Oregon Property Tax Exemptions Related to Affordable Housing

Transcription

1 John VanLandingham July 1996; most recent revision October 2006 Oregon Property Tax Exemptions Related to Affordable Housing Introductory Notes: Even with Measures 5 and 50, property taxes remain a significant operating expense for affordable housing projects; an exemption from property taxes would help lower rents. While property taxes are assessed and collected at the local level, any exemption must be authorized by a state statute. This outline is meant to be a general guide to property tax exemptions available under Oregon law. It is not meant to be legal advice for specific instances. Some statutory exemptions are available automatically, anywhere in the state, such as the farm labor camp exemption (see #7g in this outline). Others require local ordinance adoption ( local option ) and local government review and approval, such as the first two listed in this outline. It is my opinion that local governments may adopt exemptions pursuant to these statutes which add additional criteria, so long as those additions do not expressly conflict with a provision of the statute. 1. Nonprofit Corporation Low Income Housing: ORS to.548 a. Created in 1985 (SB 503; Chapter 660). b. Originally scheduled to sunset (end) on 1/1/94, but the 1993 legislature extended the sunset date to 7/1/2004 and the 2003 legislature extended it to 7/1/2014. Length of exemption is otherwise unlimited, although it is granted or renewed annually by the local government. c. Full property tax exemption for land and buildings. d. Criteria: i. Owned, being purchased or leased (if rent reflects the tax savings or if the lessee must pay the property taxes) by a 501(c)(3) or (4) charitable corporation. Includes a partnership (e.g., a federal tax credit partnership), where the general partner is a charitable corporation and is responsible for day to day operation of the subject property. i Occupied by persons whose incomes are at or below 60 percent of HUD's median income figures. (60 percent is consistent with federal tax credit program.) (Prior to 7/1/94, eligible level was 50 percent.) Not limited to new construction; could apply to acquisition (with or without rehabilitation) of existing units. Also can be used for property being held for development as low income housing. 1

2 iv. Although the statute does not expressly so state, this is practically limited to rental units, since the owner must be a charity -- though the units could be single family or multifamily. e. Requires adoption of implementing ordinance by local government(s) representing at least 51% of the combined rate of taxation, e.g., City of Eugene plus School District 4J. (If not 51%, exemption only applies to the tax of the adopting local government.) i. Portland (chapter 3.101) has adopted this; Eugene also (2.910), but uses ORS to.537. Also Lincoln City and other cities? f. The exemption is reviewed and approved annually by the local government; owner must apply annually with certification of occupant income levels, description of how the exemption benefits occupants, and declaration of 501(c((3)/(4) status. g. Could combine this exemption with a lease/option-to-buy program; exemption would end when occupant bought the unit. (NEDCO program.) 2. For-Profit/Nonprofit Low Income Housing; "Low-income Rental Housing:" ORS to.537 a. Created in 1989 (HB 2060; Chapter 803). b.exemption is good for 20 years, although units must be built by 1/1/2010. c. Full property tax exemption for land and buildings. d. Criteria (ORS ): i. Can be owned or leased (if rent reflects the tax savings or if the lessee must pay the property taxes) by either a nonprofit or for-profit entity. Owner must lower the rent to reflect the full value of the exemption. i iv. Occupied by renters whose incomes are at or below 60 percent of median. (Effective 7/1/94; 50 percent until then.) Limited to new construction (built after local government adopts authorizing ordinance and before 1/1/2010). Also can be used for property being held for development as low income housing. Limited to rental units, though they could be single family or multifamily. 2

