and less fair. Most of the benefits of Amendment 1 will go to less than one quarter of Florida properties. Amendment 1 shifts a bigger burden onto small business owners, manufacturers and working families.” Constitutional amendments require 60 percent of the vote to be approved. If it passes, the amendment would go into effect Jan. 1.

Church Ordered to Pay $13,000 in Property Taxes Heads to Court A California church is suing the city of San Rafael for forcing it to pay property taxes even though religious institutions are constitutionally exempt. In 2010, San Rafael adopted the Paramedic Services Special Tax, which allows the city to annually tax non-residential buildings at a rate of up to 14 cents per square foot. While churches and other religious institutions are normally exempt from property taxes, the city said the Valley Baptist Church was responsible for the tax, and ordered it to pay more than $13,000. The city said the tax was not a regular property tax, but a "special tax," thus making the church responsible to pay. However, Valley Baptist attorneys believe the special tax is unconstitutional and will argue its case before court on Tuesday. "We're asking the court to call this violation what it is—an unconstitutional property tax," said Pacific Justice Institute Attorney Ray Hacke, who is representing Valley Baptist in this case. "Evidence shows that the city has no intention of collecting paramedic tax money from the public schools, which are protected by the same tax exemptions as churches under the California Constitution. They are not only ignoring higher law, but picking and choosing who will and will not be subjected to an onerous tax." If the court rules against Valley Baptist, the church will be forced to pay thousands of dollars in the coming years. Brad Dacus, founder and president of PJI, says this case has could affect other churches.

https://www.pacificjustice.org/

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"This case has implications far beyond San Rafael and the Bay Area. If the city succeeds at evading the state constitution, other cities would be given the green light to ignore constitutional protections of churches in the future by playing a re-labeling game," he said.

Texas Property Tax Reform Needed FACTS

More than 45 percent of Texas tax revenue comes from property taxes.

School districts collect 54.9 percent of total property tax revenue, according to the Texas Comptroller.

Texas’ property tax burden has increased 101.1 percent since the year 2000, outpacing population growth and inflation by more than 30 percent.

Property tax has also risen as a proportion of income, consuming 9.8 percent of household income in 2013, as compared to 7.6 percent in 2000. Such an increase contributes to housing affordability issues and creates a barrier to homeownership.

Texas collected about $1,559 in property taxes per capita in 2012, falling disproportionately on those who purchase or rent land rather than investing in other assets.

The Tax Foundation ranked the states according to their property tax burdens per capita, with Texas having the 14th highest property tax burden in the country.

PROBLEMS

Property taxes do not allow flexibility in the face of financial hardship. Individuals are required to pay tax based on a prior purchase and the existence of an illiquid fixed asset, regardless of their current income or cash holdings.

Property taxes are based on the value of land, which can fluctuate independent of a person’s actions. A spike in property value can quickly outstrip the owner’s ability to pay, pricing family out of land even if they’ve owned it for generations.

Property taxes create large economic distortions and discourage capital intensive industries from locating to Texas.

Property taxes are not only more costly but also more complicated to administrate than other taxes.

SOLUTIONS Short Term: Structural Reform

Give Texans more control over the growth of their local tax bills by requiring an automatic election to approve a tax rate that would allow overall property tax revenue to rise more than the lesser of 4 percent or population growth and inflation.

Long Term: Abolish Property Taxes

Abolish the property tax and switch to a flat consumption tax, allowing individuals to monitor and limit their tax bill to accommodate fluctuations in their financial situations.

Option 1: Apply a sales tax rate of about 11 percent to a broader tax base. The new tax base would encompass services that are currently nontaxable or tax exempt in Texas, but are taxed in other states. The initial sale of property would also be subject to this onetime sales tax.

Option 2: Apply a sales tax rate of about 16 percent to the existing tax base, and include the sale of property.

NEW YORK - Property taxes: Could Marc Molinaro really cut them by 30%?

