Florida builders’ rich tax loophole hurts local governments

A law aimed at helping nonprofits enriches developers at local governments’ expense.

With its granite-counter kitchens, lush landscaping and 24-hour gym, the Lakewood Pointe apartment complex near Tampa hardly fits the image of low-income housing.

The 144-unit unit complex, however, was built under a government program that gives developers millions of dollars in federal tax credits in exchange for providing affordable rents.

Now, under a new Florida law that was supposed to help charities, a handful of these wealthy developers are getting another lucrative benefit. They have found a way to move dozens of apartment complexes off the property tax rolls, saving themselves as much as $115 million in taxes a year but reducing revenues for already hard-hit schools and local governments in a way no one expected.

Pinellas, Pasco, Hillsborough and Hernando counties could lose a total of nearly $18 million annually.

The developers say the tax breaks will leave them with more money to maintain the apartments and keep rents affordable well into the future. But there is nothing to stop them from pocketing their tax savings as profit.

"I’m okay with people getting rich, but I think this is unseemly,” said Cathy Jackson, executive director of the Homeless Services Network of Central Florida.

In 2011, the Legislature passed a law designed to give Habitat for Humanity and other nonprofit organizations a tax break so they could build apartments for the needy. Savvy for-profit developers realized that by forming their own nonprofit organizations they could qualify for the same tax breaks, saving themselves huge bills on each complex.

"It’s all entirely legal,” said Wellington Meffert, general counsel of the Florida Housing Finance Corp., which administers affordable housing programs in the state. "But what it will do is take a fair amount of taxable property off the tax rolls.”

At least 11 complexes statewide already have qualified for the tax exemption, and dozens more are potentially eligible.

The savings are enormous:

Lakewood Pointe, in Seffner, paid $71,360 in property taxes last year. This year, it paid $829.

The 348-unit Woodberry Woods apartment complex in Brandon paid more than $180,000 last year. This year, the tab is $2,004 — even less than the taxes on many nearby single-family homes.

"If the state is going to lose $115 million in terms of taxes, it’s going to impact school systems, it’s going to impact roads, it’s going to impact all of the infrastructure services that made these (apartment complexes) what they are,” Jackson said.

Unintended tax break

Two companies based in the Orlando area, CED and Atlantic Housing Partners, have led the way in seeking the property tax breaks.

Founded nearly a quarter century ago by Alan Ginsburg, CED became one of the nation’s largest builders of affordable rental apartments using federal tax credits, tax-exempt bonds and low-interest loans.

CED has developed scores of complexes in Florida, including Woodberry Woods, Lakewood Pointe and seven others in the Tampa Bay area. While some units rent at market rates, most are set aside for people making less than the median income for an area. Those tenants pay below-market rent ranging from about $600 for a one-bedroom apartment to about $910 for a four-bedroom.

As Ginsburg, now 74, grew older, CED stopped building and several of its executives started Atlantic Housing Partners. Among its projects are one in Tampa and another, primarily for seniors, due to start construction this month in downtown St. Petersburg.

All of the CED and Atlantic Housing apartments are managed by the same management company and a growing number are now partly owned by the same nonprofit organization, Southern Affordable Services, or SAS.

The developers created SAS to take advantage of the 2011 law, which was intended to make sure that Habitat for Humanity and other nonprofits that provide low-income housing could get property tax breaks even if they set up separate companies, called limited partnerships, to build larger-scale apartment projects.

The new law allows limited partnerships to get the exemption on property used for affordable housing if there is a nonprofit general partner like Habitat. But there was an unintended flip side.

"Some large for-profit developers were clever enough to figure out that they could set up a nonprofit corporation and it would basically become the general partner" eligible for the exemption, said Meffert of Florida Housing Finance Corp.

At a Dec. 7 meeting of the corporation’s board in Orlando, CED and Atlantic Housing won approval to make Southern Affordable Services the general partner of 79 complexes, laying the groundwork for the companies to get millions of dollars in property tax relief. Some board members voiced reservations.

Cliff Hardy, a member from Tampa, noted that a legislative analysis estimated the impact of the new law at just $200,000 a year statewide. But Hillsborough County alone lost nearly $370,000 this year in property tax revenues and eventually could lose as much as $12 million annually.