3 e. Alternative criteria ( ): i. The unit is owned, being purchased, or leased (if rent reflects the tax savings or if the lessee must pay the property taxes) by an ORS Chapter 65 nonprofit (public benefit or religious) corporation, which spends no more than 10% of its rental unit income for purposes other than for acquisition, maintenance, or repair of low-income rental housing or for onsite child care services. Includes a partnership (e.g., a federal tax credit partnership), where the general partner is a nonprofit corporation and is responsible for day to day operation of the subject property. i iv. If occupied, renters are people at 60 percent of median income. If unoccupied, unit is for rent solely as a residence to people at 60 percent of median income. Not limited to new construction; could be used for acquisition of existing units. Also can be used for property being held for development as low income housing. Limited to rental units, though they could be single family or multifamily. f. Requires adoption of implementing ordinance by local government(s) representing at least 51% of the combined rate of taxation. (If not 51%, exemption only applies to tax of adopting local government.) i.adopted by Eugene (EC 2.937), Springfield (1993; only adopted by City, so only applies to City's tax; limited to elderly projects with no school impact and to a total annual dollar cap of $100,000), Roseburg (1992; only), Albany, Baker City, Bend, Medford, and Coos Bay (1992). Other cities which may have adopted this: Bandon, Corvallis, Hood River, Newburg, Sherwood, and Waldport (copied Springfield?). g. The exemption is initially reviewed and approved by the local government. Thereafter, the local government must ensure ongoing compliance, so it will probably require some sort of annual report. h. Could combine this with a lease/option-to-buy program; see comment in #1(g). i. If the owner fails to pass through the tax savings to the tenants, the tenants have a triple-damages remedy, with attorney fees. j. Statute does provide a process for notice of denial or later termination, appeal, or recapture. For example, if the owner fails to comply with the eligibility criteria 3

4 after an exemption has been granted, the exemption may be terminated and the tax savings re-assessed, for up to 10 years legislation (effective 7/1/94) allows lenders in such cases to cure any noncompliance and avoid termination and/or reassessment. 3. Multiple Unit Housing in Core Areas: ORS to.637 a. Exemption is good for 10 years, following construction; construction must be completed by 1/1/2012. b. Exemption covers the multiple-unit housing buildings only, not the land or any other buildings. c. Criteria: i. Multiunit housing, as defined by the city or county (City of Eugene defines as 5 or more units); owner-occupied units as well as rentals. Not motels/hotels. i New construction, additions, or conversion from some other use to multiple unit housing. In "core area:" an area in proximity to the central business district. (Eugene recently extended Eugene's core area to the west edge of the University; also extends to Lincoln School, to West 18th, to Skinners Butte/Willamette River.) a legislation expanded eligible areas to include light rail station areas and transit oriented areas, as defined. Could be in a county. iv. No limit on income of occupants. (Need not be affordable housing.) v. Must include "one or more design elements benefiting the general public as specified by the City, including but not limited to open spaces, parks and recreational facilities, common meeting rooms, child care facilities, transit amenities and transit or pedestrian design elements." a. Eugene also requires a 10% rebate of the tax savings after the third year, paid into an affordable housing fund (unless 50% of the units are affordable to low income people). d. Alternative criteria: The 1999 legislature expanded this exemption to include subsidized housing projects that choose to become or stay subsidized with rent 4

5 restrictions, commonly called prepay projects. The point of this exemption is to encourage these project owners not to convert to market rents. Unlike with core or transit area housing, this exemption requires that the housing be limited to low income people, but the exemption can extend beyond 10 years, the housing can be newly constructed or can be existing housing, and the eligible area can be a whole city or county. e. Same as #1e above. i. Portland (3.103, but not the alternative criteria) and Eugene (EC 2.945) have adopted this. f. The exemption is reviewed and approved by the local government (city or county). One-time application, only (not an annual application). g. Statute does provide a process for notice of denial or later termination, appeal, or recapture; lenders also get notice and right to cure. h. Can be combined with another exemption. 4. Charitable property: ORS a. Exemption has no set time limit, except that the local county assessor can revoke or modify it at any time. b. Exemption covers all real or personal property owned or leased (ORS ) by the charity. This is the exemption used by YMCA's, etc. c. Criteria: "Such real or personal property, or proportion thereof, as is actually and exclusively occupied or used in the literary, benevolent, charitable, or scientific work carried on by the charity. There are numerous, arcane Oregon appellate and tax court decisions and Oregon Department of Revenue regulations (Oregon Administrative Rules (a)) attempting to set further criteria. The criteria are especially arcane for low-income housing. d. Local county assessor reviews and approves the exemption. Reflecting the uncertain criteria, qualification is difficult (and getting more so, after Measure 5). No local government role or authority. DOR appears to be pressing assessors to apply the criteria narrowly. Assessor denials may be appealed to a DOR administrative law judge. Some/minimal process is provided at ORS , although it was improved in 1999 for late applications. e. Because the decision-maker here is the local assessor (acting upon the direct advice of DOR), rather than a local government which frequently will be 5

