When lawmakers in Tallahassee passed a special tax exemption in 2011 to help nonprofits such as Habitat for Humanity build multifamily housing, their good intentions inadvertently created a massive tax break for private, for-profit developers. A report Sunday by Tampa Bay Times senior correspondent Susan Taylor Martin details the way a do-good measure has been exploited by for-profit builders to deny local governments hundreds of thousands of dollars in property taxes. Presumably, this happened because lawmakers weren't given a complete and accurate understanding of the law's financial impact. Now that the consequences of the law are clear, the loophole needs to be closed.
When the law was passed, it received very little attention, largely because its legislative staff analysis — the detailed nonpartisan description of what a proposed measure would do — raised no serious concerns. Lawmakers were told that the fiscal impact for local governments of the proposed expansion of the ad valorem tax break for charities building low-income housing was nominal, about $200,000 per year statewide.
Yet, as Martin points out, Hillsborough County lost nearly $370,000 in property tax revenues this year and may face a loss of up to $12 million annually. In one example, the 348-unit Woodberry Woods apartments in Brandon paid more than $180,000 in property taxes last year, compared with $2,004 this year as a result of the break. Estimates now put potential tax losses statewide at $115 million per year, a staggering hit to counties, cities and school districts that are already struggling with reduced tax revenues from the economic downturn.
None of this was predicted. But it was predictable. The statutory change was intended to help charity builders receive the same property tax exemptions for building larger-scale apartment projects for the needy as for building single-family houses. On these larger building projects, builders such as Habitat for Humanity shield themselves from legal liability by setting up separate entities known as limited partnerships — technically for-profit companies — as owners. The 2011 law allowed a property tax exemption for this combined nonprofit and for-profit arrangement.
But there was nothing in the law to prevent the flip side from happening too, in which private, for-profit developers create a nonprofit partner for the purposes of qualifying for the exemption, saving themselves significant tax bills on each property.
Two closely linked for-profit builders in the Orlando area, CED and Atlantic Housing Partners, did just that and formed the nonprofit Southern Affordable Services, which now partly owns a growing number of the developers' apartment complexes that offer below-market rent. The developers built low-income housing with millions of dollars in federal tax credits and other government incentives while generating profits for themselves. It was never intended that they escape property taxes too.
Lawmakers will have to plug this loophole during next year's legislative session. An investigation into why fiscal impact estimates were so far off should also be conducted. For counties, cities and schools, this was a very expensive mistake.