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Republican gubernatorial candidate Marc Molinaro wants to cut property taxes by nearly 30 percent in New York through a variety of fiscal moves, including having the state pick up the remaining costs to counties to pay for Medicaid The 30 percent cut would be phased in over five years and ban state grants to private corporations, make the property tax cap permanent and make it more difficult for to install higher state taxes. He would also eliminate a higher income-tax rate on millionaires set to expire next year. "Property taxes are crushing small businesses, middle-class families and farms across the state of New York. We have to reduce them," Molinaro told the USA Today Network's Albany Bureau. Gov. Andrew Cuomo, a Democrat seeking a third term, ripped Molinaro's proposal, calling it a "a shell-game sham." Cuomo said the state can't afford the $7.6 billion price tag it would cost for the state to take over the counties' cost of Medicaid, the health insurance program for the poor and disabled. New York is one of only a few states that pass a portion of Medicaid costs onto counties, who pick up about 13 percent of the overall cost. In 2015, Cuomo and the state Legislature capped the growth in Medicaid costs on counties at $7.5 billion a year, which Cuomo has hailed as a cost savings for counties. But he said for the state to pick up the remaining costs would be cost prohibitive. "It’s a sham. It’s the state should pick up Medicaid, $7.6 billion. Yeah, that’s a nice idea," Cuomo told reporters Sept. 25 in Bolton Landing. "Where is the state going to get $7.6 billon? Either you’d have to raise taxes on the state side, or you’d have to cut education." Property taxes have long been at the heart of New Yorkers disdain with government, and school taxes are about 60 percent of a homeowner's annual tax bill. New York has long had among the highest property taxes in the nation, while the New York City suburbs paying the highest bills while many upstate counties pay the highest compared to home values. When he took office in 2011, Cuomo made the issue a top priority and installed a property-tax cap that limits the growth to 2 percent or less a year. The cap has slowed the increases in taxes, and he has implemented a series of rebate programs that give back money to homeowners for their property taxes. He also capped state spending to 2 percent a year and lowered income taxes. "It's the property tax that is a killer in New York," Cuomo said in a speech to the state Business Council on Sept. 25. "Average taxpayer pays $4,800 in property taxes; $1,800 in state income taxes." But Molinaro said capping taxes isn't enough, and property taxes need to be lowered, calling his plan the “Empire State Freedom Plan.” The Dutchess County executive said if the state takes over the county's share of Medicaid, it would allow counties to lower property taxes and streamline a program now administered through 57 counties and New York City. The takeover would be phased in over 10 years. New York has the largest and most expensive Medicaid program in the nation at more than $60 billion a year. He also wants to have a ban on state tax increases without a supermajority vote of the state Legislature and eliminate onerous policies that drive up the cost of construction projects in New York, such as the Scaffold Law and Wick's law -- which business groups have long derided.

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In a report Oct. 1, the Citizens Budget Commission, a business-backed group, said New York needs to change the way Medicaid is funded, saying counties should no longer be on hook for the cost. The group suggested a number of ways the state could incur the costs, such as ending other tax-break programs for homeowners or using a portion of sales tax to pay for it. "Fifty years after the initiation of the Medicaid local share, the arrangement remains a poor way to finance the program," the group said in a report. "The state should design a way to eliminate the mandated local share in a reasonable time period."

