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New York Property Tax Monitor

Property taxation, assessment, valuation by local governments throughout New York State

New York Property Tax Cap Noose Tightens

Posted in Property Tax Laws, Property Tax News, Property Tax Trends, Tax Cap

New York State’s ill-designed property tax cap tightens the noose on municipal and school budgets as inflation drops. With the consumer price index falling, the tax cap is expected to be the lowest ever, perhaps as little as 0.6 percent for municipal and county spending in 2017 (remember when it was introduced as the “2% cap”?). Of course, the tax cap, being misaligned to CPI as a barometer of school and local government costs, ironically fails to account for the rising costs of health insurance and payroll. This means that once again poor management at the top level of state government will compel local governments across the state to make ever more difficult choices about what the bare minimum consists of, and which programs must be sacrificed.

More municipalities than ever (eight last year) are on a path to reject the cap, though that comes with consequences. The municipalities that have stayed within the cap, or tried to, have dipped into reserves for things like highway improvements, as anyone who cruises the crumbling roadways of the state can see each day (yet the State managed to access some $4 billion for a new Tappan Zee Bridge). “The tax cap is like a set of handcuffs that keeps county governments from doing the kinds of things we should be doing, such as making road and bridge repairs,” said Schoharie County Treasurer William Cherry.

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As I have noted in previous posts, the property tax system in New York State perpetuates its dysfunctionality by providing virtually no State-level leadership and centralized mechanisms for fairness in assessment while at the same time pushing down various mandates such as pension fund payments and medicare on local governments and school districts. Albany’s solution to the tax problem? A steadily-shrinking tax cap that effectively cuts important educational and infrastructure local programs while the Governor and State lawmakers stick their collective heads in the sand instead of taking on true tax fairness and levying state-wide costs where they belong: at the State level of government.

 

 

Whoops! NYC Vastly Under-Taxes Hotel by Mistake

Posted in Property Tax News

For at least a year or two, one of the most financially successful hotels in the biggest market in the world, Manhattan, enjoys an enviable property tax holiday that was not extended to any of its competitors, courtesy of New York City Finance. “I never made a mistake in my life”, Rudyard Kipling wrote, “at least, never one that I couldn’t explain away afterwards.” It would be hard for the City to explain charging a mere $400,000 in taxes for a 669-room hotel that was sold in 2011 for some $270 million, tallying to just about $2 per square foot, as compared with the $15 per square foot average among New York City hotels last year. My city residents (read, voters) don’t receive that kind of a break.

IMG_2464According to Owen Stone, Finance Department spokesman, the low assessment was an “oversight“. He added,“typically, when construction is completed, we add the value from the physical improvements.

By comparison, the upscale W Hotel on Lexington Avenue paid $22 per square foot in real estate taxes, some 10 times what Yotel was billed.

Although a City assessor inspected the site and indicated that the hotel was completed, the Finance Department classified the hotel as under construction, leading to an assessment that did not reflect true condition. Apparently, the mistake persisted and is reflected again on this year’s assessment roll, though the City has stated that it is correcting the issue on next year’s roll.

So maybe New York City is more affordable than we thought – if you’re the lucky one.

 

New York City’s Controversial 421a Property Tax Exemption

Posted in Property Tax Exemptions, Property Tax Laws

421a-protest-1Even casual followers of the New York City real estate market could not help but note the ongoing battle over a 45-year old property tax exemption that has become a mainstay of major multi-family projects, called 421a. The controversial tax abatement program for new developments has been on the verge of demise if lawmakers in Albany and New York City cannot come up with a compromise for its renewal.

The 421a program gives developers a 10-year tax exemption for building a multi-unit residential project on vacant land, and was created in 1971 when City officials were concerned that residential construction was dropping as many residents were moving to the suburbs. That’s hardly a concern now, though, like many statutes, the original intent is no longer much relevant. Today, the program is seen as a way to bring much-needed affordable housing units to areas of the City in need, and is relied upon by developers to reach a green-light return.

The negotiations over the program’s extension have focused mainly on Governor Cuomo’s insistence that any agreement guarantee

Governor Cuomo

Governor Cuomo

union-level wages for construction works on 421a projects, and a proposal the Governor opposed to include condominiums under the 421a umbrella. Governor Cuomo was strongly opposed to including condos following public outrage over the 421a inclusion of luxury condos such as One57.

