by Deborah Goonan, Independent American Communities
Two recent reports claim that proposed Mississippi legislation, House Bill 1612, “would give homeowners’ associations taxing authority.”
In this post, I’ll explain why that claim is not exactly true.
But first, let’s take a look at why HOAs want to raise money.
Bill Would Give HOA’s Taxing Authority
March 5, 2019
A bill in the Mississippi legislature could give a homeowner’s association the right to levy property taxes on the residents that live there.
House Bill 1612 would authorize municipalities to create special improvement assessment districts in areas administered by home owner associations.
These 501(c)(3) organizations would be authorized to levy up to 6 mills of property tax (the amount per $1,000 of assessed value of the property) to fund parks, sidewalks, streets, landscaping, lighting, fountains, security enhancements such as gates and cameras, and even the hiring of private security services.
A similar bill that would only apply to HOAs in the Jackson city limits is active in the House and is similar to bills that have been killed in each of the last four legislative sessions. State Rep. Credell Calhoun (D-Jackson) is the sponsor of HB 1157, which is a local and private bill.
The old law that authorized the creation of these special improvement districts was repealed in 2001.
Note that HB 1612 is very similar to a bill proposed for the past four years, which would only apply to the City of Jackson. IAC analyzed the bill last year, in a previous post:
By contrast, HB 1612 would apply statewide.
Here are some relevant points about the bill:
- The bill would allow any neighborhood district or HOA to opt for creation of Community Improvement District (CID). The CID would give neighborhood property owners a legal option to tax themselves, to pay for improvements to the appearance of their streets and parks, and to enhance or privatize security.
- Mandatory membership HOAs won’t be affected by HB 1612, since they already have legal authority to require the payment of assessments from their members, by way of Covenants, Conditions, and Restrictions (CC&Rs)
- However, HB 1612 is intended to provide non-HOA neighborhoods and Voluntary membership HOAs with an option to require all members within neighborhood or subdivision boundaries to pay for community improvements.
- As proposed Jackson’s previous four bills, 60% of taxable property owners in neighborhood districts or HOAs would have to vote in favor of creating a CID. Put another way, 60% of your neighbors can force the other 40% to pay higher property taxes to pay for additional community services, whether they want them or not. (See bill highlights below)
Those who favor HB 1612 and HB 1157 (Jackson only) argue that, since everyone in the community benefits from community services, each should have to contribute to the cost of those services.
Those who oppose both bills say that homeowners on fixed incomes cannot afford to pay an additional 6 mills in taxes, especially for improvements that may be nice to have, but not absolutely essential.
Proposed legislation would give HOA’s taxing authority if signed into law
By Courtney Ann Jackson | March 8, 2019 at 7:19 PM CST – Updated March 8 at 8:37 PM
JACKSON, MS (WLBT) – Some may complain about the possibility of property taxes getting raised. But, Chairman of the Madison Organization of Neighborhood Associations Paul Tankersley says upkeep of a neighborhood translates to maintaining property values.
“But this you get instant benefits because it all goes right back to where you live, right there.”
House Bill 1612 would give homeowners’ associations taxing authority through creation of special improvement assessment districts. Those non-profits would be able to impose up to 6 mills of property tax for improvements like streets, security or parks. But it would require 60 percent of the homeowners to support the increase. Jackson leaders and neighborhood associations have stood behind the idea of Community Improvement Districts for the last several years.
Read more (video):
Highlights of HB 1612
So…Would HB 1612 give HOAs “taxing authority?”
No, but it would give HOAs spending authority.
To prove my point, first note that HOAs are private organizations, and not “governing authorities.” See the official definition of a governing authority in Mississippi.
(b) “Governing authority” means boards of supervisors, governing boards of all school districts, all boards of directors of public water supply districts, boards of directors of master public water supply districts, municipal public utility commissions, governing authorities of all municipalities, port authorities, Mississippi State Port Authority, commissioners and boards of trustees of any public hospitals, boards of trustees of public library systems, district attorneys, school attendance officers and any political subdivision of the state supported wholly or in part by public funds of the state or political subdivisions thereof, including commissions, boards and agencies created or operated under the authority of any county or municipality of this state. The term “governing authority” shall not include economic development authorities supported in part by private funds, or commissions appointed to hold title to and oversee the development and management of lands and buildings which are donated by private individuals to the public for the use and benefit of the community and which are supported in part by private funds.
Notice there is no mention of homeowners’ associations in this definition.
How the bill would apply to HOAs
HB 1612 proposes that the “governing authority of a municipality,” such as an urban renewal agency, or redevelopment authority, may levy taxes, up to 6 mills, and could issue tax exempt bonds, subject to specific procedures and limitations.
HOAs are not delegated such powers in HB 1612.
Reading the details of the bill, the governing authorities (municipalities or agencies) levy and collect property taxes, then distribute the money to each participating HOA.
HOAs would have considerable power to spend CID money. Below I’ve highlighted some of the key elements of the bill.
