1 Status of Hampton’s Real Estate Tax Relief and Disabled Veteran Tax Exemption Programs Hampton City Council December 12, 2012 Presented By: Ross A. Mugler Commissioner of the Revenue

TWO PROGRAMS TO REDUCE HAMPTON REAL ESTATE TAXES Disabled Veterans Real Estate Tax Exemption Disabled Veterans Real Estate Tax Exemptionand Real Estate Tax Relief for Elderly and Disabled –Full relief –Partial relief –Freeze –Deferral –Exemption 2

History of Disabled Veterans Real Estate Tax Exemption Legislation – Voter’s Ballot Nov. 2, 2010 Constitution Amendment – Article X, § 6-A Virginia and Hampton citizens overwhelming voted YES – 2011 General Assembly Legislation Enacted Legislation Enacted – § and §

Eligibility of Qualified Veteran Certification from VA Certification from VA – Summary of Benefits Letter or Award Letter Service-Connected Rating of 100% OR paid at 100% due to Individual Unemployability (IU) AND Service-Connected Rating of 100% OR paid at 100% due to Individual Unemployability (IU) AND Permanently and Totally disabled due to service- connected disabilities (P&T) Permanently and Totally disabled due to service- connected disabilities (P&T) Owns Property for which exemption is sought (Refer to ) Owns Property for which exemption is sought (Refer to ) Occupies Property as Principal Residence Occupies Property as Principal Residence 4

Eligibility of Surviving Spouse VA Certification of Spouse being qualified Veteran VA Certification of Spouse being qualified Veteran – 100% Rating or 100% IU and P&T Veteran’s death occurred on/after January 1, 2011 Veteran’s death occurred on/after January 1, 2011 Owns Property for which tax exemption is sought Owns Property for which tax exemption is sought – Legal Ownership in accordance to § Continues to occupy same place of residence as that of qualified Veteran Continues to occupy same place of residence as that of qualified Veteran Does Not Remarry 5

Administrative Concerns of Tax Exemption One Time Application Unknown / Unreported Changes – Disability Rating or P&T Status – Marital Status – Principal Place of Residence Applicant owning multiple homes – Possible exemption in multiple localities Virginia Department Veterans Affairs –Access to Veterans’ Records is limited to what is provided by veteran Unqualified Veterans have received an increased rating to 100% through the appeal proces s. 6

Financial Concerns of Tax Exemption No fiscal impact was done by the Virginia General Assembly’s Legislative Services. Unreliable estimates provided by the Department of Veterans Services. Applicants’ exemption is retroactive to January 2011 and up to three years refund of tax paid. Lifelong exemption which transfers to qualifying surviving spouse. Proposed 2013 legislation to expand eligibility for surviving spouse. 7

DISABLED VETERANS TAX CREDITS 8

9 Real Estate Tax Relief Enabling Authority Virginia Constitution: Article X - Section 6 Section of the Code of Virginia Local governing body may extend tax relief to elderly or disabled homeowners deemed to be bearing an extraordinary tax burden on said property in relation to their income and financial worth.

10 TAX RELIEF AVAILABLE TO HAMPTON HOMEWONERS FULL OR PARTIAL EXEMPTION – a specific amount of the tax is directly subtracted from the property tax bill. The credit can be the full amount or a percentage of the tax bill. TAX FREEZE – exempts property tax increases once the taxpayer becomes and remains eligible. DEFERRAL – allows eligible taxpayers to postpone paying all or a portion of their taxes until either the owner’s death or sale of the property. The taxes constitute a lien on the property.

11 HISTORY OF REAL ESTATE TAX RELIEF PROGRAM The City of Hampton Real Estate Tax Relief Program Parameters for 100% Exemption: Fiscal Year 2007 Maximum Allowable Income: $21,000 Maximum Allowable Income: $21,000 Maximum Allowable Net Worth: $100,000 Maximum Allowable Net Worth: $100,000 Fiscal Year 2013 Fiscal Year 2013 Maximum Allowable Income: $25,000 Maximum Allowable Income: $25,000 Maximum Allowable Net Worth: $200,000 Maximum Allowable Net Worth: $200,000

12 HAMPTON’S EXISTING CRITERIA In order to qualify for Hampton’s Real Estate Tax Relief Program, the real property must be owned and occupied by someone who is either: –Sixty-five (65) years of age or older; or –Permanently and totally disabled. Note: A dwelling jointly held by a husband and wife may qualify if either spouse meets one of the above conditions.

13 HAMPTON’S EXISTING CRITERIA Maximum Income of $50,000. Net Worth (exclusive of home) cannot exceed $200,000. Exclusion of ten (10) acres of land upon which the house sits. Exclusion of $7,000 of income for other individual(s) living on the premises.

14 CURRENT PROGRAM PARAMETERS Income Level Percentage of Exemption $0 - $25, % $25,001 - $27,000 75% $27,001 - $29,000 50% $29,001 - $31,000 25% $31,001 - $50,000 FREEZE OR DEFERRAL Net Worth Threshold $0 - $200,000

15 TOTAL NUMBER OF APPLICATIONS RECEIVED

APPROVED APPLICATIONS PERCENTAGE OF RELIEF 16

17 REAL ESTATE TAX RELIEF HISTORY fy13 TO DATE & WILL CHANGE 17

18 FREEZE FEATURE When a citizen enters the program, their tax liability remains frozen as to the year they initially entered the program. So long as the citizen remains eligible in the program, their tax liability remains constant. If the homeowner’s assessment decreases, the freeze year is applied to the lower of the initial frozen tax or new tax liability (whichever is more advantageous to the taxpayer).

