Daily Sitka Sentinel

Tax-Exempt Property Under City Scrutiny

By SHANNON HAUGLAND
Sentinel Staff Writer
    A number of nonprofit organizations currently exempted from city property taxation will be asked by the city to file for renewal of their exemptions, provide justification for them, and submit a recent financial report.
    That was the direction the Assembly gave to City Administrator Keith Brady at Tuesday’s regular Assembly meeting, although no timeline was given for the project.
    Some 34 parcels belonging to 19 nonprofit organizations currently are receiving a “community purpose exemption” from property taxes. In a memo to the Assembly, Assessor Wendy Lawrence says this exemption “is at the discretion of the Assembly and must meet criteria outlined in law.”
    She estimated the value of the exempt properties at $177.2 million, which would generate some $1 million in property tax payments to the city if the Assembly didn’t rule them tax exempt.
    The list includes such properties as the SAFV shelter, the Sitka Historical Society museum at Centennial Hall, the Cable House where Raven Radio has its studios, the SJ campus owned by Alaska Arts Southeast, the health care facilities of SouthEast Alaska Regional Health Consortium, and hatcheries operated by the Northern Southeast Regional Aquaculture Association. (Churches are not on the list of properties receiving “community purpose” exemptions.)
    Richard Wein, Kevin Mosher and Aaron Bean asked for the list of tax-exempt properties to be brought before the Assembly for review. Lawrence told the Sentinel that many municipalities are conducting similar reviews in a time when state budget cutbacks are shifting more expenses to city governments.
    “That’s what most municipalities are doing,” she said. “There’s more pressure on property tax right now – it’s statewide.”
    Her report to the Assembly gives the most current data available and includes maps showing the location of the properties.
    She said today it’s probably time for an Assembly review, since the last one was conducted in 2011.
    “Review of the list indicates two problems: first, the assessing department does not have documentation of each historic application that substantiates these exemptions,” Lawrence wrote. “A regular audit of the state assessor will occur within the next year and this situation will need to be reviewed and rectified in order to be in compliance with state regulation of the property taxation administration. An audit finding will most likely result if we do not meet compliance.”
    The popular notion is that houses of worship, government-owned and non-profit organizations with IRS 501(c)3 federal tax-exempt status are automatically exempt from local property taxes.
    However, Lawrence says, owners must still request exemptions from local property tax, and the city has no records for when and why some of the exemptions were granted. Among those are eight properties owned by SEARHC, the Boy Scouts of America property at Goddard, and the SAFV shelter downtown. The city is also catching up on valuations on the rest of the city’s non-exempt properties.
    “No real resources have been focused on this,” Lawrence said, of the exempt properties for community purpose. “They’re due for review, and we’ll have to focus some effort on getting them re-inventoried and valued.”
    Lawrence said a number of the valuations are tricky, since there are no comparable properties in town.
    Pointing to SEARHC properties as an example, she commented, “I wouldn’t know what to value that now ... It’ll be a project. I haven’t received any direction on moving forward.”
    Lawrence wrote to the Assembly that the appraised values in general are “best estimates given that the department does not have accurate information on all structures in order to conduct a thorough and complete valuation.”
    She expects the item will be a project for the next fiscal year, since there’s no time or resources this year.
    Richard Wein said Thursday that as far as he can tell some of the properties and exemptions “haven’t been reviewed in decades,” and now is the time, with the city facing several budget challenges. The Assembly may find that some of the organizations should no longer be receiving an exemption, which could provide some relief to the city budget, he said. 
    “It could help make things a little more stable in the city,” Wein said. “I thought it was worth a conversation and we’ll see what happens. Looking at possible sources of revenue is not as easy as it seems. This is a task that needs to be done. Right now the city has to be very aware of what funding is available that the city can collect without having to go to the people for raises in fees and taxes.”
    Lawrence in her memo cites city code as it relates to the community purpose exemption:
    “All or a portion of the property of an organization not organized for business or profit-making purposes and used exclusively for community purposes may be exempted if income derived from rental of that property does not exceed the actual cost to the owner of the use by the renter.” She also cited the similar state law allowing the city to “classify and exempt by ordinance.”
    Some organizations may receive partial exemptions if part of their property has a profit-making purpose, Lawrence said.