Illinois Supreme Court Narrowly Upholds 2012 Hospital Property Tax Statute, Holds Ultimate Question for Extra Innings On September 20, the Illinois Supreme Court kept alive from a constitutional challenge the state’s 2012 statute intended to clarify the standards for charitable hospital property tax exemption. The well-reasoned but incredibly narrow ruling in Oswald v. Hamer, 2018 IL 122203 (Sept. 20, 2018), affirmed lower court rulings upholding the statute from a challenge that it was unconstitutional on its face. Though only one step toward resolving whether the statute will stand as applied to a specific hospital application for exemption, the decision resolves the first hurdle encouragingly for the hospital community, because not everyone was certain a decade ago that the legislature could resolve the then-boiling hospital tax exemption question in a manner that could be reconciled with restrictions in the state constitution. The statute in question, Section 15-86 of the Property Tax Code (35 ILCS 200/15-86 (West 2012)), establishes that Illinois nonprofit hospitals may qualify for property tax exemption if the value of certain “qualified services or activities” is equal to or exceeds the estimated value of the hospital’s property tax exemption. Although the Illinois Attorney General had earlier sought to strengthen the charity care obligations of tax-exempt hospitals in the state, pressure for legislative action exploded in March 2010 when the Illinois Supreme Court ruled that Provena Covenant Medical Center did not provide enough free care to qualify for charitable property tax exemption. See Provena Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368 (2010). That opinion was disappointing to hospitals, not only because of the result, but because it was a plurality decision (and thus not binding in other cases) and did not establish a bright-line test either for how much charitable funding a hospital must receive or for how much charity care a hospital must provide to qualify as a charitable institution. Two years later, the legislature created such a test. The real issue, both then and now, is how the legislature’s act could be reconciled with and applied in light of (1) the limited discretion allowed the legislature by the state constitution and (2) the specific requirements for charitable exemption already in the constitution. As in a few other states, the root of charitable tax exemption in Illinois is in the constitution, not statutory law. See Ill. Const. 1970, art. IX, § 6. The constitution requires that an organization seeking charitable exemption be used “exclusively for *** charitable purposes,” a requirement that at times has proven difficult to meet. When the legislature enacted Section 15-86, it set forth new requirements surrounding free care and other tests for activities and stated that a hospital applicant “shall be issued” a property tax exemption if it meets the tests. It was unclear at the time whether the Section 15-86 tests were intended to interpret the constitutional standard or supplement it, and thus unclear whether the statute, in implementation, would survive constitutional scrutiny. Oswaldprovides a partial answer. With the issue framed as whether the statute is unconstitutional on its face, the Supreme Court said its job was to determine whether there were anycircumstances under which the statute could pass muster. The court stated that it presumes that the legislature enacts statutes in light of (and intending to be consistent with) the state constitution. The key finding the court reached is that, although unstated by the legislature, Section 15-86 supplements (not supplants) the “exclusively for *** charitable purposes” requirement in the constitution. Subsumed within that finding is the court’s determination that the “shall” language in the statute is permissive and not, as might appear at first glance, mandatory. In its first at-bat, Section 15-86 has survived a very narrow test. This is a positive development, but the real test will come later as the statute is applied to the facts of a real application, facing almost certain further challenge.

