March 6, 2011 |
Every year hundreds of properties quietly fall off Milwaukee's tax rolls, the owners identifying themselves as benevolent institutions, churches, nonprofit hospitals and other organizations that state lawmakers have decided should not pay property taxes.
Far fewer are added to the tax rolls, strapping city budgets and sticking existing property owners with an ever-growing portion of the overall tax bill.
Just how much are these exemptions costing taxpayers?
Nobody really knows. Not local assessors. Not the state. And not homeowners and others who pick up the tab.
That's because exemptions are loosely monitored, and the system is rife with other problems, an examination by the Journal Sentinel has found.
Calculations based on the best estimate city assessors have - which come from vague and poorly reported data - show the exemptions are costly, driving up tax bills for average homeowners by nearly 20%. That's close to $800 for a Milwaukee property-tax payer with a home assessed at $175,000.
The newspaper reviewed applications for Milwaukee property tax exemptions in 2010, as well as some long-standing exemptions elsewhere, and found everything from properties listed as churches offering few if any services to profitable businesses operating out of tax-exempt properties.
Meanwhile, assessors across the state fail to properly monitor exemptions - snubbing requirements - while the state Department of Revenue does little to enforce the rules.
The Journal Sentinel identified nearly $500,000 worth of properties with suspicious exemptions while examining just a few cases from 2010 in Milwaukee.
Among the findings:
• Not all properties are being used as stated in their tax-exemption applications, casting doubt on whether they qualify for the exemption. The Journal Sentinel visited a dozen newly exempted churches and found three had little - or nothing - going on and did not appear to be operating as they promised when applying to get the exemption.
• Although the stakes are high, regulators don't routinely inspect the properties to ensure they are being used appropriately. For example, they don't go out on weekends or evenings to confirm that churches are holding services. And they rely on property owners to report if the use of their property changes.
• Cities, towns and villages across the state, including Milwaukee, have not been compiling exemption data and filing reports with the state Department of Revenue, as required by law. In 2008, more than 50% of taxing authorities did not submit the report, which was designed to provide insight into the number and value of tax-exempt properties. Milwaukee hasn't filed a required biannual report since 2006.
"The general population does not understand the extent, number and scope of property tax exemptions," said Curt Witynski, assistant director of the League of Wisconsin Municipalities. "People are not aware of what the impact really is. I think they would be surprised."
Freedom Assembly - Parking lot chained off
A sign in front of Freedom Assembly encourages passers-by to "Come worship Sunday at 10 am." A cross hangs on the outside of the one-story building, near Timmerman airfield on the city's northwest side. At 10 a.m. on a Sunday in January, a chain stretched across the driveway, blocking the entrance into the parking lot. There was still no sign of activity an hour later.
Lettering on the door invited people to Bible study on Wednesday nights at 7 p.m., but nobody was there when a reporter showed up.
The Journal Sentinel visited Freedom Assembly on two other Sundays at 10 a.m. and found two cars in the parking lot each time.
John Marshall, pastor of the church, said he owned the building for several years before "giving" it to the board of the church in July 2009.
"I used to have to pay taxes on that baby," Marshall said.
Marshall said his church is legitimate.
"We're no fly-by-night," he said, noting the neighborhood's population is transient, and he has a hard time getting a steady flow of people.
"We're taking baby steps," Marshall said. "I don't think I'm doing nothing wrong."
Paperwork from the assessor's office shows someone from the office questioned Marshall in November 2009, about four months after the building was transferred to the church.
"Spoke with John Marshall," a note in the file read. "He explained Freedom Assembly is owned by him."
Yet the exemption was granted in early 2010 by Milwaukee's Chief Assessor Peter Weissenfluh.
Weissenfluh said the property was on record as being owned by the church and that the note - made by an appraiser who has since retired - didn't raise a red flag.
The Freedom Assembly property had an assessed value of $160,000 in 2009. Marshall paid $4,149 in taxes on the property before receiving the exemption.
The state assessors' manual requires local assessors to inspect all properties seeking exemptions. But assessors have little incentive to do so.
Why?
Exemptions don't affect the total tax collected, known as the levy. In Milwaukee, that amount is set by Mayor Tom Barrett and the Common Council. It is then spread across all property-tax payers, with their proportion determined by the assessed value of their property.
Adding properties to the tax rolls doesn't increase overall revenue. It just means more properties are sharing the tax load.
"We just don't have the time to drive around and see what's going on with every property. . . . It takes a lot of time and effort for nothing," said Mary Reavey, Milwaukee's assessment commissioner. "Normally when the applications and supporting documents are filed, we accept the organization's word that the property is being used as stated."
Reavey said her office is greatly understaffed.
The number of workers in the assessor's office has dropped from about 80 to 47 in the last couple of decades. Two full-time staff positions dedicated solely to processing and monitoring exemptions were cut in the past several years.
Meanwhile, the number of tax-exempt properties in the city has swelled by about 300, to a total of nearly 7,300, in just the last two years.
Reavey's office sends out a form every two years asking property owners about the use of the property. If an owner reports no changes or merely writes "religious services," it's cleared for another two years.
A quarter of the property owners never even responded to the form in 2010, yet they maintained their tax-exempt status.
