Davidson looks at how tax exemptions affect tax base

DAVIDSON – Nonprofits, schools, senior living facilities and churches offer services that a town can’t provide. But with their tax exemptions eating into town revenues, Davidson commissioners are grappling with the idea of potentially having too much of a good thing.

Davidson Finance Director Cindy Jones told commissioners during a March 25 work session that nearly $1.6 billion in the town's potential property tax revenue is cut by 32 percent in tax-exemptions. The collective response seemed to be one of surprise, especially when compared to neighboring jurisdictions and other college towns.

“That’s a lot worse than I thought it was,” Town Manager Leamon Brice said.

Tax-exempt properties include government buildings, educational facilities, churches, homes that have different uses like for clergy, charitable organizations, hospitals and retirement homes. Also taken into account were elderly or disabled residents who qualify for tax reductions.

Though they don’t have to pay taxes, towns still provide services such as fire and police to everyone.

“It’s not bad,” Commissioner Jim Fuller said of the news. “People need to understand part of what Davidson has been may or may not be exactly what it is going forward.”

The data will be used in conjunction with an upcoming fiscal impact study, which will show how the town is affected by all entities: residential, commercial and tax-exempt. It will help commissioners decide how to move forward as they continue updating their comprehensive plan and planning ordinances. Commissioners have previously discussed possibly limiting the numbers of tax-exempt organizations in areas with higher revenue potential.

“It’s for knowledge of future planning,” Jones said of the study. “We want to encourage more commercial and maybe discourage a new private school in town limits where property is more valuable. We aren’t taking anything away, we are making sure we are keeping a balance.”

Commissioners questioned whether Davidson College was the brunt of their tax exemptions. Staff said it accounts for $160 million – roughly 10 percent of the overall property values.

“It’s major in that if you don’t have a college in town, that’s how much it’s reduced by,” Jones said.

Elon’s numbers showed 24 percent of its $660 million went to exemptions. In Brevard, exemptions were up to 33 percent of its nearly $900,000 in values. Both had a larger commercial base than Davidson.

But at the same time, the college and other tax-exempt organizations have benefits to the town, including jobs and bringing people into town.

“As economic development manager, my challenge is bringing in commercial base into town,” said Davidson downtown manager Kim Fleming. “Most communities have split residential and commercial pay from residents. We have the element of nonprofit. Nonprofits and the college bring jobs. It’s not all bad, but we need to take a look at the sustainable financial picture of the town.”

Commercial properties have the potential for extra revenue because they offer sales tax, bring jobs to town and things residents use, which gives additional financial benefits, Jones said.

“We need to manage the tax exempt in some way in the future as much as we can,” Brice told the board. “We need to do everything we can to raise the commercial tax base.”

Huntersville’s tax-exempt organizations make up 15.5 percent of its $5.1 billion in values and Cornelius has a mere 3.7 percent of its $4.4 billion, Jones’ data showed.

Though they couldn’t confirm that specific data, Cornelius Town Manager Anthony Roberts and Huntersville Town Manager Greg Ferguson said their boards haven’t needed to consider limiting tax-exempt organizations.

“The board has talked about commercial versus residential, but tax-exempt hasn’t been an issue,” Ferguson said. “I believe having a huge educational facility with lots of services provided could cause reason for concern, but we don’t have that concern in town.”

Roberts said the ones that they do have, have been assets to the town and they haven’t tried to control them.

“At the end of the day there are a lot of benefits,” he said. “Organizations and churches give back in so many different ways. They give back to citizens and provide services towns can’t do. We get what we can get. It’s a win-win situation for both of us.”

While no decisions were made at the March 25 meeting, the data could offer a new outlook for Davidson.

“Town board staff grapple with the bigger picture issues – how can we be sustainable in the local economy 5, 10, 20 years down the road?” Fleming said. “They’re a deciding factor into that, and we are starting to get the information.”