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Illinois Nonprofit Hospital Property Tax Exemptions Upheld On September 20, 2018, the Illinois Supreme Court published its opinion in Oswald v. Hamer, which upheld Section 15-86 of the Illinois Property Tax Code (“Section 15-86”), an Illinois statute that provides for a charitable property tax exemption to eligible nonprofit hospitals and their hospital affiliates. Oswald helps clarify the conditions that nonprofit hospitals must satisfy in Illinois to remain exempt from the state’s property tax. However, the court in Oswald did not foreclose the possibility of additional future challenges to Section 15-86 and the property tax exemptions of nonprofit hospitals. As a result, nonprofit hospitals in both Illinois and around the country and the investors that invest in them should anticipate continued scrutiny of the eligibility of nonprofit hospitals for property tax exemptions. Background The status of property tax exemptions for nonprofit hospitals has been in flux and under scrutiny for a number of years in Illinois and other states on various grounds, including that the nonprofit hospitals are not engaged in sufficient charitable activities to justify the exemption from property taxes. The uncertainty surrounding nonprofit hospital eligibility for property tax exemption creates risk both for nonprofit hospitals and the investors that invest in them. The Illinois Constitution places restrictions on the legislature’s ability to exempt property from taxation. Section 6 of Article IX of the Illinois Constitution (“Section 6 of Art. IX”) permits the legislature to exempt two limited categories of property from property taxation. Most significantly for nonprofit hospitals, the second of these categories includes property used “exclusively for . . . charitable purposes.” Within the constraints of Section 6 of Art. IX, the Illinois legislature enacted Section 15-65 of the Illinois Property Tax Code (“Section 15-65”). Section 15-65 exempts real property from state taxation if two criteria are met: (i) the property is “actually and exclusively used for charitable or beneficent purposes, and not leased or otherwise used with a view to profit” and (ii) the property is owned by an institution of public charity or certain other entities. In other words, Section 15-65 requires both charitable use and charitable ownership to qualify for property tax exemption. In 2010, uncertainty was introduced into Section 15-65’s two-pronged analysis when the Illinois Supreme Court, in Provena Covenant Medical Center v. Department of Revenue, held that a nonprofit healthcare organization’s hospital complex did not meet the requirements for property tax exemption under Section 15-65. The Provena court determined that Section 15-65’s charitable use requirement was not satisfied because, in part, the nonprofit healthcare organization failed to demonstrate that it provided more than a de minimus amount of free or discounted care. Although the court noted that Section 15-65 did not require a strict “dollar-for-dollar correlation between the value of the tax exemption and the value of the goods or services provided by the charity,” the court emphasized that an organization seeking charitable tax exemption should be able to demonstrate that its activities help relieve some of the burdens on the government entities that are for going their taxes. Because the court’s analysis implied the existence of an unknown quantitative or monetary threshold for charitable care and services, Provena created a great deal of uncertainty about what standards should be applied for charitable property tax exemptions in Illinois. In response to Provena, Section 15-86 was enacted in 2012 and provided for a charitable property tax exemption specifically for nonprofit hospitals and their hospital affiliates with clearer, more formulaic guidelines to demonstrate eligibility for the property tax exemption. Specifically, subsection (c) of Section 15-86 provides that a charitable property tax exemption shall be issued to a nonprofit hospital or hospital affiliate that can demonstrate that the value of its “qualified services or activities” (as defined by Section 15-86) in a given year is greater than or equal to its estimated property tax liability for that year. Oswald v. Hamer In Oswald, an Illinois taxpayer challenged the constitutionality of Section 15-86. The taxpayer-plaintiff argued that Section 15-86 is facially unconstitutional because it requires the grant of a property tax exemption under Section 15-86 if the value of a nonprofit hospital’s charitable services exceeds its estimated property tax liability without regard to the Illinois constitutional requirement that exempt property be used “exclusively for . . . charitable purposes.” The Illinois Supreme Court rejected the taxpayer-plaintiff’s argument and upheld the constitutionality of Section 15-86. The Oswald court found that the Illinois legislature intended to comply with the Illinois Constitution when it enacted Section 15-86. Accordingly, the court in Oswald construed Section 15-86 to permit, but not require, the grant of a property tax exemption if the requirements of Section 15-86 are satisfied.

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Key Takeaways Illinois Nonprofit Hospitals Must Satisfy the Requirements of the Illinois Constitution and Section 15-86 to Receive Property Tax Exemption Oswald upheld the constitutionality of Section 15-86 because it is possible for Illinois nonprofit hospitals to comply with the requirements of Section 15-86 and the constitutional requirement that the subject property be used “exclusively for . . . charitable purposes.” As a result, both requirements still apply. A nonprofit hospital in Illinois seeking a charitable property tax exemption under Section 15-86 must document the “qualified services or activities” that exceed its estimated property tax liability for that year. Additionally, the hospital must be prepared to demonstrate that the property is used for exclusive charitable purposes in accordance with the requirements of the Illinois Constitution. Oswald Maintains Current Illinois Property Tax Exemption Requirements but Leaves the Door Open to Future Scrutiny Oswald is a somewhat favorable case for Illinois nonprofit hospitals because it upholds the constitutionality of Section 15-86, which has, for the past several years, provided some additional guidance and clarity on the statutory requirements for a charitable property tax exemption for nonprofit hospitals in Illinois. However, because the taxpayer-plaintiff in Oswald asserted a facial challenge to Section 15-86 and because nonprofit hospitals must still show that the subject property is used exclusively for charitable purposes under the Illinois Constitution, the Oswald holding does not foreclose the possibility of future challenges to the property tax exemptions granted to individual nonprofit hospitals. Further, Oswald is specific to Illinois and is not binding authority on regulators or courts in other states. Therefore, nonprofit hospitals and the investors that invest in them should continue to monitor developments with respect to the eligibility of nonprofit hospitals for property tax exemptions and anticipate continued scrutiny of those property tax exemptions.

