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Tuesday, April 19, 2011

Ind. Gov't. - Reexamination of charitable property tax exemptions involving Imagine Schools Inc. may disclose that Indiana education dollars are flowing out of state

"The tangle of leases and subleases, for-profit management organizations, charter school boards and real estate investors involved in some of the state’s existing charter schools begs for transparency before more tax dollars start flowing out of state."

Karen Francisco of the Fort Wayne Journal Gazette had a lengthy and complex article in the Sunday edition. Read it here. Some quotes that are just a portion of the very long story:

The news about charter schools, their owners, and the money they make goes back to December to the state Supreme Court. In reversing a decision by the Indiana Tax Court, the justices ruled that a property owner doesn’t automatically qualify for a tax exemption even if property is used for a charitable or exempt purpose.

From that one decision, some charter school books are being opened in Fort Wayne. Taxpayers can learn where some of their tax dollars are going, and a lot of them leave the state and end up at a company boasting of attractive profits from a “reliable cash flow.” * * *

Policymakers pushing charter school expansion ask taxpayers to overlook the business side of the equation, using children and school choice as a distraction from deals that benefit investors at the expense of classroom spending. Allen County tax officials have done Indiana taxpayers a favor in prying open the Imagine real estate playbook. Legislators would be wise to slow their rush to pass a charter bill until ensuring there are safeguards to keep Indiana tax dollars in Indiana schools. * * *

The real estate investment trust recently summoned before the county’s tax assessment board of appeals has been asked to provide the lease agreement between the company and Schoolhouse Finance. Schoolhouse Finance subleases the Imagine MASTer Academy property to the local school board. This year, the board budgeted $790,000 for rent.

The property owner was represented at the hearing by a local attorney and an official with Imagine Schools Inc. They emphasized the 26-acre campus’ use for educational purposes.

PTABOA president Judy Macon, a local Realtor, said she couldn’t comment on the case pending the board’s decision. But at the hearing March 3, board members clearly had in mind the Oaken Bucket case, which is how the Supreme Court ruling is known. * * *

Why the court ruling matters. The Indiana Supreme Court decision that prompted the review might well result in the exemption’s being denied. A denial would set up the first test of the ruling. It holds that a property owner – not just the tenant – must demonstrate the property is owned for a tax-exempt purpose. * * *

A caution for legislators. But even if the Indiana tax officials decide the for-profit company demonstrates a charitable purpose, the appeals board review offers a good opportunity to scrutinize the real estate agreements involving Indiana’s charter schools.

Republican lawmakers are about to make it much easier to open a charter school. * * *

What’s next? In Indiana, the four Imagine charter schools have budgeted $4.3 million for rent and operating costs. At the Imagine Life Sciences Academy West in Indianapolis, those expenses amount to more than 22 percent of the school’s total budget. The common guideline recommended for charter school organizers is 15 percent for facility costs.

If no exemption is granted, the lease makes Imagine MASTer Academy – by way of Indiana taxpayers – responsible for the property tax bill. Divided into two parcels, it totals $124,278 for taxes due this year. Because it hits the state’s new constitutionally protected tax cap limit, it qualifies for a circuit-breaker credit of $6,586 – small consolation to taxpayers footing the bill for out-of-state property investors.

For Indiana taxpayers, the real issue is the total cost, although they are justified in asking why. After all, the money doesn’t come from local property taxes but from taxpayers statewide. For Fort Wayne residents, Imagine Schools has preserved and maintained an attractive campus on North Wells Street, and provides for a well-kept neighborhood school on Broadway instead of a vacant church building. The schools in Indianapolis serve similar roles.

But dollars paid to out-of-state investors for rent are dollars not spent on students in the classroom or in salaries to local teachers who will, in turn, pay taxes and support local businesses.

Gov. Mitch Daniels has criticized traditional public schools for spending too much on buildings, while bills he supports targeting teacher seniority are clearly aimed at driving down education salaries. But in his zeal to open more charter schools, he appears to give them a pass on education management agreements and real estate deals that collectively shift millions in tax dollars from classrooms to out-of-state interests.

Here is a list of ILB entries re "Oaken Bucket," the most recent being the Supreme Court decision of Dec. 15, 2010 in Hamilton County Property Tax Assessment Board of Appeals & Hamilton County Assessor v. Oaken Bucket Partners, LLC, where the Supreme Court reversed the July 24, 2009 Tax Court opinion and ruled:
In this opinion we determine that charging below market rent for part of a building rented to a church is insufficient, standing alone, to justify a religious and charitable purpose property tax exemption. Instead, an owner of leased property must provide evidence that it possesses an exempt purpose separate and distinct from the exempt purpose of its lessee. * * *

In sum, although leasing space to Heartland for charitable and religious purposes, Oaken Bucket has failed to demonstrate it owned the property for such purposes because Oaken Bucket did not possess an exempt purpose independent of Heartland’s charitable and religious purpose. As such, Oaken Bucket has not met its burden of proving it is entitled to an exemption.

Posted by Marcia Oddi on April 19, 2011 03:13 PM
Posted to Indiana Government