Nestled at the far northwestern edge of Milwaukee, protected by forest and grasslands, the 30-acre Trinity Court development feels as if it should be in Brookfield, Mequon or perhaps Door County. Wild daisies blow in the breeze. Geraniums bloom in clay pots. All is quiet, save for the occasional bird call. Even the street names […]
Nestled at the far northwestern edge of Milwaukee, protected by forest and
grasslands, the 30-acre Trinity Court development feels as if it should be in
Brookfield, Mequon or perhaps Door County. Wild daisies blow in the breeze.
Geraniums bloom in clay pots. All is quiet, save for the occasional bird call.
Even the street names suggest a sylvan utopia: Hummingbird, Sandpiper and
Warbler courts curl past 123 townhomes, all impeccably maintained, with neatly
coiled garden hoses and fresh wood chips. Lovely red maples, cedars and blue
spruce shade the streets.
Trinity Court is a gated community located off of 73rd Street and Dean Road.
Its sign proclaims: “No Trespassing, Private Property.” Visitors are allowed
only if they are guests of a resident or if they pass through security.
This is upscale life in Milwaukee, though with a couple of odd exceptions:
These townhouses have no stairs or porches – all of the front doors are at
ground level – and show no signs of children, tricycles, wagons or balls.
Trinity Court, you see, is a retirement community for seniors. And because this
luxurious development is run by a nonprofit organization, one-third of the
property has been exempt from taxes. If the development were 10 acres or less,
it wouldn’t pay any taxes at all.
Nor is this an isolated example. St. John’s on the Lake doesn’t pay property
taxes. Nor does the Milwaukee Protestant Home, which is “rebranding” itself as
Eastcastle Place as it undergoes a $22 million renovation of its valuable East
Side properties. Nor do any number of properties owned by institutions – from
Marquette University to St. Luke’s Medical Center to the YMCA.
Not everyone is so lucky. Azzie Simpson is a 77-year-old widow who lives at
17th Street and Keefe Avenue. She owns a classic Milwaukee duplex, with two
bedrooms downstairs and up and a postage-stamp yard where she grows tomatoes and
peppers. The kitchen is small, with no room for a dishwasher. It hasn’t been
remodeled in probably half a century, and the garden-motif wallpaper has long
Simpson gets about $12,000 a year from Social Security and her late husband’s
pension. Her niece lives upstairs, and the rent helps pay the bills. Simpson
hopes to stay in her home “until the good Lord calls me,” she says. But a big
chunk of her meager yearly income goes to her property tax bill, which in 2005
was $1,118. Wisconsin’s low-income Homestead Credit cut that by just $180.
Like most people, Simpson is unaware that countless institutions in this
state do not pay property taxes. How would she feel if she got the same deal?
“Wouldn’t that be wonderful,” she says. “That would be a blessing.”
But such a gift comes not from heavenly powers but those in the state
Legislature. And, much to the concern of Wisconsin’s cash-strapped local
governments, who have no control over these exemptions, these gifts by the
Legislature are increasing greatly.
In Milwaukee, for instance, almost 20 percent of the city’s non-governmental
property value is exempt from taxes, a big jump from almost 10 percent six years
ago. Add in government-owned property such as public schools, fire stations and
parks, and the exempt total is more than 33 percent. Figures are similar for
many other cities and suburbs in the area.
As more organizations get exemptions, more of the total tax bill will be paid
by everyone else. “Everyone has a knapsack on their back that represents the
city’s tax burden,” says Peter Weissenfluh, chief assessor for Milwaukee. “Every
time someone gets an exemption, they take off their knapsack and the load is
How much have the knapsacks shifted? In 1980, homeowners and renters paid
just over 59 percent of the property taxes in Wisconsin. By 2004, they were
paying more than 69 percent. Several factors have caused the shift, but one
cause is the growth of tax-exempt properties.
If non-governmental exempt organizations paid property taxes, the average
Milwaukee homeowner’s tax bill could drop by about $500, according to Mary
Reavey, city assessment commissioner. In surrounding suburbs, the percent of
property that is tax exempt averages about half that in Milwaukee, so any
reduction would be considerably lower.
