The Legislature should move to tighten rules in the state constitution that exempt property owned by nonprofit organizations from taxes as a way to offset the impact of the state’s ongoing budget crisis on local governments, the Bureau of Governmental Research recommended in a report released this week.
The nonpartisan group’s report describes the state’s existing property tax exemptions as “poorly crafted and idiosyncratic.”
The report is part of a continuing campaign by the New Orleans think tank and various local officials who argue that state policies on tax exemptions have caused local governments to lose as much as $125 million in revenue a year.
It comes during a special legislative session in Baton Rouge, where lawmakers are trying to close a $900 million shortfall in the fiscal year that ends June 30. Some of the proposals under consideration, the BGR statement argues, could “have a negative impact on local government revenues.”
The Legislature “will therefore need to consider ways to offset the fiscal impacts on local governments, which face their own budgetary challenges,” according to the BGR report.
The report targets changes to property tax exemptions as the means of bolstering local government revenues and ensuring that the cost of running cities and parishes is shared fairly. That’s a problem in New Orleans specifically, where about two-thirds of the real property value was off the tax rolls in 2011, according to the report.
BGR argues that the individuals and businesses in Orleans Parish who do pay property taxes “pick up the tab for services provided to the expanding base of nonprofit entities.”
Narrowing the focus of the exemptions — which now include “highly unusual” or “specifically crafted” breaks for properties used by Mardi Gras krewes, labor organizations, tourism groups, housing nonprofits and Tulane University — could reduce some of that impact, according to the report.
The report notes the current laws on exemptions do not require nonprofits to show they are engaged in specific public services or provide amenities that improve residents’ quality of life and therefore are “deserving of an indirect government subsidy.” The constitution requires only that a group be a nonprofit to qualify.
The report also notes nonprofits can claim exemptions on property that does not further their primary mission, such as commercial or rental property owned by an educational institution or church.
The BGR statement argues that legislators should put a constitutional amendment before voters that would end the exemptions except those for religious, educational, charitable or cultural groups and cemeteries; provide parameters for the exemptions; prohibit lawmakers from granting property tax breaks to specific groups; and eliminate exemptions for groups with private memberships.
Follow Jeff Adelson on Twitter, @jadelson.