High End Senior Housing Tax Exemption Needed?

Cities are always in an economic crisis. But now, cities need to become even more resourceful in obtaining revenue to support core services. One opportunity for the City is to review the status of properties exempt from local taxes. The residents of senior tax-exempt housing receive a substantial level of service from the City while providing no property tax revenues to support the effort required.
The Joint Finance Committee is proposing changes to this exemption in the current budget bill. The changes should be strongly opposed by municipalities because it creates a new property tax exemption for high value retirement homes for the aged. This provision will ultimately shift more of the property tax burden onto residential homeowners who already are paying 71% of the statewide property tax levy.
Benevolent Associations infer the reason they deserve the tax-exempt benefit is because they make generous contributions to charities, including low-income housing, and that their own volunteers reduce the cost of providing service to their residents. Cities contend that nonprofit housing providers’ donations to charities are really much less than they claim since a major source of that charity is borne by property taxpayers who are paying to support local governments. The providers of senior tax-exempt housing have not been able to generate any persuasive evidence that would prove tax-exempt developments produce benefits that are in any way equivalent to the taxes lost. Others argue that tax-exempt senior housing projects appear to be mutual support arrangements for well-to-do seniors that are heavily subsidized by taxpayers, both rich and poor.
The Wisconsin State Statute § 50.01(1d) definition of residential care apartment complex (RCAC) means a place where 5 or more adults reside that consists of independent apartments of two hundred and fifty (250) square feet, each of which has (1) an individual lockable entrance and exit, (2) a kitchen, including a stove, (3) individual bathroom, sleeping and living areas and (4) that provides, to the resident, not more than 28 hours per week of services that are supportive, personal and nursing services. The definition of RCAC does not include a nursing home or a community-based residential facility, but may be physically part of a structure that is a nursing home or community-based residential facility.
In a 2003 case, the Wisconsin Supreme Court ruled that nonprofit housing providers who lease their property must pay property taxes on that leased property unless the lessees themselves are tax-exempt. The result of that decision was that virtually all property leased by low income housing providers and an uncertain amount of property leased by providers of elderly services would have been placed on the tax rolls for taxable year 2004.
In response, 2003 Wisconsin Act 195 was enacted to overturn the court’s decision. The Act specified the types of property owned by benevolent associations that are exempt from the property tax to include:
1. Nursing Homes
2. Community Based Residential Facilities
3. Adult Family Homes
4. Residential Care Apartment Complexes
5. Domestic Abuse Shelters
6. Homeless and transitional shelters
7. Housing for low income persons operated in compliance with IRS income eligibility limits for federal low income housing programs
8. AODA facilities
9. Housing for people with disabilities
10. Non residential property
Act 195 again exempted the property owned and used by benevolent organizations, although the statute still does not contain a definition of benevolence for this exemption. A substantial amount of court involvement has been needed in resolving issues related to the exemption and the courts have not developed a substantive meaning of benevolence, but have ruled that benevolence implies organization on a nonprofit basis, must be engaged in benevolent activities, and that benevolence has a broader meaning than "charitable." Within each municipality, the exemption limits the amount of exempt property of a benevolent organization to 10 acres.
As lawyers, accountants, developers and administrators for seniors housing communities offer new and more creative financial and service options for avoiding taxes; government tax uniformity is likely to become more complicated. Because of the nuances involved in interpreting property tax exemptions, it is absolutely essential that local governments and the state legislature communicate about these complexities to ensure that tax uniformity is practically, carefully and appropriately applied.
American public policy toward senior citizens is defined by a long list of programs. Just about every issue affecting older persons became a government program. Philip Longman identifies a key fact by quoting a 1977 study by economists Spencer Spengler and Robert Clark: "Expenditures for the elderly at all levels of government exceed the amount spent on children, age seventeen and under, including the total amount spent on public education, by more than three to one." Noting that "the disparity is much larger today," Longman states that "Social Security pensions and Medicare pensions have become much more generous while welfare and educational programs for the young have been cut.” He adds: "At the federal level, the disproportion is about ten to one.” [1]
Reasons for the unequal treatment of the old and the young include the simple fact that elders call their legislators and children do not. Entitlements for the elderly have become the sacred cow of American politics. Officeholders and candidates threaten entitlements at their peril. One of the most powerful lobbies in Washington is run by the 29-million-member American Association of Retired Persons—which Newsweek recently described as "the big gray money machine."
The Wisconsin Association of Homes and Services for the Aging (WAHSA) is a statewide membership organization of 193 not-for-profit long-term care providers. Their members own/operate 185 not-for-profit nursing homes, of which 47 are county-operated facilities, 72 community-based residential facilities (CBRF), 50 residential care apartment complexes (RCAC), 13 HUD Section 202 Supportive Housing for the Elderly apartment complexes, and 98 apartment complexes for independent seniors. WAHSA members offer over 300 community service programs ranging from home care, hospice, Alzheimer’s support and adult and child daycare to Meals on Wheels. Their members employ over 38,000 dedicated caregiving and support staff.
Benevolent Associations are also associated with strong lobbying groups themselves as noted above. Churches, hospitals, nursing homes and other nonprofits providing service in this field generally have long histories of effectively lobbying their public officials.
The League of Wisconsin Municipalities supports legislation clarifying the property tax exemption for benevolent organizations that provide housing for low-income individuals. They would support a property tax exemption for retirement housing priced at or below market rates which is owned by benevolent organizations. They oppose the provision inserted in the budget bill because it goes far beyond these worthwhile objectives and will ultimately and unjustifiably shift more of the property tax burden onto homeowners.
[1] Longman, Philip. Born to Pay: The New Politics of Aging in America (Houghton Mifflin, 1987).