Free Will - Lot not plowed, yard littered
When Jessie Lee Jr. sought a tax exemption in 2010, he told Milwaukee assessors that Free Will Church of God in Christ, near N. 92nd St. and W. Silver Spring Drive, would hold services Sundays between 9 a.m. and 1 p.m.
The Journal Sentinel went to the church during those times on five occasions from September to January and never found anyone there.
The parking lot wasn't plowed after snowstorms, and a smashed computer screen, old cabinets and other debris littered the front yard of the spacious corner lot.
Lee lists the house next door as the pastor's parsonage. It, too, is exempt from property taxes. Nobody answered the door, and Lee did not return phone calls from the number listed on the application for the property tax exemption.
The religious exemption for those two properties cost other taxpayers about $6,000, based on 2009 figures.
The same church owns two other properties that also are exempt from property taxes. One is a home on N. 87th St. assessed at about $85,000. Lee also listed it as his address on the application for the church's property tax exemption. It's unclear where he actually lives.
The other property is a small church on N. 33rd St. assessed at $150,000.
Free Will Church does not even have an occupancy permit to hold worship services at the building on Silver Spring Drive, according to the Milwaukee Department of Neighborhood Services.
State laws require property to be owned and used by an exempt organization to qualify for the exemption. If a property is under construction, the assessor's office is supposed to monitor the progress to ensure it doesn't wind up sitting vacant. Vacant properties are not eligible for tax exemptions.
Restoration Church - Meal seekers find door locked
A message in the front window of Restoration Church promises a meal program on Sundays at 10 a.m. The tiny church is built into a hillside beside a rundown apartment building in Walnut Hill in central Milwaukee.
On a drizzly Sunday morning in September, a man and woman walked for blocks along W. Lisbon Ave. When they reached the church, they pulled the door handle and found it locked.
It was 10:10 a.m.
Worship services and Sunday school hours are listed in the window and on the MySpace page of Joann Weed, the pastor of the church.
The Journal Sentinel visited the church on four other occasions from September to mid-January and found no activity at the church during the scheduled hours for meals or services.
On one other Sunday, Weed, her two sons and a handful of other young adults - who arrived together in one van - were in the church. Weed was passing the collection plate, encouraging visitors to make an offering.
"We want every one to plant a seed every Sunday, even if it's a penny," she said.
In an interview, Weed said the main mission of the church is to feed people and help them connect with Jesus. She said the church feeds hot meals to 75 to 80 people every Sunday morning. While Restoration Church has an account with Feeding America, a national hunger-relief charity, and has collected roughly $2,500 worth of food in the past 15 months, the church does not have a permit to serve meals, according to city officials.
It's unclear when or if meals are actually being served.
The property was assessed at $76,000 in 2009, and Weed paid $1,990 in taxes on it before being granted the exemption in 2010.
Exemption guidelines - Onus is on property owner
While state statutes and court decisions have defined religion and churches loosely, assessors are expected to consider the organization's dominant purpose and actual activities - including how often churches hold services - when determining whether they are justified in getting and keeping an exemption, according to state guidelines.
"The assessor should be more concerned with what the organization actually does than what it says it does in its constitution or by-laws," the state's assessors' manual reads.
"Not all are going to have a bright line," said Scott Shields of the state Department of Revenue's division of state and local finance. "Some might be clear and apparent. Others might be a social gathering at someone's house. The assessor needs to look at it.
"The onus is on the property owner to provide information as to why they should be exempt," he said.
Reavey, of the Milwaukee assessor's office, said she was not aware of any issues with Restoration Church, Freedom Assembly or Free Will. She called the newspaper's findings troubling and said her office would investigate.
In Milwaukee, about 5% of all the parcels have tax exempt status, ranging from small churches and theaters to major hospitals and universities. But the parcels carry a much larger value. If they were on the tax rolls, they would represent about 20% of the city's tax base.
Statewide, property taxes generate more than $9 billion in revenue every year, roughly 70% of which comes from residential property owners, the rest from commercial and other properties.
As homeowners pick up a growing percentage - only 50% of property tax revenue came from residential properties in the 1970s - state regulators and assessors around Wisconsin are failing to keep tabs on tax exemptions.
The state Department of Revenue requires cities, towns and other taxing authorities to report every two years the value of all the exempt properties in their jurisdiction. Yet fewer than half the 1,476 taxing jurisdictions in Wisconsin filed the report in 2008, according to data from the Legislative Fiscal Bureau.
Those that didn't faced no consequences.
"The Department of Revenue does not have the authority to issue penalties to municipalities who do not file," department spokeswoman Stephanie Marquis said in a written statement.
Further muddling the issue: The reports required by the state are vague, with categories on assessment values ranging from millions of dollars. For example, assessors are supposed to mark how many property owners reported values from $6 million to $12 million. And there is only one category on the form for all properties over $25 million.
As a result, the information isn't accurate. Nobody locally or at the state has a true grasp on the value of potential tax revenue being waived.
So while Milwaukee assessors - relying on vague reports - estimated the value of exempt properties jumped nearly 50% to about $5.5 billion from 2002 to 2006, nobody can verify that information.
"It would be nice to know, to get a sense of the entire picture and see where there might be a problem," said Dale Knapp, research director with the Wisconsin Taxpayers Alliance.
Ben Poston of the Journal Sentinel staff contributed to this report.
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