Every property owner in town needs the usual services: police and fire
protection and snowplowing the streets. Yet tax-exempt nonprofits pay nothing
for these services. Instead, the bill is paid by all of the other taxpayers.
The situation squeezes every local governmental budget in the state.
Milwaukee Mayor Tom Barrett says it leaves him making tough choices each year
between raising taxes or cutting something like the number of firefighters.
“The city is not crying wolf,” says Andrew Reschovsky of the La Follette
School of Public Affairs at University of Wisconsin-Madison. “They are
realistically in a very difficult position. The wolf is there.”
Yet even as legislators and talk radio hosts champion limits on property
taxes and local government leaders across the state say they’re doing all they
can to cut costs, there’s been no attention paid to how much of the squeeze is
caused by the growth in non-paying, tax-exempt organizations. The knapsack
they’ve taken off keeps getting bigger for everyone else.
Gifts from the Legislature
Todd Berry has been president of the
Wisconsin Taxpayers Alliance since 1994. Berry’s group has done many studies of
Wisconsin’s taxes but has never looked at the impact of nonprofit tax
As Berry sheepishly admits, his group is itself exempt and doesn’t pay
property taxes on the building it owns in Madison, valued at about $500,000 on
its federal tax return. Thus, a group that often does studies exposing high
taxes helps add to the tax level for others with its own exemption.
Property tax exemptions are an issue nationwide but have all the more impact
here because Wisconsin is more dependent on the tax: Thirty-three percent of all
state revenue comes from the property tax, versus 21 percent nationally,
according to the Legislative Fiscal Bureau.
Historically, the property tax has paid for services related to your home,
like police, fire, snow removal and parks. By law, every property owner must pay
the tax unless exempted by state legislation. Religious institutions and
churches account for the highest number of such exemptions, according to the
Wisconsin Department of Revenue. Nonprofit hospitals are second, followed by
“public service” nonprofits such as Goodwill Industries and the Boy Scouts.
Who deserves an exemption? What on the surface seems cut-and-dried – that a
retirement community catering to the rich surely doesn’t deserve an exemption –
can get complicated.
“All nonprofits can make an argument for an exemption, and it gets very
gray,” Berry notes. “Hospitals are a good thing. YMCAs are a good thing.
Churches are a good thing. It becomes this continuum of benevolence, if you
will, and where do you draw the line?”
Wisconsin now has approximately 16,000 exempt private properties, with a
value of $21.7 billion, according to the state Department of Revenue. Were the
Legislature to single out some owners as not deserving of exemptions, the others
would likely rise to their defense, worrying that their exemption could be cut
Interestingly, there is little data on this issue. There has been no study of
nonprofit property tax exemptions by the Public Policy Forum, Wisconsin Policy
Research Institute or Berry’s group (all three are tax-exempt organizations).
Many in the general public don’t even know such exemptions exist.
And yet these exemptions are a gift from the taxpaying public – and generally
without their knowing it. Here’s one way to look at it: If a Milwaukee property
valued at $2 million is exempt, the public, in essence, is providing a subsidy
of $49,000 (what the property would pay in taxes). But because such subsidies
never show up in the city budget, they never even become part of the budget
Who Doesn’t Pay?
Wisconsin Paperboard is a hulking, aging mill
along the Milwaukee River, tucked amid trees and located just below quiet
residential streets. It is just far enough from public view and the North Avenue
Bridge to avoid being called an eyesore. Owned by The Newark Group, a
multinational company based in New Jersey with more than 45 plants and mills in
North America, Wisconsin Paperboard uses recycled fiber to produce packaging for
everything from cereal boxes to cardboard tubes. The Milwaukee plant has been
profitable since 1911, yet in 1999 won a court case giving it a property tax
The company, whose property was assessed at $3 million that year, won its bid
to be classed as a “waste treatment facility.” Such facilities have been exempt
by law since 1953. Experts suggest that many exemptions extended by the
Legislature or courts simply reflect an investment of time by lawyers and
lobbyists, who win a tax break for their clients.
