A Pain in the Assessment
The homes were castles. The idea that they could be free from taxes was too much for the county assessor to believe.
So Pete Corpstein started questioning the tax-exemptness of the nonprofit agencies that installed their clients in such homes--groups like Homeward Bound, which used homes in Scottsdale and Ahwatukee, worth close to $100,000, in their transitional-housing programs.
Corpstein says such programs use homes "built in the last four or five years, modern homes, well-kept--and that's the problem. When you think about the homeless, you think about what's down here on 12th and 13th avenues. These are the homeless. All those people are gainfully employed."
So he set his assessor's eye on Arizona statutes covering charitable institutions and found something that worked in his favor: Institutions had to serve the "indigent" or "afflicted" to receive tax-exempt status. Corpstein decided that "indigent" didn't exactly describe all the people being served by Homeward Bound, and "charitable" didn't describe everything some tax-exempt institutions were doing.
And if the people living inside those nice homes weren't indigent as defined by, say, the Arizona Health Care Cost Containment System (AHCCCS), Corpstein reasoned that the property should be taxable--a conclusion that would earn him much ridicule in an atmosphere that sees nonprofits as hands-off entities.
William Kennedy of the Assessor's Exemptions Office says of such nonprofits, "They're doing good, but the burden is upon you and I to pay for that."
Homeward Bound, Maricopa County's largest provider of transitional housing to homeless and low-income people, was the first to behold the tax man, receiving property-tax bills for $118,000 on about 100 properties.
Then Corpstein announced that he intended to review the tax-exempt status of other nonprofit agencies, and a chill ran through the Valley, because property taxes could kill or maim such programs.
The assessor even targeted institutions such as the American Legion and the Veterans of Foreign Wars, saying the bars and restaurants they operated competed with other businesses, even if proceeds did benefit the groups' charitable activities. He billed Central Arizona Shelter Services $17 for a trailer because the person who rented it did so for profit.
Nothing would be immune from review--not hospitals, not family centers, not Boys and Girls Clubs. For nonprofit agencies, the night of the long knives had arrived.
Corpstein's opponents say he has gone absolutely amok. They punched at his logic. To use the AHCCCS definition of "indigent," they say, ignored the intent of transitional-housing programs to wean their clients off welfare and into productive society.
"The assessor says, 'If they're working, they're not indigent,'" says Theresa Meyette, a case manager for Labor's Community Service Agency in Phoenix, whose transitional-housing activities earned it a $1,250 property-tax bill. "He says 'indigent' means you have to be on welfare. But if that's what you're asking me to be, I'm not doing anything."
"The county assessor has his own interpretation of the Constitution," Marjorie Salinas, president of the United Way's board of directors, says in a huff.
And the irony of it all, says Louisa Stark of Community Housing Partnership, is that Maricopa County is obliged to work with its poor. That's why things like AHCCCS exist. Although Stark's agency gets funding from state and federal sources, it receives nothing from the county.
"From my own agency's perspective," Stark says, "the only help we get from the county is not having to pay property taxes."
Corpstein's tax bills add to the woes of nonprofits, which these days face not only the possibility of property taxes, but the specters of federal budget cuts and block grants that could radically change how funds are doled out. Corpstein can't say how many agencies have received tax bills for property they've never been taxed on before, he says, because his office isn't really keeping a list; it's just applying stricter standards.
And though it might seem that way, Corpstein is not exactly all alone out there. Spurred by shrinking budgets, other cities and counties have been picking at nonprofit pockets.
In Philadelphia, for instance, brotherly love is now provided at a price: Using a five-pronged litmus test to determine whether agencies were purely charitable, the city recently negotiated "voluntary contributions" as high as 40 percent of traditional property taxes. Deals were struck for as long as five years, and groups beating payment deadlines could garner a "discount" rate of 33 percent.
The program has reaped $12.76 million in new revenue for the City of Philadelphia and school-district purses.
Other places such as Boston, Massachusetts; Des Moines, Iowa; and Erie County, Pennsylvania, have instituted similar programs in which nonprofits ante up annual PILOTs, an acronym for "payments in lieu of taxes."
