This report is the product of a two-year study by a joint subcommittee of the House and Senate committees on finance, authorized in 1978 by House Joint Resolution No.32 and continued in 1979 by House Joint Resolution No. 227. Because the 1971 Constitution gave the General Assembly wide discretionary power to exempt property from real estate tax, the finance committees are faced with requests for tax exemption which increase every year. Although these tax exemptions are a matter of State policy, they affect State revenue minimally if at all; the major effect is on local revenues. Confronted with an enormous number of existing exemptions, continual requests for new ones, complaints from local governments about diminishing revenues, lack of reliable information as to the nature of the entities seeking exemption, and no established criteria for deciding which entities should appropriately be exempt, and having no method of policing an exemption once it becomes law, committee members sought a study to familiarize themselves with the historical background of this dilemma and to develop some method of dealing with it.

A summary of the historical background of exemptions from property tax is found in part II of this report, and a discussion of the issues considered by the Subcommittee in part III. After full consideration of the issues before it, the Subcommittees makes the following:

RECOMMENDATION

Legislation should be enacted requiring that certain procedures be followed at the local level before a bill granting an exemption from local tax is considered by the General Assembly. These procedures shall consist of the following:

1. A public hearing, pursuant to notice, before the local governing body; and

2. The adoption of a resolution by the local governing body either endorsing or refusing to endorse the request for exemption. The resolution will address, in addition to factors of interest to the governing body, the following points:

1.Is the organization exempt from federal income tax?

2. Does it have a liquor license?

3. Do officers and directors receive unreasonable compensation?

4. Does the organization receive significant support from donations and public funds?

5. Does the organization benefit the public? And

6. Does the organization specialize in propaganda and lobbying?

The bill containing these provisions is included in Appendix C.