Inside the property tax exemptions that cost North Carolina billions
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As state lawmakers poke around for ways to lower property taxes in North Carolina, they've got to be careful not to place too much strain on the essential services paid for with that money, like schools, policing and firefighting.
- So, legislators may try to free up some cash by reexamining the hundreds of billions of dollars worth of property already exempted from local taxes. That way, new relief would be less likely to upend local government budgets.
Why it matters: The $220 billion worth of exempt property statewide would provide North Carolina cities and counties with $2.1 billion a year if the taxes were actually collected, according to Brent Lucas, who works in the state's fiscal research division.
By the numbers: There are a few ways to be exempted from property taxes in North Carolina. Lucas shared data on the five largest categories, plus how much annual revenue local governments lose on each of them:
- $1.1 billion: Government property, including military bases, public schools, fire stations and post offices
- $255 million: Religious property, primarily churches
- $180 million: Educational nonprofits, like private schools and private universities
- $130 million: Nonprofit hospitals
- $60 million: Nonprofit affordable housing
Between the lines: The governmental property exemptions — many of which are in the state capital of Raleigh — likely wouldn't be touched, nor would religious ones.
Yes, but: Some of the other categories are getting closer scrutiny.
- In a meeting this week of the House Select Committee on Property Tax Reductions, lawmakers zeroed in on $60 million in exclusions extended to nonprofit affordable housing projects.
Zoom in: Department of Revenue data shows those exclusions have shot up in recent years, which several experts say is because of a 2013 court ruling in a complex case brought by Blue Ridge Housing in western North Carolina.
- The ruling lets for-profit investors get tax credits if a nonprofit owns as little as 0.1% of the affordable housing development, legislative analysts said in presentations before the committee on Tuesday.
What they're saying: "We think this is greedy. It's not right," Ben Justus, an affordable housing executive at Self-Help Credit Union, told lawmakers. Justus said investors have learned how to abuse the system and create a "sham of a nonprofit," pocketing well-intentioned government money that is crucial to building a supply of housing low-income people can afford.
- David Baker, who does tax analysis for the state's Association of County Commissioners, says Wake County alone sacrificed $11.4 million last year by not taxing developments exempted by the Blue Ridge Housing case. That makes up the vast majority of the county's $13.4 million in foregone revenue in that category, he added.
Zoom in: Moving to other categories, the tax exclusions Duke University enjoys as an educational and healthcare nonprofit have stirred recent protests in Durham, with local activists arguing that the school should be paying more.
Caveat: Even the House's ultraconservatives, like Rep. Keith Kidwell, R-Beaufort, say that before coming for hospitals or educational institutions, legislators should keep in mind "the value they bring to the community." (Kidwell also said municipalities are overspending, though.)
State of play: Rep. Brian Echevarria, R-Cabarrus, says he believes the state should impose limits on how much tax rates or property values can go up in a year, given how households are struggling to keep up with their expenses.
- That has cities and towns worried about potential service cuts. Kevin Leonard, executive director of the North Carolina Association of County Commissioners, says property taxes make up 61% of a county's general fund, on average.
Gov. Josh Stein weighed in on Wednesday, telling reporters he was open to reforms, but his top concern is: "Are they going to do things that really make it difficult for local governments to meet the needs of their people?"
What's next: The Republican-led committee will continue to meet and consider tax exemptions as the year unfolds.