A conflict over whether nonprofit housing providers are obliged to pay property taxes has opened a rift between some members of the Madison Common Council and the City Attorney's Office.
At last week's city council meeting, City Attorney Michael May warned that the council had no authority to exempt nonprofit housing agencies from property taxes. But the majority of council members ignored him, fearing the city's actions could displace hundreds of low-income and disabled people.
Indeed, several aldermen allege that May's office seems on a crusade to tax these nonprofits (see "City Tax Stance Draws Flak," 4/10/09).
"It's being driven by the City Attorney's Office," says Ald. Paul Skidmore. "Mike May looked very upset the other night. But I simply don't agree. I'm the policymaker, I'm not the attorney. I have to do the best for the people of the city of Madison, and I think I did."
The council defiantly delayed action on three appeals from nonprofits subjected to property taxation. But Mayor Dave Cieslewicz is siding with the City Attorney's Office in saying that action is not legal, and that what's needed is a legislative fix.
May's office says the tax-law changes evolved over decades. But in fact, the city played an active role in helping this process along in a court battle with the Future Madison Housing Fund, a nonprofit housing provider.
In 2007, the city assessor denied Future Madison tax-exempt status on three affordable apartment buildings -Northpointe, Eastpointe and Wexford Ridge - because it owned about 30 acres, well over the 10-acre limit set by a court ruling in 2005. The city assessor and attorney believed the law required Future Madison to pay more than $150,000 in property taxes. Future Madison appealed to the city council in February 2007.
The council voted unanimously against Future Madison's claim without debate or comment, minutes show. "I don't know if anyone at the time grasped the reality of what we were doing," says Ald. Larry Palm. "We might have put more effort into it."
Future Madison then sued the city. In court, the City Attorney's Office did what lawyers are trained to do: try to win. One of the arguments it offered, drawn from state law, was that to qualify for a property-tax exemption, a nonprofit provider had to use all of the rent money it collected for maintenance or construction debt.
This interpretation, upheld last September by Dane County Judge Michael Nowakowski, had vast implications for nonprofit housing agencies, most of which also use rental income for administration, advertising, accounting and other management costs.
"At the time that argument was made, I had no idea what all the implications would be," May admits. "I do think it's the attorney's obligation to make every argument you can to sustain the position of your client."
Does May now regret raising the issue in court?
"I may wish the court had never taken it up," he says. "I may wish the Legislature was more clear. But it's my job to advise my client of what the law is."
The council voted 13-6 to give the three nonprofits - Glentree Glen, the Wisconsin Housing Preservation Corp. and Madison Turners (a school being taxed for different reasons) - a two-month grace period. But May issued a memo this week saying the council has no such authority. Cieslewicz agrees, saying the appeals - over a total of more than $180,000 in taxes - will be denied.
The three groups were asked to pay taxes this year. The city is now reviewing the tax status of more than 40 other nonprofit housing providers, which could face taxation next year - unless there is a change in law or policy.
Some alders were uneasy defying the attorney's advice, but felt they had no choice.
"There's no one else in city government that the council has to follow," says Palm. "The mayor can say you have to do this and we can say 'no.' So it's really hard for us to be pushed into a corner when [May] says, 'Look you have to do this or you're breaking the law.' Well, we're not breaking the law, we're breaking his opinion of what the law is."
May is troubled that the council disregarded his advice - the first time this has happened since he took the job in 2004. "I think I gave them good legal advice, and they ought to follow it," he says. "I understand people's frustrations. But they do have to remember that thus far our interpretation has been right. The courts have agreed with us."
But Ald. Satya Rhodes-Conway reports "an extreme frustration that we're in this position at all. And there's a feeling that we're in this position because of actions taken by the attorney's office."
Other council members side with May's office. "There's some kill-the-messenger going on here," says Ald. Mark Clear. "If we want the law to be different, then we need the Legislature to change the law. We can't instruct the City Attorney's Office to interpret the law differently."
State Rep. Terese Berceau (D-Madison) says that while municipalities all over Wisconsin are reviewing the tax status of nonprofit housing, Madison has been most aggressive.
"I do wonder what they hope to accomplish if they have these nonprofits go out of business and we don't have housing," she says. "They're saying in the City Attorney's Office that we have to do this because of state law. Well, yes, then what's your plan? If you're going to be putting all these people out on the street, what's your plan?"
Berceau is hopeful that legislation exempting housing for low-income people will pass quickly. In the meantime, nonprofit housing agencies continue to sweat.
Dean Loumos of Housing Initiatives, which provides more than 50 units of housing for low-income mentally ill people, fears a $60,000 to $70,000 tax bill in his future.
"I don't know where I'm going to get that. The consequences are devastating," says Loumos, predicting a rise in homelessness. "This law creates an absurd situation, and it's wrong."
Loumos lauds the council's defiance and hopes to see more of the same. "Refuse to tax these programs, confront the city attorney, confront the mayor," he says. "[The attorney] didn't need to do that. There are other legal opinions [he] could have found."
According to Loumos, nonprofit providers are planning a protest at the Capitol. "And you can expect some demonstrations at city hall, big time. We'll be going after them next."