The result of such exemptions could be used to play a game of “Who’s Got the
Exemption?” Thus, under state law, the youth hockey leagues don’t pay property
taxes, but there’s no such exemption for baseball or soccer leagues. Restaurants
pay taxes but not Friday’s Front Row Sports Grill at Miller Park because
everything inside the stadium grounds is exempt.
The exemption for Friday’s particularly galls city officials, not only
because another property leaves the tax rolls but because they see it as unfair
to other competitors. While the Miller Park restaurant is tax-free, the
TGIFriday’s in Greenfield pays property taxes of about $45,000.
Former Mayor John Norquist took a tough stance against tax exempts he felt
competed with business, such as the YMCA’s $6.5 million Downtown fitness center
that opened in Grand Avenue mall in 1999, complete with juice bar. The city
presented the Y with a property tax bill for $47,955 for that location. A
political firestorm erupted and was resolved when the Legislature overwhelmingly
passed a 2001 bill specifically exempting YMCA facilities.
Now head of the Congress for New Urbanism based in Chicago, Norquist still
smolders. “Anybody that can afford to hire a lobbyist, that wants to avoid
property tax, they lay siege to the capitol,” he says. “And the poor sap that
works hard and pays their taxes, they’re left holding the bag.
“All of these things, you run into the Mother Theresa factor,” continues
Norquist. “You can always show pictures of the little kids playing in the pool.
They don’t show the guys who pay $2,000 a year for a deluxe health club
membership and get back rubs and work on their golf swings.”
As controversial as the Y situation may have been, however, it’s nothing
compared to the debate over high-end retirement communities and nonprofit
hospitals, which have evolved in recent years into entrepreneurial powerhouses.
The Wealth of Charities
In 1879, three Franciscan nuns arrived in
Milwaukee to provide nursing care. “The Sisters relied almost entirely on
charity for support,” according to the official history of Wheaton Franciscan
Healthcare. Capuchin friars helped the nuns find a temporary home on Fourth and
Walnut streets, and parishioners from St. Francis Church often left vegetables,
a loaf of bread or sack of flour on their doorstep. To help provide food for
their patients, two nuns went door to door to beg alms.
Out of these efforts grew a modest hospital lacking central heating at Fourth
and Reservoir streets. Soon, patient needs outgrew the location and a hospital
was built at what is now the ever-growing complex of St. Joseph’s Regional
Medical Center. One indication of how times have changed: In 2004, Wheaton
Franciscan-St. Joseph’s had gross patient revenue of $604 million and $4 million
in profits. Wheaton’s president, John Oliverio, earned $1.38 million in 2004.
Similar stories could be told about many of Milwaukee’s hospitals, as nuns
with vows of poverty were replaced by well-paid executives overseeing a
multi-billion-dollar industry. What were once refurbished homes heated by coal
stoves are now architectural wonders of glass and steel.
Throughout the metro area, the most valuable tax-exempt properties tend to be
hospitals, although the doctors’ offices and pharmacies in hospital-owned
buildings are not exempt. In Milwaukee, St. Luke’s Medical Center tops the list:
Its potential property tax bill would be in the neighborhood of $14 million
annually, a bill that is instead charged to all other taxpayers. Like other
federally recognized charities, nonprofit hospitals also don’t pay income or
sales taxes, leaving another substantial cost to be picked up by taxpayers.
St. Luke’s is part of Aurora Healthcare, which has become Wisconsin’s poster
child for hospital excess. In the last year, headlines have highlighted its high
pay (President Edwin Howe received $2.8 million in 2004, and its lawyers at
Foley & Lardner were paid nearly $30 million between 2001 and 2004), its
billing practices (Wisconsin Physicians Service Insurance is suing Aurora for
how it negotiates with insurers) and its high costs (chronically ill patients at
St. Luke’s spend 40 percent more days in the hospital in their last two years of
life than the state average).
Aurora officials declined to comment for this story and referred questions to
George Quinn, senior vice president at the Wisconsin Hospital Association. Quinn
defends the tax exemptions as part of a century-old agreement. “A charitable
nonprofit doesn’t pay taxes in return for providing certain services such as
charity care, and in terms of hospitals, Medicaid shortfalls,” Quinn stresses.