Two years have passed since Sylvia Ortega's life was an emotional wreck. Her home and her furniture were gone. In their place were a small apartment and the responsibility for bills unpaid by her husband, a reformed crack addict who'd gone back to his old ways.
Now she's purchased a home on the west side, with three bedrooms and a fireplace, for herself and her two daughters. Her recovery was made possible, she says, with the help of Labor's Community Service Agency, which provided her a low-rent home for more than a year while she pulled her life together and saved up for a home of her own.
"They got me on my feet," says Ortega, an administrative assistant for a Phoenix equipment company. "I paid all my bills. When I walked in there, I was accepted within two hours. Within a week, they showed me the home I would be moving into--it was in a new section of town near 75th Avenue and Glendale, with vaulted ceilings. It was just beautiful. And within two weeks, I was in that home."
As federal guidelines require, she paid 30percent of her salary in rent, or $235 a month--less than half of what she would have had to pay elsewhere to house her family. In return, she had to comply with strict rules: monthly budgets set up with caseworkers, short- and long-term goals, reviews of bank statements to make sure those parameters were being followed.
"They help someone who wants to help themselves," Ortega says. "Instead of having you fall back on welfare, or food stamps, or back on the streets, they help you avoid that."
"My caseworker was on me every month," echoes Joleen Poleyestewa, a single mom who was mired in alcoholism on the Hopi reservation, but who now works with Indian Community Health Service Inc. "I had to show receipts for diapers, everything. I had to be really honest with myself in order to stay. Without Labor's, I probably would have ended up back on the reservation."
For agencies like Labor's to have to pay property taxes, case manager Meyette says, would mean raising rents for clients or gutting the programs themselves.
"What transitional housing does," she says, "is say to the woman who's asking herself, 'Should I leave him? Should I take the kids and get out?'--'Yes, you can.'"
Many transitional-housing programs utilize homes leased for $1 a year from the U.S. Department of Housing and Urban Development under a program now heading into its final year. The homes are foreclosures, and foreclosure does not discriminate: Some are in bad shape and others have pretty swimming pools. Agencies take whatever HUD offers.
Homeward Bound, the first nonprofit to get a tax bill from Maricopa County tax assessor Corpstein, is one of them. The assessor runs off a list of properties used by Homeward Bound that have assessed values from $78,520 to $96,885.
But Pamela Martin, Homeward Bound's executive director, says the 190 families in Homeward Bound programs paid an average $301 rent in December, with a range of anywhere from $50 to $400.
When it comes to putting a roof over someone's head or sending him back to a harmful situation, Martin says, "it doesn't make any sense to say, 'This house is too nice for these people.'"
"'Indigent,' to [Corpstein], meant the person on the corner with the sign," says Kim Casey, the agency's property manager. "We don't have shelters; we have homes. This is a critical effort that we make, only to be slapped down."
So state Senator Marc Spitzer and Representative Lori Daniels have introduced a bill they say would clean up this mess once and for all. "This isn't one of those goofy bills you can blame on the Legislature," Daniels says.
The measure would significantly broaden the definition of tax-exempt service organizations. It protects groups that are "primarily engaged in delivering services that improve the physical, mental, social, cultural or spiritual welfare of others."
It also would forgive all debts incurred in the assessor's assault.
Daniels expects the bill to be a slam dunk. Governor J. Fife Symington III is said to support the bill.
Kennedy, the Assessor's Exemptions Office manager, calls the bill "damaging."
"It will make some organizations go out and try to become nonprofits," he says. "I don't think they [legislators] understand what they're doing."
Corpstein can't help feeling a little picked on these days, considering all the tax reductions the Legislature has thrown his way in recent years. Among them: Apartments, once taxed at a rate of 14 percent, are now taxed at 10 percent.
Meanwhile, the value of tax-exempt properties in the county increased by $143million from 1990-95. Without a clear definition of the people being served by nonprofit institutions, "where do you draw the line?" Corpstein asks. "When you leave it up in the air, it makes it hard on us."
Says Pamela Martin of Homeward Bound: "We're being penalized for keeping people off welfare, and I don't think that's what taxpayers want.
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