The Roanoke City Council, following the lead of some localities in the state, will soon begin revisiting its policy on granting real estate tax exemptions. Tax exemptions have raised questions during council meetings, at a time when the city is under an especially tight budget, according to city officials.
Mayor Joe Cobb said the city’s policy on granting tax exemptions to nonprofits has not been visited since the early 2000s. The council will receive a briefing in the coming weeks, detailing what the cost of these exemptions means for the city.
In Roanoke, the total value of the properties that are exempted adds up to $2.5 billion — or approximately $31.5 million in unrealized annual tax revenue — according to data from KC Bratton, the city’s director of real estate valuation.
The city council is responsible for granting relatively few property tax exemptions. While there are 2,132 tax-exempt properties in Roanoke, 1,180 or so are owned by nonprofits whose tax-exempt status is granted under state law. Another 850 are properties that the city itself owns.
The rest of the exemptions — roughly 100 of them — were granted on a case-by-case basis by the city council, or, prior to 2003, by the General Assembly.
The city council has been notified that this year’s budget will be especially tight, and Cobb has stated that it’s the city’s number one priority.
Stephanie Moon Reynolds, who left the city council at the end of the year, voiced concerns at multiple council meetings last year about how many exemptions the city is granting.
“Others will come, too, and say they do good work,” she said at a Nov. 18 council meeting. “Where do you stop?”
At that meeting, the council unanimously approved a real estate tax exemption for Good Samaritan Hospice and a personal property exemption to the Wellness Wagon. Another real estate property exemption was granted a month later, unanimously, to Restoration Housing for an affordable housing project on Day Avenue.
“I hope that next year, they will be looking at the policy,” Moon Reynolds said during the Dec. 16 meeting. “At what point do we start really evaluating these exemptions as they keep coming forward to the council?”
The cost of moratoriums
In Virginia, real estate tax exemptions are granted one of two ways. Some nonprofits are automatically qualified under state code, including religious organizations, hospitals and parks. Others can be eligible through a process called designation, a power held by the General Assembly until 2003, when it turned it over to localities.
At the local level, an exemption request requires a public hearing, after which the city council or board of supervisors votes on whether to grant it.
Nonprofit sues Roanoke County over losing tax exemption
Friendship, a nonprofit retirement community in Roanoke County, has sued Roanoke County for denying real estate tax exempt status for one of its properties in early January.
The suit also claims “erroneous” real estate assessments that significantly raised the value of the property, with the 2023 valuation coming in a half-million dollars higher than the year before, according to the suit.
Friendship operates nursing and health care centers, assisted living facilities, memory care facilities, and independent living apartments and cottages for the elderly and disabled in the county, an early January press release from Friendship said.
In fall 2023, it acquired Richfield Living.
The Richfield property had been exempt from real estate taxes based on 1987 legislation from the General Assembly. Richfield had been paying a service charge of 20% of the amount of real property taxes that would have been owed, if it were not exempt.
The plaintiffs argue that since the property was sold to a tax-exempt Friendship entity, it should retain that status and continue paying solely the 20% service charge.
“The purchase of Richfield occurred under the belief that the property would retain its tax-exempt status,” the suit states.
“The potential financial impact of the position taken by Roanoke County is substantial,” Joe Hoff, Friendship’s president and CEO, said in a press release. “An increase of more than half-million dollars in our taxes each year could result in our retired residents on fixed incomes having to pay more each month.”
In court filings, the county argues for additional information to be considered and says that both counts should be dismissed because Friendship hasn’t made proper claims.
Attorneys for both Roanoke County and Friendship have declined to comment on the suit. A pre-trial motions hearing is set for May 7.
— Samantha Verrelli
Roanoke County placed a moratorium on new tax exemptions by designation in 2018, for reasons including the rising cost of municipal services and a policy to “distribute the tax burden uniformly, fairly and upon all property,” according to a board of supervisors resolution. It was unanimously passed by the board of supervisors.
According to 2024 data obtained by the city of Roanoke, 8.26% of all Roanoke County properties are exempt from real estate taxes.
Because the county is being sued over a recent exemption denial, county officials declined to speak to Cardinal News about the moratorium. (See sidebar.)
In 2008, the Loudoun County Board of Supervisors adopted a moratorium on granting exemptions by designation, which was lifted in 2013. Prince William County had a moratorium that was partially lifted last fall. Fairfax County enacted a moratorium in the mid-1990s due to “the frequency of applications and the declining economy.”
Roanoke Vice Mayor Terry McGuire said if the city were to consider a moratorium, he would need to understand what the implications would be.
The amount of real estate exempt from property taxes in the city is “a lot,” he acknowledged, but said that there are “very legitimate” projects that wouldn’t be able to offer the needed services without those exemptions.
“We need our big partners and our smaller partners, too,” he said.
Andrew Schoeneman, professor of nonprofit studies with the University of Richmond, said he’s seen moratoriums like Roanoke County’s appearing in more Virginia localities over the past 10 years.
Schoeneman said he believes that exemptions should go to nonprofits that help the “most vulnerable people in society.”
“That’s the theoretical reason for nonprofits getting a tax exemption, is they’re doing work that the government can’t or won’t do,” he said. “But it’s super hard to narrowly target those kinds of organizations, because you would have to have a really nuanced conversation.”
The effects of these moratoriums on nonprofits are often limited, Schoeneman said, because only a small portion of nonprofit organizations actually have physical space that would be exempt from real estate taxes.
“I think people tend to just paint nonprofits with a big brush, and the idea with this is they’re not,” Schoeneman said. “They’re as varied as businesses are, and probably more so.”
The Tax Foundation, a tax policy nonprofit, states as of June 2024, the country’s tax-exempt nonprofit economy includes more than 1.8 million organizations.
“This exemption designation process ought to scare nonprofits everywhere,” Rick Cohen wrote in Nonprofit Quarterly in 2012, in the midst of Richmond’s talks of ending its moratorium.