Meanwhile, Mayor Bill de Blasio’s 80,000-unit affordable housing goal was premised in part on requiring developers benefiting from the program to include a certain percentage

Gary LaBarbera
Gary LaBarbera
Mayor de Blasio

Mayor de Blasio

of affordable housing. Many have said that 421a is critical to the Mayor’s goal. Gary LaBarbera of the Building and Construction Industry Trades Council considered the program “dead” and said that a new and comprehensive program that provides affordable housing while also ensuring middle class wages and benefits to construction workers was required.

And on the opposite side of the table, Real Estate Board of New York President John Banks III said that his group “remain[s] committed to working with stakeholders” to establish an affordable housing program but that a prevailing wage requirement was untenable.” One source reported that a wage guarantee could mean a significant increase in construction costs. The City’s Independent Budget Office said the Mayor’s affordable housing goal might dramatically rise by $2.8 billion, finding a 13% average cost increase on new projects.

REBNY's John Banks III

REBNY’s John Banks III

Of course, the poor relationship between the Governor and the Mayor can only complicate matters. As of this writing, the fate of the program remains unclear, and some major projects, such as Hallets Point, a 2.5 million square foot mixed-use development on the Queens waterfront that included 480 affordable units, have been halted based on the loss of 421a.

New York Property Tax Cap Squeeze on Schools Fails to Address Underlying Cost Burden

Posted in Property Tax Laws, Property Tax News, Property Tax Trends, Tax Cap

“The property tax is the killer tax in this state, and it has been for a long time,” Governor Cuomo said in his January 2016 State of the State address, and his solution has been the property tax cap. Appealing on its face, but the tax cap fails to tackle the real problems and has been the clear victim of the law of unintended consequences. Indeed, New York has the highest out-migration rate of residents in the nation, according to one source.1-standardized

The tax cap was implemented in 2011, and limits local government and school spending to 2 percent a year or the rate of inflation, whichever is lower. This year, the cap will be limited to 0.12 percent. School taxes represent about 60% of a property tax bill, and the New York City suburbs continue to pay the highest taxes in the nation. Before the cap, school taxes grew an average 5 percent a year; the increases have been about half that since, resulting in massive cuts to important educational programs and services.

When it comes to school spending:

  • New York spends the most per pupil in the nation on its schools: $19,818 per student or 85 percent above the national average, U.S. Census data showed.
  • School aid is set to hit $24.8 billion for the school year that starts July 1, a 6.5 percent increase.
  • Since the 2011-12 school year, school spending by the state has increased nearly 27 percent – up from $19.6 billion, records show.

The increase in school aid will limit tax increases this year, but it also came as schools face a near zero property-tax cap.

According to one news source, the Association of School Boards’ executive director Timothy Kremer observed that, “the 2 percent tax cap is not really a 2 percent tax cap. The quirks and vagaries of the cap formula mean it can fluctuate widely from year to year and district to district.” This year, 36 districts will attempt a tax cap override, compared to 18 last year, according to the state Association of School Boards. Districts seeking to override will need a 60 percent “supermajority” at the polls.

New York’s tax burden of nearly 13 percent of average household income is the highest in the nation, according to the Tax Foundation, a Washington D.C. fiscally conservative group.

New York has five different property-tax programs to curb costs: a STAR rebate; a tax freeze; a check tied to household income; a check for people with children under 17; and the tax cap. But this begs the question, why provide convoluted and often ineffective ways to rebate or cut taxes when the property tax problem could be far more easily resolved if state government took over many local expenses and distributed the burden more fairly through the income tax, while at the same time eliminating an astronomical amount of duplicated efforts and inefficiencies?

“In 2015, nine state mandates consumed 99 percent of the property taxes levied by counties across the state, outside of New York City,” the state Association of Counties said.

Staking a Claim: Why are Tax Grievance Claim Values So Low?