HAWAII - Battle Lines Drawn Over Property Tax Amendment In one month Hawaii voters will decide whether or not to amend the state constitution. The specific amendment under consideration would create a property tax surcharge to fund public education. It would be a significant change in how residents are taxed in this state. Currently only county governments can levy property taxes. Supporters and opponents of the proposal are digging in for a heated political battle as the vote approaches. The Hawaii State Teachers Association is leading the pro-amendment camp to improve rundown schools and give raises to struggling teachers. The anti-amendment side includes all 4 County Mayors, the Hawaii Chamber of Commerce, and a political action committee called the Affordable Hawaii Coalition. Hawaii County Mayor Harry Kim flew to Oahu to express his opposition to the amendment and echoed that sentiment. Honolulu Mayor Kirk Caldwell was also present to oppose the measure. Both he and Harry Kim stressed the importance of property taxes as one of the only revenue sources available to the county governments. They also expressed concerns that in the future state lawmakers would ultimately be able to use the new tax authority to raise rates for any property or use the money for purposes other than funding education. Both mayors called for a financial audit of the Department of Education before raising additional taxes. Members of the business community also oppose the property tax amendment. Sherry Menor-McNamara is the President of the Chamber of Commerce of Hawaii. Her organization has spent 600,000 on marketing to oppose the referendum. Menor-McNamara shared the results of a member survey the Chamber of Commerce conducted that found the number one concern of local business owners is the rising cost of doing business. She cited potential increases in rent and tax burden in relation to the amendment. On the other side of town, Hawaii State Teachers’ Association President Corey Rosenlee had assembled supporters of the amendment outside Downtown Honolulu’s Central Middle School. In response to claims by Mayors Caldwell and Kim that the amendment gave the state legislature too much latitude to tax, Rosenlee said that this is a multistep process that will include writing legislation that specifies exactly which properties would be taxed. He criticized opponents of the measure for using unjustified fear mongering to scare voters.

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According to Rosenlee and his allies, they have spoken with state legislators who are committed to maintaining the intent of the amendment to tax only non-resident, investment properties above $1 million. But he declined to specifically outline what guarantees he had received from which lawmakers. That lack of guarantee is the driving force behind the opposition from Mayor Caldwell. He cited his time in the state legislature when referencing lawmakers' propensity to reappropriate funds and use laws in unpredicted ways. Instead, Caldwell and Kim called for an audit of the State Department of Education, which receives approximately $2 billion in funding from the state every year. Corey Rosenlee did not oppose an audit of the DOE, but said that is simply a delaying tactic rather than a realistic solution to the funding issues. On Thursday the Hawaii Supreme Court announced it would hear a joint petition by the four counties to invalidate the amendment question that has already been printed on voter ballots for November. In September a lower court judge declined to throw out the question ahead of the vote. Oral arguments at the Supreme Court have been scheduled for October 18th.

FLORIDA - Rick Singh appeals Disney resort market value decision Orange County’s property appraiser filed the appeal following a judge’s ruling regarding a Disney-owned resort’s revised market value of $209 million. Orange County Property Appraiser Rick Singh on Sept. 13 appealed a judge’s decision to reduce the appraised value of the Disney-owned Yacht and Beach Club Resort by nearly 40%. In 2015, The Yacht and Beach Club Resort, located on a 65-acre property at 1700 Epcot Resorts Blvd., was appraised by the OCPA at a value of $336.9 million, but Walt Disney Parks and Resorts, U.S. Inc., challenged that valuation with a lawsuit. The property appraiser currently has 33 open cases filed against him by Disney, said Beth Watson, who works as a communications and external affairs manager for Singh. But this latest suit, which disputes the market value of the hotel for the 2015 tax year, claimed the methodology used to assess the resort’s value at $336.9 million was flawed. Instead, Disney believes the value should have been $188,673,081, according to court documents. YACHT & BEACH CLUB RESORT HISTORICAL PROPERTY VALUE 2013: $148,243,426 2014: $154,229,462 2015: $336,992,772 2016: $348,890,101 2017: $361,373,974 In the 2014 tax year, the resort was valued at $154.2 million, meaning its appraised value increased 118% in 2015. According to court documents, the increase was partially because the OCPA office included the revenue generated from retail shops and restaurants located on the property to assess the resort’s value — an income of $73.7 million. “The property appraiser … included approximately $74 million of ancillary income from Disney’s sale of food, beverages, merchandise and other goods and services attributed to retail and restaurant shops operating on the premises of the Yacht and Beach Club,” court documents state. “The main issue, in this case, is whether it was legally proper to include this ancillary income in determining the just value of said property.”