19 CAPS A number of Virginia localities have a maximum (“cap”) dollar amount of real estate tax that can be relieved for an individual applicant. Examples include: Gloucester County:$ 775 cap Isle of Wight County:$ 800 cap James City County:$ 924 cap Fredericksburg:$1,500 cap Chesterfield County:$2,000 cap Henrico County$3,000 cap HAMPTON HAS NO CAP

20 CAPS (cont.) For FY2013, Hampton has applicants who received over $1,000 in tax relief 443 applicants who received over $1,000 in tax relief 182 applicants who received over $1,250 in tax relief 182 applicants who received over $1,250 in tax relief 337 applicants who received over $1,500 in tax relief 337 applicants who received over $1,500 in tax relief 89 applicants who received over $2,000 in tax relief 89 applicants who received over $2,000 in tax relief 1,051 – total number receiving over $1,000 in tax relief 1,051 – total number receiving over $1,000 in tax relief 20

CAPS (cont.) If a cap of $1,000 would be imposed, it would impact 1,051 participants. This would result in a savings of $452,732. If a cap of $1,500 would be imposed, it would impact 426 participants. This would result in a savings of $130,

22 Newport News City Council adopted a deferral only program effective fiscal year Challenges with a deferral only program: Mortgage Companies – Tax deferral constitutes a lien on the property which mortgage companies will not accept. Decline in Applications –There were approximately one-half the applications in FY13 as received in FY12. Administrative Burden – Applicants withdrawing from program after approved Accumulated Tax paid without penalty or interest. – Immediate upon sale or transfer. –Within one year after death of last qualifying owner. 22

23 STATISTICS HAMPTON SINGLE FAMILY HOME AVERAGE VALUE – FY2012: $187,038 (ANNUAL TAX OF $1,945) – FY2013: $176,662 (ANNUAL TAX OF $1,837) REAL ESTATE TAX RELIEF HOME AVERAGE VALUE –FY % CREDIT: $137,386 (ANNUAL TAX OF $1,429) –FY % CREDIT: $139,801 (ANNUAL TAX OF $1,454) –FY % CREDIT: $141,906 (ANNUAL TAX OF $1,476) –FY % CREDIT: $152,042 (ANNUAL TAX OF $1,581) –FY2013 FREEZE: $156,250 (ANNUAL TAX OF $1,625) –FY2013 DEFERRAL: $166,650 (ANNUAL TAX OF $1,733) DISABLED VETERAN TAX EXEMPTION HOME AVERAGE VALUE –FY2013 EXEMPTION: $199,549 (ANNUAL TAX OF $2,075)

24 ISSUES FOR CONSIDERATION REAL ESTATE TAX RELIEF FOR ELDERLY AND DISABLED PROGRAM HAS GROWN FROM 1,412 PARTICIPANTS IN FY06 TO 2,021 PARTICIPANTS IN FY13. SOME LOCALITIES LIMIT THE LAND ELIGIBLE FOR REAL ESTATE TAX RELIEF SOLELY TO THE PARCEL ON WHICH THE HOME SITS. HAMPTON ALLOWS TAX RELIEF TO BE EXTENDED TO CONTIGUOUS PARCELS. STATE CODE CHANGES IN 2011 THE GENERAL ASSEMBLY REMOVED THE REQUIREMENT THAT TAX EXEMPTIONS APPLY ONLY TO THOSE ELDERLY AND DISABLED CITIZENS THAT BEAR "AN EXTRAORDINARY TAX BURDEN“. THIS AMENDMENT PERMITS LOCALITIES TO DETERMINE THEIR OWN INCOME OR FINANCIAL WORTH LIMITATIONS FOR TAX EXEMPTIONS FOR ELDERLY AND DISABLED CITIZENS. 24

ISSUES (cont.) STATE MANDATED REAL ESTATE TAX EXEMPTION ON THE PRIMARY RESIDENCE OF ANY VETERAN WITH A 100% SERVICE-CONNECTED, PERMANENT AND TOTAL DISABILITY OR THE VETERAN’S SURVIVING SPOUSE WHO CONTINUES TO LIVE IN THE RESIDENCE SO LONG AS HE/SHE DOES NOT RE-MARRY. QUESTION: HOW DO YOU QUANTIFY/DEFINE THE TERM “BEARING AN EXTRAORDINARY TAX BURDEN” FOR THE ELDERLY AND DISABLED WITHIN THE BUDGETARY CONSTRAINTS OF THE STATE MANDATED DISABLED VETERANS TAX EXEMPTION? RESPONSIBILITY TO BALANCE ELDERLY/DISABLED TAX RELIEF WITH OVERALL FULFILLMENT OF BUDGETARY OBLIGATIONS. 2525

26 DISABLED VETERANS EXEMPTION AND REAL ESTATE TAX RELIEF SUMMARY DISABLED VETERANS TAX EXEMPTION - STATE MANDATED -ENTITLEMENT PROGRAM BASED ON SERVICE TO OUR COUNTRY -FORTHCOMING LEGISLATIVE CHANGES TO EXPAND PROGRAM -ANTICIPATED TAX EXEMPTION GROWTH TO EXCEED ONE MILLION DOLLARS BY FISCAL YEAR 2015 REAL ESTATE TAX RELIEF - LOCAL OPTION: IT IS NOT MANDATED -NOT AN ENTITLEMENT PROGRAM

DISABLED VETERANS TAX EXEMPTION AND REAL ESTATE TAX RELIEF 27

28 Status of Hampton’s Real Estate Tax Relief and Disabled Veteran Tax Exemption Programs Questions