Posted in Property Tax Laws, Property Tax News, Tax Appeals, Valuation

A local reporter recently thought he got hold of a tax issue that would sell papers: claimants in New York tax cases often make their opening statement of value extremely low. To the reporter, unbelievably low, and therefore he was outraged and contended something foul was afoot. As is no surprise in much of the arcane world of property tax, the reporter struggled to understand the laws and process that govern, making a mess of it in the process and painting a picture that doesn’t actually exist. I wrote to his paper with the following, to clear up what is indeed a confusing area of the law, but one that is also of no real moment when resolving cases with assessors:

To challenge a property tax assessment one starts by completing New York State Form RP-524, known as a grievance form, and filing it with the Board of Assessment Review (BAR). The form requires basic factual data about the property as well as two items of non-factual information: the claimed market value and the claimed assessment. If one does not specify a claimed valuation the grievance will be dismissed even though the taxpayer is unlikely to have obtained an expert opinion of value at the outset because tentative assessments are released just before the filing deadline while appraisals take months to obtain; what the taxpayer does have is a good faith belief that the assessment is too high.

value_intro

State law limits the taxpayer’s options: the claimed value put on the grievance is the lowest possible value one can obtain, even though information may later arise that dramatically changes one’s opinion of value. Form RP-524 requires a value at the outset, even though cases typically run for years before resolution, and appraisals are rarely finalized for trial for quite some time. Severe structural damage, asbestos, an oil leak, a deed restriction, zoning limits, environmental contamination, or a local nuisance may eventually be discovered and require other forms of expert opinion. Taxpayers expect their legal counsel to have foreseen these possibilities and to have preserved their rights to full relief rather than initially claiming a higher value in an effort to appear “reasonable”. Clearly, the law does not always operate logically or efficiently.

As one of our clients observed, the grievance claim is part of the process and is not an expert opinion of value. Assessors know this, and in two decades I have never met an assessor who felt so constrained by our grievance claim that he or she granted our request to the dollar.

            One might ask, “at what point does one know how much to claim?” The answer generally rests with the municipality. In our experience, most grievances are denied by local boards year after year, regardless of the claimed value or how much evidence is submitted. The BAR rarely overrides the assessor to render a fair value. So long as the claim is denied in this manner, it likely goes to court and it is often years before the assessor agrees to a resolution. At that point, any appraisal or other expert opinions obtained at the time the grievance was first filed are outdated and the property owner will incur additional costs for revised reports. This is an unnecessary waste of a taxpayer’s money at the very time they are trying to save it through a tax appeal. In fairness, there are a few municipalities that do not operate this way.

I’m the Chair of the Westchester County Bar Association’s Tax Certiorari Committee, and while I don’t write on behalf of our members, many share my views. Our cases include properties for which the ultimate value turned out to be near-zero, which no one would have suspected at the outset. We afford clients every protection available, which includes preserving their right to address any eventuality in litigation. As local judges have commented, the tax claim is no different from the verified claims made in a range of litigated matters. Change this dynamic for tax cases, and one must change it for all litigation – possibly at the peril of serving clients zealously. If anything needs to be changed, it may be the law that limits relief to the value claimed in the grievance.

The amount of the grievance claim does not spur litigation. A low value claim is no obstacle to setting a fair assessment and avoiding litigation. By the time each tax case reaches the courthouse, the value claimed at the outset is never a point of discussion. There is no support for the notion that that a low value on the grievance has ever burdened a municipality or the legal process in which cases are resolved.

Why would a municipality decide not to reduce an assessment? The vast majority of assessments in some municipalities are carried forward year to year until challenged.
Reducing them at the time grievances are filed would decimate assessment rolls, causing spiking local tax rates to politically intolerable levels. By delaying appropriate reductions, governments “borrow” money interest free because tax certioraris are generally resolved on condition that no interest is paid. Allowing an over-assessment to persist for years permits the municipality to use a taxpayer’s money and then pay it back later without interest.

Some municipalities are now changing course through revaluation, but it may be many years before the property tax process is transparent and efficient throughout the Hudson Valley and, as we have already seen, even revaluations can prove problematic.

Highest Court Strikes Down Nassau County’s Attempt to Shift Obligation to Pay Tax Refunds

Posted in Court Decisions, Property Tax Laws, Property Tax News, Property Tax Trends, Tax Appeals

Nassau County was dealt a decisive blow to its financial prospects on February 18 when the State’s highest court held that it had exceeded its constitutional authority in attempting to shirk its obligation to pay tax refunds — estimated at some $450 million — by shifting the duty to individual taxing districts.