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According to court documents, Disney had never had to provide income or expense information to the OCPA’s office for the preceding 28 years, but for the 2015 tax year, the OCPA requested such information to complete its appraisal. However, Disney declined to provide it, which was its right, courts documents state. “(Because) Disney did not provide the specific income and expense figures requested, the property appraiser had to use its best efforts to determine said income and expense figures using other methods,” court documents state. Disney later submitted the requested income and expense information and hired experts to counter OCPA’s calculation, but the court determined it was too late. However, it did allow Disney to challenge OCPA’s use of ancillary income in its assessment. Ultimately, the court determined the income approach was the most appropriate method of appraisal for the resort. So it used figures and expenses as calculated by Disney’s own experts, but excluded the ancillary income of $73.7 million used by the OCPA and replaced it with the projected rental income from the resort’s restaurant and retail operations, which amounted to $1.74 million. In the end, the court’s revised calculations for the 1,197-room hotel totaled $209 million. But Singh challenges the hybrid methodology the judge used to come up with the revised value in the July 2018 ruling. Singh said standard appraisal methodologies for hotels include all sources of additional income — not just the rooms. Singh expects a revision of Judge Thomas Turner’s ruling will reveal the court made an error in its calculation. To support his point, Singh emphasized the Dr. Phillips Center for the Performing Arts, located on a site about one-tenth of the size of the resort (6.6-acres) in downtown Orlando, has a market value of $254 million. “We are confident that a closer review of the calculations used to determine value will result in the ruling being overturned,” Singh said. “It is simply illogical that The Yacht and Beach Club — with nearly 1,200 guest rooms and (more than) 100,000 square feet of meeting space — has a market value of $209 million.”

Florida’s Amendment 2 would cement existing limits on some property tax assessments Amendment 2, which would permanently retain provisions currently in effect regarding property tax assessments, is a proposal put forward by the Florida Legislature. As of now, the assessed value of non-homestead properties can only be increased by 10 percent in a given year under state statute. If passed, the amendment would make that cap permanent. It would also remove the scheduled repeal of such provisions in 2019, and would take effect Jan. 1, 2019. Non-homestead properties include second homes, rental properties, vacation homes, vacant land and commercial property. The assessments exclude school district levies. Since 2008, such property tax assessments have been limited to 10 percent of the assessed value from the previous year. The provisions protect taxpayers from potentially larger increases in property taxes in the future. In order to become law, each of the amendments on the ballot must be approved by a 60 percent vote. A vote “yes” means non-homestead property assessments would be capped at 10 percent permanently. A vote “no” means non-homestead property assessments would be capped at 10 percent but could be subject to change in 2019.

NEW YORK - Niagara Falls eyes new $198 garbage fee to replace lost Seneca casino revenue