Section 2. (2) (a) As an alternative to the procedure provided in subsection (1) of this section, a special local improvement assessment district may be created under this subsection (2) if the boundaries of the proposed special local improvement assessment district are within the boundaries of the homeowners’ association representing that area. Upon delivery of a petition to the clerk of the municipality in which the proposed district is located, signed by the owners of at least sixty percent (60%) of the taxable real property in the homeowners’ association representing the area in the proposed district, the municipality shall begin efforts to establish the district. Within fifteen (15) days after receipt of such a petition, the clerk of the municipality shall mail ballots to all of the property owners in the proposed special local improvement assessment district providing for a referendum on the issue of creating the district. The ballot shall clearly state the issue to be decided and shall indicate the date by which the ballot must be returned to the clerk of the municipality, which date may not be later than thirty (30) days after the date the clerk mailed the ballots. The governing authorities of the municipality shall adopt a resolution creating the special local improvement assessment district if on or before the last day fixed for the return of ballots, the owners of at least sixty percent (60%) of the taxable real property in the proposed special local improvement assessment district vote in favor of creating the district. The resolution shall contain a description of the boundaries of the district and shall specify the maximum millage rate to be levied upon taxable real property in the district for the municipality’s fiscal year. (b) The homeowners’ association representing the property owners in the special local improvement assessment district shall submit a plan to the municipality specifying the local improvements proposed for the district during the municipality’s upcoming fiscal year and the total amount proposed to be expended for the improvements. The governing authorities of the municipality may levy a special assessment not to exceed six (6) mills upon all taxable real property in the district to provide funds for the local improvements. (c) The procedures required in this subsection (2) for the establishment of a district shall be used for the modification of the boundaries of a district.
Proposed HOA spending authority for CIDs
Here’s how the HOA could spend CID tax dollars. Unlike most special tax districts, where the governing authority awards contracts and manages spending of tax dollars, HB 1612 would hand over the money to an HOA. Then the HOA board would decide upon an improvement plan, and contract for construction and maintenance services.
As noted above, the HOA board would also be able to spend CID money for private security services, additional lighting, and surveillance cameras.
Essentially, a private-public partnership would be formed between a municipality and an HOA.
The unanswered question is, under this scenario, with powers to spend tax dollars collected by the government, would the HOA be engaging in state action or private action?
This is an important consideration, because if the HOA were determined to be a state actor, then HOA members would surely be entitled to equal protection of rights and due process under the U.S. Constitution.
At what point will the HOA give up its “private” status in exchange for ever-increasing powers and authorities once reserved for government?
(2) (a) Upon the adoption of a resolution establishing a special local improvement assessment district as set forth under Section 2(2) of this act, the homeowners’ association representing the property area in the district shall be authorized to exercise the following powers within the special local improvement assessment district:
(i) To provide for the planning and design of local improvements and the coordination of landscape design on different parcels of property, including the preparation of working drawings for the construction, acquisition and installation of local improvements;
(ii) To purchase, acquire, install and construct local improvements;
(iii) To purchase and acquire easements, air rights, scenic rights-of-way and other interests in land on which local improvements can be placed and which are necessary or desirable in connection with any local improvements;
(iv) To provide for the management of local improvements, including, but not limited to, providing maintenance and services within the district; and
(v) To contract with a nonprofit local association duly incorporated under the laws of the State of Mississippi to undertake all or a portion of the activities within the district.
HOAs must keep separate accounts for CID tax dollars
Note that the local government and state law would require CID funds to be kept separate from HOA funds. There’s also a requirement for an annual audit. At least there’s recognition of the need for accountability.
Section 4. (2) (a) The proceeds of any special assessment levied on real property located within a special local improvement assessment district under Section 2(2) of this act may be used to pay costs including administrative costs of and relating to exercising the powers set forth in Section 3(2) of this act. The municipality shall hold the proceeds of the special assessment until disbursing the proceeds to the homeowners’ association representing the area in a district created under Section 2(2) of this act. A homeowners’ association shall keep the proceeds of such assessment separate and apart from other funds of the association. Accounting for receipts and expenditures of proceeds from the assessment shall be made separately and apart from the accounting of receipts and expenditures of the homeowners’ association for other funds of the district. The homeowners’ association shall have its books and records audited annually by an independent certified public accountant and shall file a written report of the audit with the clerk of the municipality. The clerk of the municipality shall make the report of the audit available for public review. A special local improvement assessment district shall operate on the same fiscal year as the municipality.
HOAs can raise additional funds
However, HOAs are also free to solicit additional contributions from “any other sources.” Most likely, additional fund raising would amount to voluntary contributions.
SECTION 9. Any municipality that has formed a special local improvement assessment district under the authority of Section 2(1) of this act, any urban renewal agency or redevelopment authority which has been delegated authority under Sections 1 through 13 of this act, and any homeowners’ association representing the area in a district established under Section 2(2) of this act, may accept and expend contributions from any other sources and apply such contributions to any of the purposes set forth in Sections 1 through 13 of this act.
Read HB 1612: