Why It Matters
North Carolina local governments could recoup millions in lost property tax revenue under legislation that cleared the state House on Tuesday. The measure targets a tax exemption loophole that emerged from a 2013 court ruling, allowing for-profit developers partnering with nonprofits to avoid property taxes on affordable housing projects. Closing the gap would return $22 million to local coffers next fiscal year and $32.6 million by 2030-31, according to state fiscal estimates.
What Happened
The House voted unanimously to advance House Bill 1042, which tightens requirements for property tax exemptions on low- and moderate-income housing. The bill would require for-profit organizations working with nonprofits to secure government funding in order to qualify for tax breaks. Lawmakers cited a sharp rise in the use of the exemption over the past five years, with applications climbing and the cost shifting to residential taxpayers.
Representative Erin Paré, a Wake County Republican and the bill’s primary sponsor, said the trend is unsustainable. A final House vote is scheduled for Wednesday.
By the Numbers
The measure would generate $22 million in additional local government revenue in the first fiscal year after enactment, rising to $32.6 million by fiscal year 2030-31. The exemption in question stems from a 2013 North Carolina Court of Appeals decision involving Cane Creek Village, a Mitchell County project owned by a for-profit entity but controlled by a nonprofit. That ruling established precedent for tax-free status on similar arrangements.
Zoom Out
States across the country have wrestled with balancing affordable housing incentives and local tax revenue. North Carolina’s approach mirrors efforts in other states to ensure that tax exemptions serve their intended purpose rather than becoming vehicles for private profit with public subsidy. The legislation does not eliminate tax breaks for affordable housing but instead requires a clearer government role in verifying affordability commitments.
What’s Next
The House is expected to hold a final vote on the property tax bill Wednesday. If it passes, the measure moves to the Senate. Separately, the House voted Tuesday to approve $636 million in construction projects across five University of North Carolina system campuses. That funding, covered by parking and housing fees rather than state appropriations, includes student housing and dining facilities at North Carolina State University, residence hall work at UNC Chapel Hill and UNC Charlotte, and a parking deck at UNC Wilmington. The university funding bill now goes to the Senate.