6 supportive of low-income housing, this exemption is difficult to obtain. The DOR regs reflect DOR's deeply-ingrained opposition (tax people tend to want everyone to be taxed evenly) and the Oregon Tax Court's muddled thinking and ignorance about low-income housing finance. On the other hand, I have worked with two projects (one in Lane County and one in Multnomah County) which succeeded. The facts are the key, especially how much charity is being given, to the owner and to the tenants. A recent case helps, S.W. Oregon Public Defender Services, 312 Or 82 (1991) (reversing the Oregon Tax Court, 11 OTR 339 (1990)). I've got memos reviewing this opinion, and outlining what I think is the current legal test and important factual elements. 5. Rehabilitated Residential Property: ORS to.481 a. Freeze on assessed value, not an exemption of taxes nor a freeze on the tax rate. (Hurt East Blair Housing Co-op in the early 1980's, when assessed values declined.) Intended to encourage rehabilitation of existing structures. b. Freeze is good for 10 years. c. Criteria: i. Must be rehabilitated existing-residential property (or converted to residential use). Can include up to 50 percent non-residential use. i Prior to rehab, property must violate state or local code. Rehab must be: a. Worth at least 5% of the market value, if the units were at least 25 years old on 1/86, or b. Worth at least 50% of the market value, if not that old. iv. Rehab must occur before 1/1/2008. v. Can be rental or owner-occupied: a. If rental, can be located anywhere within a city or county. City may regulate rent levels, for example, Portland limits rent increases to reflect operating costs. b. If owner-occupied, must be within a local-governmentdesignated "distressed area," as defined; distressed areas may not exceed 20 percent of the local government's total land area. 6

7 vi. v Can be single or multiple family. Need not be low-income or affordable housing. d. Same as #1e above. i. Eugene adopted this, then repealed it. (No one knows or remembers why.) Portland has it. (Ptld Code 3.102). e. Same as #1f above. Statute does provide process for notice, appeal, and recapture. 6. Single-Unit Housing in Distressed Urban Areas: ORS to (formerly to ) a. Purpose is to stimulate new single-family residential construction in distressed urban areas (infill). b. Exempts value of new construction of the structure only, not the land. c. Exemption is good for 10 successive years. d. Criteria: i. Must be a "single family housing unit" (means occupied by one person or family). Can be multifamily homeownership units, such as condos or townhouses. Can be manufactured housing, but not floating homes. i iv. Built before July 1, 2015 (possible 12 month extension for completion). Built in a "distressed area," as designated by local government. Similar language to ORS (see #5, Rehabilitated Residential Property) (limited to 20 percent of the city). "Newly constructed." v. Unit must have a market value of no more than 120 percent of the median sale price within the city. vi. v Intended to promote homeownership, although unit could be rented. Occupant need not be low-income. 7

8 vi City shall define and require some "design elements," and "public benefits" which extend beyond the period of exemption. e. Owner applies for the exemption, annually. f. City approves or denies the exemption, not the assessor. i. Portland (3.102) has adopted.. g. City alone may implement this exemption, by resolution or ordinance. In that case, only the City's portion of the tax levy is exempted. If 51 percent of the taxing jurisdictions implement the exemption, all of the tax levy is exempted. h. Statute does provide process for notice, appeal, and recapture. 7. Others of minor note: a. Student housing owned by religious or charitable institutions. ORS b. College Student Housing. ORS (Owned by 501(c)(3) charitable corporation; exemption is only from school district, ESD, or community college levies.) c. Nonprofit Homes for Elderly Persons. ORS (501(c)(3) charitable corporations only.) d. Nonprofit Corporation Housing for Elderly Persons. ORS (Must be a 501(c)(3) corporation and have a federal or state subsidy attached.) e. Tax freeze for historic property. ORS f. Property owned or leased by a Public Housing Authority (including a tax-credit partnership). ORS (formerly ); (3)(g). g. Farm labor camps (and related child care centers), owned or leased (including a tax-credit partnership) by nonprofits. ORS to h. Cancellation of back taxes upon donation of property to a nonprofit for low income housing. Sunsets 7/1/2010. ORS See also ORS i. Vertical Housing Development Zones: Partial exemption. ORS