Without that bargain, he argues, the charitable care and free clinics
provided by the hospitals would have to be borne by local governments.
Not every hospital is raking in high revenue. St. Michael’s recently became
the eighth central city hospital in Milwaukee to close since the late 1970s.
Even some hospitals in the Aurora chain are losing money: Sinai Medical Center
at 12th and State streets lost $14 million in 2004. But the combined chain of
Aurora facilities is generating high profits for the nonprofit, even after
subtracting for “charity care.”
The growth of luxury retirement homes affiliated with religious groups is
another issue. It’s hard to view these as charities when entrance fees and
marketing materials cater to an upscale lifestyle, complete with spas and
personal trainers. The Milwaukee Protestant Home’s Eastcastle development, for
instance, markets itself as “a luxury senior community” bringing “a new standard
of senior living.
“Whether you are looking for a corner fireplace, a curved turret exterior or
a restored historic bookshelf, these unique apartments will offer classic
designs with the most modern décor,” Eastcastle boasts. And you won’t pay a
dollar in property taxes.
The first of the 82 new luxury apartments at Eastcastle was ready for
occupancy in September. Matt Furno, chief executive officer of the Milwaukee
Protestant Home that runs Eastcastle, says the average entry fee is $300,000,
with additional monthly payments ranging from about $1,000 to $2,500 for the
first person; the second person is “discounted like crazy.”
In a city like Milwaukee, where 26 percent of the population lives in
poverty, should their property taxes help subsidize this lifestyle?
Elsewhere, the fees get even higher. The Protestant Home’s facility in
Mequon, Newcastle, has apartment entrance fees as high as $409,000. Fees for its
three-bedroom “carriage homes” are not listed in the promotional material,
suggesting the adage, “If you have to ask, you can’t afford it.”
But that standard of living is easily surpassed by the development planned by
Lutheran Homes of Oconomowoc, where independent living units will have entrance
fees as high as $653,000.
Trinity Court, meanwhile, is transforming into a senior condominium
development and will sell the townhomes at a price determined by the market.
Reavey says that at this point, the city plans to assess all property in the
development after this transformation.
Furno passionately defends the exemption for the Protestant Home he oversees.
When the home was debating whether to renovate its East Side facilities, he
notes, some suggested it would be financially smarter to sell and move to the
suburbs. But the nonprofit decided it would not abandon the city. “It troubles
me,” he says, “that we are investing millions and then receive this criticism
that now we need to be taxed. We could go out of business.”
John Sauer, executive director of the Wisconsin Association of Homes and
Services for the Aging, argues that retirement communities that provide a
continuum of care use their independent-living apartments to subsidize nursing
home care. The poverty of many urban taxpayers is a “tragic reality,” he
concedes, and local governments may be squeezed, too. But taxing senior
retirement communities will create more problems than it solves, he says.
“The impact on the organizations serving seniors could be disastrous,” he
says, with the groups potentially going out of business.
But Mayor Barrett says property taxes shouldn’t be used to help keep these
organizations solvent. Medicare and Medicaid shortfalls at hospitals or at
nursing homes are a state and federal responsibility, not that of city
taxpayers. These retirement communities, he continues, are essentially saying
its okay that low-income residents pay higher taxes to subsidize more well-off
“Look at the eligibility requirements to get into these homes,” he notes.
“You don’t have low-income people going into them.”
Madison-based lawyer Fred Mohs, a well-known activist on the issue, is more
direct. He calls the arguments of the senior developments “total bull” designed
to cover up the fact that they “are self-help schemes for the rich.”
And this is from a Republican.
Off With their Heads?
For 43 years, Fred Mohs has conducted his
business from a second-floor office with a panoramic view of the state capitol.
A former regent with the University of Wisconsin System, he currently sits on
the board at Madison Gas & Electric. His office is adorned with icons of
conservatism, including him shaking hands with President Ronald Reagan and a
sketch done by Queen Victoria. During our interview, Mohs gets a call from James
Klauser, Tommy Thompson’s right-hand man while governor. Mohs and Klauser have
been good friends ever since they were study partners in law school.
