State, local governments facing 'taxing' season

ALBANY, Ga. -- With the arrival of 2011, local government leaders will soon turn their attention to the annual process that often results in widespread wailing and gnashing of teeth: formulating their budgets.

And as the numbers are crunched and figures tabulated, it's likely that many local governments will continue to feel the pain of an economic downturn that, while it appears to be easing in the private sector, is still firmly entrenched for public corporations.

It's in the lean times that local governments lean on their chief source of revenue: property taxes.

In Georgia, there are three major types of taxes levied on the public.

Income taxes filed by individuals, couples or companies each year; sales taxes charged on items purchased, and property taxes, which are levied based on the assessed value of property.

Local governments benefit from sales and property taxes, and as the state looks at overhauling its tax system, a comparison of Georgia among other states that use the property tax system reveal some interesting similarities and differences.

Currently, Georgia is one of 37 states that collect both state and local property taxes, with the majority of the taxes collected going to local governments.

According 2008 Census data, Georgia ranked No. 33 in property taxes collected per capita, averaging at just over $1,063 paid per taxpayer.

Property taxes currently go to city, county and school districts.

In Georgia, there are myriad of exemptions or reductions to property taxes available, but many have age or income requirements, or require other special conditions to kick in, such as the loss of a public safety relative.

According to the Retirement Living Education Center, 31 states and the District of Columbia have property tax "circuit breakers" in which the state typically sets a maximum percentage of how much a person's income can be spent on taxes. If a person or family exceeds that percentage, the circuit breaker trips and a rebate or tax credit is given to bring the amount down below the threshold.

Of those 31 states, only six and D.C. allow all households to participate in the program regardless of age, the center says.

The circuit breaker is part of a targeted property tax relief system that attempts to balance the public's tax burden with maintaining operating revenues for local governments.

In Georgia, popular programs were the homestead tax exemption and the homestead tax relief grant program, which provides a reduction in property taxes based on the length of time a homeowner has lived at a particular place.

The grant program was not funded in 2009 and the 2010 Legislature reinstated it with condition that link it to the state's economic prosperity and growth. Unless the state attains a certain amount of growth in those areas in a given year, the grant is not funded.

Other non-conventional approaches to generating revenue from sources other than private citizens are growing across the country.

According to a report published by the Lincoln Institute of Land Policy, municipalities and states across the country are turning toward entities generally considered to be the "sacred cow" of exempted entities for taxes -- nonprofits -- to make up the declining revenues.

Currently, 18 states use PILOT programs -- voluntary payments in lieu of taxes -- in which non-profit entities pay only a small portion of what their property taxes would be if they were required to pay them, to help offset budgets because they benefit from taxpayer-funded infrastructure like roads and sewers without paying for it.

Local governments will start receiving a PILOT payment from Phoebe Putney Health System equal to the property taxes currently paid by its private for-profit rival, Palmyra Medical Center. The Hospital Authority is in the process of acquiring Palmyra and converting it to a not-for-profit facility that it will contract with Health System to operate, just as it does Phoebe Putney Memorial Hospital.

Some states have also tweaked exemptions for churches by allowing only the sanctuaries of churches to be exempted while taxing other property like recreation facilities, rental property or other facilities.

The Georgia Supreme Court recently rendered an opinion that appears to protect nonprofits that generate revenues through the use of other properties. In the Nuci Foundation vs. Athens-Clarke Board of Assessors case, the court reversed a Court of Appeals ruling by saying that nonprofits that use rental properties to generate income are exempt from property tax.

Still, as funds become harder to come by, local and state governments are likely to weigh non-conventional approaches to solving the revenue shortfalls without raising taxes on their constituents and playing with exemptions will likely be avenue explored.