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The City of Niagara Falls is in a financial bind because of the loss of more than $13 million a year in Seneca Niagara Casino revenue, but its plan to replace part of the money with a new $198-a-year garbage user fee is drawing overwhelmingly negative reviews from residents. The new fee gives the city a chance to collect from parcels that are exempt from property taxes, such as churches and other not-for-profit organizations. "I don't think it's fair for organizations that do services in the community to have to pay additional garbage pickup fees," said Rev. Dion Greer, pastor of St. John African Methodist Episcopal Church. "The city needs to consider some other alternatives, because individuals are highly taxed," senior citizen Gloria Dolson said. "Very few are employed, and if they are, they have limited income." The fee would bring in an estimated $3.6 million a year and is not subject to the state-mandated 2 percent tax cap. City leaders say the alternative to the fee is to lay off dozens of city employees, particularly police officers and firefighters. "Public safety is two-thirds of my budget," City Administrator Nicholas A. Melson said. "Three-point-six million (dollars) is a lot of people. Say that's 40 people. I can't do that without touching public safety." The proposed 2019 budget, to be officially unveiled Oct. 1 by Mayor Paul A. Dyster, also will include a property tax increase right up to the 2 percent cap, as well as some layoffs and elimination of vacant jobs, city officials said Friday. But the $198 fee for garbage and recycling services has drawn the most public attention in the weeks leading up to the budget announcement. "We've already been taxed enough," said Candace Corsaro, a real estate agent. "We already pay for garbage, and they're going to tax us again." "I don't see us needing a tax increase if we get a user fee. Maybe to the cap, but that's about it," Melson said. Niagara Falls City Council Chairman Andrew P. Touma said the average city budget in New York State derives 19 percent of its revenue from fees, but in Niagara Falls, that figure is 7 percent. "It's becoming more and more popular in a tax-cap world," Niagara Falls Controller Daniel R. Morello said. "That would assist us with the constitutional taxing limit, too," Dyster said. The city is at 81 percent of that limit. Morello said the fee probably will be billed in semiannual installments. The city also is hoping for some special state aid to make up for the end of casino revenue. The Seneca Nation of Indians stopped paying the state a share of the slot machines profits from Seneca Niagara Casino after 2016, contending that the payment clause in the original casino compact between the Senecas and the state had expired. The state took the Senecas to arbitration, a process that began last month with the exchange of legal briefs between attorneys for the two sides. However, Dyster said the three-member arbitration panel won't hold its first hearing until mid-December, after the city budget adoption process will be over. Looking for revenue The loss of casino revenue blew a $13.6 million hole in the city's $91.4 million budget, Melson said. Thus, the city sat down with Dawn M. Timm, Niagara County environmental science coordinator, who did similar consulting work when Lockport adopted a garbage fee seven years ago. Dyster said a user fee was recommended last year by the state Financial Restructuring Board for Local Governments and by a financial advisory panel chosen by the City Council.

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The state panel also recommended a reassessment of the property in the city, which could turn out to be another flash point for controversy. "They're going to reassess the property and the taxes are going to go up," predicted Corsaro, the realtor. "It is now a seller's market. We can't understand why (housing prices) have gone up so much. They're selling so quick we can't even make a call to set up a showing." The $198 user fee was based on Niagara Falls' annual garbage costs divided by the number of users, Timm said. She added that businesses and residents who have more than one set of garbage and recycling totes, or who want more than one pickup a week, would pay more than $198. The fees would be recalculated based on the city's disposal costs in a new garbage contract to be approved during 2019. The city's current deal with Modern Disposal runs out April 30, and a new request for proposals is to be issued soon, Timm said. Niagara Falls' 17,387 garbage accounts include many not-for-profit entities who haven't paid for garbage services before. "We think there's a fairness issue," Dyster said. Greer, the St. John AME pastor, said he doesn't think it's fair at all. He said Niagara Falls is not an easy place to live in for the low-income members of the community. "It's a lot, $200 a year, particularly when you're already paying a lot in housing and taxes," Greer said. "I've lived in places where housing and utility costs are a lot less." "A lot of seniors can't afford to pay for this," Corsaro said. "Almost everybody is on welfare." Census statistics show 27 percent of Niagara Falls residents live below the poverty line. In the 14301 ZIP code, 37 percent are on welfare or food stamps, and in the 14305 ZIP code, that figure is 32 percent. Dolson suggested that the city should charge more for parking, a cost faced primarily by tourists, if it needs to avoid public safety layoffs. Tax load could be worse Melson said the city has used casino funds to pay for regular expenses instead of raising taxes significantly. In the past five years, the homestead tax rate has risen by 30 cents per $1,000 of assessment valuation, equaling a tax bill increase of $15 during that period on a house assessed at $50,000. The current city tax bill on that $50,000 house is about $900. "In actuality, we haven't asked the taxpayers to pay," Touma said. "I think this (garbage fee) would be the only fee we would ask them to do." For 2019, Morello said, total city spending probably will go down. Melson said the administration is working with the city unions "to close the deficit through measures that would keep as many union workers on the job as possible. There's going to be some job cuts through attrition, and some layoffs, but I'm hoping to avoid public safety layoffs." The Senecas have requested the steady assignment of one police officer to patrol the casino and offered to pay his salary. "This is not something that's a windfall for us," said Dyster, who hasn't signed the agreement the Senecas worked out with the Police Department. "The best time to resolve that would be in the context of a settlement of the broader issues," Dyster said. He added that if there is such a settlement, he's willing to consider having the city, not the Senecas, pay for a full-time cop at the casino. The Seneca Nation's leaders offered a different view of Niagara Falls' fiscal troubles.

