In Homer, most nonprofit organizations fall under that exemption.
Three groups, Homer Senior Citizens, the Homer Chamber of Commerce and the Community Mental Health Center, fall under the community purposes provision, an optional category for a tax exemption. Why most organizations get a mandatory exemption while a few don’t reveals a little known aspect of state, borough and city tax codes.
Over the past few months, the Homer City Council has considered if a tax exemption should be granted to those groups. In June, the council exempted Homer Senior Citizens. At its Aug. 14 meeting, it exempted the chamber — but not the Community Mental Health Center, officially known as South Peninsula Behavioral Health Services.
On a 3-3 vote, Mayor James Hornaday broke a tie to approve an amendment by council member Michael Heimbuch deleting the Community Mental Health Center from a resolution granting the exemption to it and the Homer Chamber of Commerce. Heimbuch, Beth Wythe and Matt Shadle voted for the amendment. Doug Stark, Dennis Novak and Val McLay voted against it. The amended resolution granting the exemption to the chamber passed.
Nina Allen, executive director of the Community Mental Health Center and South Peninsula Behavioral Health Services, said she was surprised at the council’s decision.
“You never want to open up the newspaper and see your company struck from an ordinance,” she said.
Until this year, Homer Senior Citizens, the Homer Chamber of Commerce and the Community Mental Health Center had received property tax exemptions under the community purposes exemption. The borough adopted the state statute for community purposes exemptions in its code, said Shane Horan, director of the Kenai Peninsula Borough Assessing Department. In reviewing the code, he discovered the cities of Homer and Kenai don’t automatically grant that exemption, he said. Agencies would have to go to those local governments for an exemption.
The borough collects property taxes on behalf of the borough, service areas and local municipalities. It sent out tax bills to the agencies.
The Community Mental Health Center owns three properties, an office building on Ben Walters Lane and two nearby houses. Allen said the tax bill was for about $3,000. In asking how and why the Community Mental Health Center got a tax bill, she said she was told her agency would have to apply for an exemption through the city council.
“We were led to believe it was a formality — we just needed to write a letter,” Allen said.
At the council meeting, Heimbuch said the Community Mental Health Center is a major employer in Homer, and gets its funds from the state and federal government. Why not charge them a moderate amount of property tax? Heimbuch asked at the meeting.
“I’ll grant that they do great public good. It’s a revenue deal about a major employer,” he said this week. “It’s a philosophical argument about the fiscal scope of what they (the Community Mental Health Center) do. They make a great use of city resources.”
Hornaday said his decision was subjective.
“I guess there’s a line. I’m not sure where it is,” he said in making his decision. “I’m not sure I made the right decision.”
He acknowledged that the Community Mental Health Center provides a public service. In his years in Homer, he said he’s seen the agency grow from a one-person service to what it is today.
“I’ve seen them develop into a valuable asset in the community,” Hornaday said.
Allen said she thought the Community Mental Health Center fit the definition of a community purpose.
“We make an enormous contribution to the community. We respond to all crises 24 hours a day, seven days a week,” she said. “Isn’t it enough that we serve people who are having so many problems in their life?” she added.
The Community Mental Health Center serves about 900 clients in the Kachemak Bay area, with 50 full-time employees and 80 part-time employees. Most of its income comes from Medicaid billing, Allen said. Its target population includes adults and children with developmental disabilities, people with chronic mental illnesses and severely emotionally disturbed people. It also provides emergency and psychiatric services.
Horan said nonprofit organizations apply for property tax exemptions either under the mandatory charitable exemption or community purpose exemption. The tax assessing office looks at a nonprofit’s tax-deductible status, its articles of incorporation and bylaws and other documents in determining which category a nonprofit falls under.
“‘Community purpose’ for years was always a quick and convenient category to put these nonprofit, community-serving organizations,” Horan said.
Horan said the Assessing Department would be willing to reconsider the Community Mental Health Center’s tax-exempt classification.
“It’s probably a close call,” he said. “As I look at (the Community Mental Health Center’s) files, they could argue, put us in the charitable category.”
Allen said she spent the past week playing phone tag with city officials trying to understand why the Community Mental Health Center was denied an exemption.
“I just want to have some logical explanation for what the heck is going on,” she said. “If it leads to some place where somebody flat out doesn’t like us, that’s not the way government should work,” she added.
Heimbuch said the city council’s resolution not to grant the mental health center a tax exemption taps into a large issue: who should pay property taxes, and how much?
“It might serve a good purpose in opening up the dialogue of what methodologies should we use to determine who pays taxes,” he said.
Michael Armstrong can be reached at michael.armstrong@homernews.com.
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