A longtime GOP insider, Mohs is proof that the controversy over exemptions
does not divide along neat partisan lines. The problem with retirement home
exemptions, Mohs begins, is they threaten our democracy. He then launches into a
lecture on the French Revolution and its roots in the perception by the masses
that the tax system was unjust because the clergy and the royalty didn’t have to
“The only people left to pay were the peasants and the merchant class, and
they eventually solved the problem by cutting off the heads of a lot of people,”
Mohs does not think revolution – or a guillotine falling on tax exempts – is
around the corner. But, he says, “perceived tax fairness is critical to
representative democracy. More than that, it’s critical to sustaining any kind
Just because retirement communities provide charity care doesn’t mean they
should be tax exempt. “If you buy that line of reasoning,” he argues, “a person
who gives money to United Way should be able to deduct that from their property
This controversy, Mohs notes, escalated several years ago when the Wisconsin
Supreme Court threw out the exemption for a nonprofit low-income housing
development in Kenosha. The decision sent tremors through the state’s nonprofit
community, and the Legislature quickly moved to reinstate the exemption. It set
up a committee to develop guidelines on when nonprofit housing deserved
tax-exempt status, but the committee was divided and its recommendations
languished. The issue died.
And Mohs has little hope of reviving it. Several years ago, he notes, he
decided he needed help from insiders to have any impact on this issue. “So I
went out to hire a lobbyist,” he says. He soon found they were almost all hired
by his opposition or faced possible conflicts of interest because they
represented other nonprofits.
Mohs and others note that legislators use exemptions as a way to grant
political favors. And they can do so with little negative fallout because the
average voter blames local officials for property tax increases, not the
Todd Berry offers another reason change will be difficult, citing the battle
between Milwaukee and the YMCA: “The city says, ‘Let’s put the YMCA on the
rolls, they are behaving like private health clubs.’ Then you get people who are
members of YMCAs, and they send out letters to their members. So you have a
small group of impassioned people defending the exemption, and on the other
side, support [for ending exemptions] will be a mile wide and an inch deep. They
might think it’s a good idea, but they are not passionate about it. That’s tax
exemption politics right there.”
Far away from this insider’s world, meanwhile, low-income homeowners struggle
to pay their property taxes and keep a roof over their head. People like Phyllis
On a sunny afternoon, we sit on her porch and talk about taxes and how she
gets by. Dressed in a white blouse and slacks that set off her near-white hair,
Koller admits to being somewhere around 87, and then, with a wink, hints that
she is older. She worked as a waitress all of her life, raising three children
with only occasional help from her late husband. Does she have a pension? “Don’t
I wish,” she says. Her only income is $591 a month from Social Security.
Koller owns a single-family home on the lower East Side, and as the
neighborhood has become more desirable, her taxes have risen. Her 2005 bill was
$4,098, offset in part by a Homestead credit of $1,160.
Fiercely independent, she wants to stay in her home. Certainly, she couldn’t
afford the monthly fees at the area’s retirement communities. But she has no
complaints, she says, knocking on her wooden porch for good luck.
Koller understands why churches get exemptions, and she launches into stories
about Father Tim, pastor at Three Holy Women parish, and how helpful he’s been.
Nor does she have any problems with the Y: “They take care of the children.” But
don’t get her started on hospitals, not unless you have an extra 15 minutes.
How does Koller get by? By juggling finances. “And robbing Peter to pay Paul
every month,” she says.
The stories of struggling homeowners like Azzie Simpson and Phyllis Koller
rarely make it into tax-exemption discussions. But they put a human face on a
policy question that Ed Huck of the Wisconsin Alliance of Cities raises in our
interview. Huck is a veteran of all of the arm-twisting and insider dealing that
goes on in the state capitol, yet he can’t help wondering aloud about the
simplicity of this issue.
“Here is the question that ultimately somebody needs to ask in Wisconsin,” he
says. “Why should most people pay higher property tax rates so that some folks
Additional research by Robert Beets. Photographed by Peter