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"Unfortunately, just as when he refused to meet with Nation leaders following the completion of our 14-year compact payment obligation to New York State, Mayor Dyster has refused to act on the negotiated public safety agreement for the last several months," Seneca President Todd Gates said. "Rather than actually leading and trying to move forward on a positive path, the mayor continues to use the Seneca Nation as a scapegoat for the city’s financial state. Public safety should not be used as some sort of political pawn," Gates said.

MINNESOTA - Study takes dim view of economic development tool commonly used in Minnesota A new study published by the Lincoln Institute of Land Policy probes the pitfalls of “tax increment financing” districts — bank loans and other financial incentives that developers pay back with funds that would have otherwise gone toward property taxes. From 2000 to 2014, Minnesota issued $1.4 billion in TIF loans and financial obligations, making the state the fourth biggest user of TIF in the United States. The 72-page report, “Improving Tax Increment Financing (TIF) for Economic Development,” by University of Illinois at Chicago professor David Merriman, reviewed more than 30 studies of TIF across the country over several decades. It found that “in most cases, TIF has not accomplished the goal of promoting economic development.” The Cambridge, Mass.-based Lincoln Institute of Land Policy is a private nonprofit and nonpartisan foundation. The report found that Minnesota is home to more than 1,700 tax increment financing districts — hundreds more TIF districts than any state in the nation other than Iowa. In general, Midwest states favored the use of TIF funds over coastal states. Iowa has more than 3,300 TIF districts. Wisconsin has 1,240 districts. California has 740 districts. Massachusetts has two districts. Hawaii has none. Arizona bans them entirely. At the city level, Chicago and St. Louis were among the most active TIF users in the nation. The report noted that Minnesota requires new TIF districts to pass a “but/for” test showing that the private development would not proceed but for the use of TIF funding. Calling “but/for” tests almost toothless, the report casts doubt on the degree to which any state uses them effectively: “Although state statutes and regulations generally require specific criteria that must be documented prior to the establishment of a TIF district, these criteria are vague enough that almost any project with strong political support can satisfy the ‘but for’ requirement.” In terms of the actual amount of money changing hands, the report found that California issued far more TIF debt than any other state, totaling $25 billion in bond issues from 2000 to 2014. The only other states with more than $1 billion of TIF debt during that time were Illinois, Colorado and Minnesota. For developers, TIF does not represent an increase or decrease in financial costs compared with the property taxes they would ordinarily pay. The same does not hold true for the public sector: “To the extent that TIF districts divert property tax revenue that otherwise would have been unavailable to other areas or uses, TIF may result in higher taxes or lower services elsewhere, depending on how overlying governments, such as school and special districts, respond.” The report urges states to better track TIF use and to allow counties and school districts to opt out of TIF districts and collect property tax dollars as they normally would. Local governments should publish TIF reports that are easily accessible, so the public knows how much money is going into these transactions and when the districts expire. The report notes that researchers should explore why TIF districts sometimes result in positive or negative outcomes.

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