Justice Abdus-Salaam

In a 29-page opinion, the seven member panel of the New York State Court of Appeals, writing in one of three companion proceedings, Matter of Baldwin Union Free School District v. Nassau, struck down County Local Law 18, enacted in 2010 and called the “Common Sense Act”. That law purported to amend the County’s Administrative Code to repeal a 1948 special State law that obligated the County, rather than the local taxing districts, to pay any refunds resulting from property tax over-assessments. This earlier State law was known as the “County Guaranty”, and was a notable departure from the practice of the rest of the State. It was based on the notion that Nassau County was the government unit responsible for assessing and so it should take responsibility for its mistakes.

Nassau County’s 1986 reassessment of commercial properties resulted in soaring tax challenges that have continued unabated each year at a cost of some $100 million per year, which is paid mostly through borrowing. The Guaranty means that the county pays the refunds even though the school districts and towns collected more than 80 percent of the overpaid taxes.

Apparently, County legislators were feeling far more flush and generous in 1948 than in 2010. The 2010 Common Sense Act was a response to the County’s dwindling finances and overwhelming debt. The County Comptroller had blamed the debt on both the number of tax certiorari proceedings and the County Guaranty (Howard S. Weitzman, Nassau County Must Stop Paying School Tax Refunds). The Common Sense Act was an attempt by the County Legislature to override the State special law and so make Nassau act like every other county in the State and charge property tax refunds back to the taxing districts.

The Common Sense Act was immediately challenged by various interested parties including school districts, towns, special districts and private parties, who contended that Nassau had run afoul of its statutory and constitutional authority in attempting to supersede a special State tax law.

Although the trial court granted summary judgment in favor of the County, the Appellate Division disagreed and reversed, entering a declaratory judgment that Local Law 18, the Common Sense Act, was unconstitutional. To pass muster, such a law was required to be “consistent with…laws enacted by the legislature”, and this was clearly not. It provided the opposite of State law. Moreover, the County lacked authority to enact the law in the first place.

On appeal, the highest court of New York affirmed. In an opinion by Justice Abdus-Salaam, the Court of Appeals wrote, “[b]eyond its constitutional authority, neither a county nor the State can act, regardless of the perceived wisdom of its conduct or the nobility of its aims.”

The Court went on to say,

‘The power of taxation, being a State function, the delegation of any part of that power to a subdivision of the State must be made in express terms,’ and the delegation of any form of taxation authority ‘cannot be inferred’. [citations omitted].

County Exec Mangano

In short, there was no grant of authority by the State by which the County had the power to directly alter the assignment of tax burdens and the administration of the tax review system. Local Law 18, no matter how much “common sense” it may have seemed to contain, was an insufficient means of repealing the County Guaranty that was passed by the State Legislature at the County’s own request many years before. In effect, the County had confined itself to a system that was at odds with the rest of the State in 1948 and was unable to set itself free by any simple means. “The State Legislature has not delegated to the County the prerogative to supersede a special State tax law, and this lack of authority is fatal to Local Law 18. * * * The County possesses substantial home rule powers, but the prerogative to impinge freely upon the State’s constitutional power of taxation, by means of superseding a special State tax law, is not among them.”

David N. Yaffe, who represented 41 school districts in the challenge, said the decision “confirms the county had no right to place the burden of its incompetent tax assessment system onto school districts.”

The County suggested that it will do what it probably should have attempted from the start – at least legally speaking: seek state legislation to enable what Local Law 18 could not do, according to County Attorney Carnell Foskey.

Of course, this wouldn’t really address the County’s financial woes. More than 150,000 tax protests were filed last year, and the County has failed to address thousands of outstanding commercial protests. The county estimates its refund liability at $300 million, though it is estimated that there are as much as $250 million in outstanding judgments and another $200 million in cases that have not been finalized, for a total of around $450 million. Some of the existing judgments are as much as three years old, with no clear prospect of being paid.

