Nonprofit property tax exemptions: Are they really burdening homeowners?

Exemptions that provide preferential tax treatment for individuals or for particular uses of property are inefficient and neither horizontally nor vertically equitable. Due to consumer mobility, local governments are restrained from using the tax system to redistribute wealth and therefore are not usually as concerned with vertical equity or progressivity. Instead, localities focus on leveraging resources to finance services demanded by residents. A broader tax base allows local governments to provide services demanded while imposing lower effective tax burdens on residents. However, localities with significant presence of nonprofits with tax exemptions might have narrower tax bases and therefore less capacity to leverage resources. With desires to also maintain business-friendly environments, these local governments might have higher property tax burdens for homeowners as a result. In light of this expectation, this paper examines parcel-level property data for a major urban city – Milwaukee, Wisconsin, USA – to assess the extent to which, if at all, property tax exemptions granted to nonprofit organizations impact the property tax burdens of homeowners throughout the city and over time.

The primary source of data is the City of Milwaukee Master Property File (MPROP), which is a public record inventory of all property parcels within Milwaukee, Wisconsin dating back to the mid-1970s. The database uniquely identifies each property and contains approximately 90 data categories describing each property, including the property’s owner and address, tax assessment or exemption value, physical characteristics, and geographic location. Descriptive analysis along with panel data analysis of an econometric model of property parcel-level data will be analyzed according to U.S. Census blocks to determine whether blocks with greater tax-exempt nonprofit properties have higher tax burdens on owner-occupied housing units, all else equal.  

Because of the importance of the property tax to local government finance, governments have sought to limit property tax exemptions enjoyed by nonprofits. These efforts emerge especially during times of budgetary stress, or when certain nonprofits have significantly increased their share of exempt property within a jurisdiction. Unfortunately, most state and local governments lack the information necessary to estimate the costs of property tax exemptions for particular taxpayers or uses of property, which creates difficulty in estimating foregone revenue and shifts in tax burden; this analysis will primarily help in this regard.