The law actually could cost local governments more than $100 million a year, said Hardy, who has called it "a ripoff of the taxpayers.”

Joe Sanchez of Miami said the board had little choice but to approve the transfer of general partnership interests to the nonprofit SAS.

"It’s absolutely going to affect local governments,” he said, "but I think we’re caught up in a battle that’s really not ours. I would hope local governments continue to fight this but right now it’s a law before us.”

Schools face threat

The law slipped through with so little discussion that many in local government are unaware of it, let alone the potential impact.

"We have not taken a position, and really it hasn’t even bubbled up,” said Amber Hughes, legislative advocate for the Florida City and County Management Association.

Municipal revenues in Florida have dropped 20 percent in the past few years, and any further loss of money would be a serious blow, said Tarpon Springs City Manager Mark LeCouris.

Riverside, a 304-unit complex built by CED in Tarpon Springs, has been paying about $230,000 a year in property taxes but is among those now eligible for an exemption.

"I don’t know if whoever passed this (law) exactly realized the true effect,” LeCouris said, "but we’re at the point now where if we keep losing funds the public will see services lessened.”

The biggest hit could be to Florida schools, which depend heavily on property taxes. The taxes Hillsborough County already has lost could have paid the salaries of almost 10 beginning teachers.

"If you look at where the school districts, community colleges and universities are in this state, all of those have taken cuts to where we’re pretty much back to the ’06-’07 level,” said Hillsborough Schools superintendent MaryEllen Elia. "A hundred million out of the tax roll — that’s potentially very serious for education funding and other legitimate costs.”

To get an exemption for affordable housing, the owners must notify the county property appraiser each year of the number of units designated for low-income tenants. In Hillsborough, the appraiser’s office granted almost total exemptions for three of CED’s apartment complexes this year despite concern that the for-profit partner could derive more benefit than the nonprofit created to qualify for the exemption.

"The reason county property appraisers have had a heart attack is that for the first time you have tax exemptions going to a for-profit entity or entities,” said Will Shepherd, general counsel for the Hillsborough appraiser. "That’s contradictory to how exemptions are traditionally applied in Florida law, that you’ve got to be a nonprofit.”

Scott Culp, executive vice president of Atlantic Housing Partners, said his company and CED "were not involved in any way” in lobbying for the law that could save them millions of dollars in property taxes. But once it passed, he said, they saw it as a way to keep rents low beyond the 15 years required of projects that get tax credits and government loans.

"The difference now is that with a nonprofit general partner you have an opportunity to continue the affordability, which the for-profit didn’t have any incentive to do,” Culp said.

An independent real estate expert agrees that rent restrictions can put a burden on developers of affordable housing because they make the projects harder to sell and tougher to maintain.

"One of the problems with (low-income apartments) is that because they don’t have to be competitive with the market, generally they don’t get kept up as well,” said Darron Kattan, managing director of Franklin Street Real Estate Services. "If they need (that tax exemption) to keep the property up then I could see it being very justified.”

But critics say CED and Atlantic Housing are making out well on both ends. They received lucrative tax credits to develop the apartments and are now getting property tax breaks that can save them millions of dollars more at taxpayer expense.

"It seems difficult to square moving these valuable assets off the tax rolls when the initial investment came from a tax-credit process to begin with,” said Jackson, the Central Florida homeless services director.

Mindful of the criticism, CED and its related companies tout their community involvement and charitable services. In the past 18 months, they said, they have housed more than 150 homeless families in vacant apartments. Many of the complexes provide a free after-school program through the nonprofit Monster Club Foundation Services started by the children of Ginsburg, CED’s founder.

Ginsburg, who lives in a $6 million Winter Park mansion (he personally paid $101,000 in property taxes this year), has contributed millions of dollars to the Monster Club, the University of Central Florida and other organizations.

As word of the new law spreads, nonprofits that have long provided affordable housing worry that the Legislature could remove the property tax exemption even for them.

Jeffrey Sharkey, a lobbyist who pushed for the law on behalf of Habitat for Humanity in Lee County, said he never realized it could cost schools and local governments more than $100 million a year.

"I’m surprised it’s been utilized in this fashion so aggressively,” Sharkey said. "I don’t think anybody knew it would have that kind of large wholesale impact."

Susan Taylor Martin can be reached at susan@tampabay.com.

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