Though the decision was a victory for local tax districts, it is hollow at best with few prospects for real improvements that result in affordable taxes and the avoidance of drastic cuts in services and programs. Minority Leader Kevan Abrahams (D-Freeport), said, “I do hope this decision from the State’s highest court will inspire (Mangano) to stop the budget gimmicks and finally focus on fixing the broken assessment system so taxpayers can receive what they are rightfully owed.” And Legis. David Denenberg (D-Merrick) complained, “Republicans great reform was to dump the problem on the schools.”

New York City Apparently Unable to Explain its Own Property Tax Methods

Posted in Property Tax Laws, Property Tax News, Property Tax Trends, Tax Appeals, Valuation

Calculating property taxes and related values is complicated and perplexing in nearly every jurisdiction in the U.S., though perhaps nowhere more than New York City. One of the greatest sources of confusion comes when the City decides to increase an assessed value for certain classes of properties based on market changes (as opposed to physical improvements). This is generally accomplished by phasing in the increase over a period of five years, and results in a new form of assessment that the City calls a “Transitional Assessed Value“.

New York City defines “Transitional Assessed Value” as follows: “Increases to your Assessed Value are phased in at 20% per year (except for physical changes).  Applicable to all Tax class 4 properties and also Tax class 2 cooperatives, condominiums and rental buildings with more than 10 units.”

Perhaps not overly complex on its face, but often enough to make the eyes glaze when considered over a period of several years in which market changes are continually being factored. Moreover, the mechanics by which the City calculates the transitional assessments are less obvious than one might think, and were made incomprehensible when word let out earlier in the year that those methods were being changed.

One of the most prominent providers of New York City tax assessment data and software, Genesis Computer Consultants, Inc., through its President, Jonathan E. Cohen, recently responded to the confusing changes in the methods by which the City calculates Transitional Assessments by submitting a Freedom of Information Request (FOIL) to the Department of Finance requesting a description of the rules under which transitional assessments are calculated. Because a significant number of property owners rely upon Genesis directly or through a representative to understand their taxes, the request was a reasonable means of efficiently disseminating essential information to taxpayers. Indeed, knowing how the government calculates your taxes is a basic right of any owner.

I was provided with a copy of the FOIL request that Genesis submitted to the City in August, which reads as follows:

“A complete written description of the current rules whereby the City of New York, through the Department of Finance, computes the transitional assessments which accompany the actual assessments as issued in the RPAD database.  Specifically, we request the rules for how equalization and physical assessments are phased in or not phased in, how demolitions (i.e., negative physical assessments) are treated, and all other procedures that determine the transitional assessments.  If the existing set of rules is accompanied by specific numerical examples we request that in addition.

We further request the programming techniques that are used to implement these rules in the City’s computer systems.”

On November 6, Genesis finally received the following reply from the Department of Finance:

“Please be advised that I have been informed that Finance has no written documents that are responsive to your request. I am sorry I can be of no further assistance to you in this matter.”

It would appear that New York City cannot, or will not, explain in writing how it calculates figures essential to the formulation of its own tax assessments and the ultimate tax bill an owner receives and is required to pay under threat of penalty or even loss of ownership. It is evident that there must be some process by which Transitional Assessments are computed pursuant to the supposed changes that were announced, yet no one saw fit to document that process or methodology. A mystery. At least to the taxpayer.

Real estate taxes are probably the largest source of revenue for the City of New York, and new assessments for 2014/2015 will be published about a month from now. One would hope that the Department of Finance won’t leave owners in the dark much longer, even if that requires someone to put pen to paper ex post facto.

Slight Decline in Westchester Tax Certiorari Filings Following Years of Steady Increases

Posted in Property Tax News, Property Tax Trends, Tax Appeals, Valuation

County Clerk Tim Idoni

The number of tax certiorari proceedings filed in 2012 in Westchester County (9th Judicial District) dipped below the level of the previous year, and reversed the steady annual increase that had been occurring since at least 2006. Figures for 2013 are not yet available.

Certiorari filings went from 3,288 in 2006 to 4,268 in 2011, an overall increase of nearly 30%. The 2012 figure was marginally down to 4,067, a one-year drop of 4.7%. Westchester County Clerk Timothy C. Idoni was quoted as saying, “As our local economy struggled, many businesses looked at this process as a way to take advantage of declining property values and to save money.”

The vast majority of properties that are the subject of these proceedings are commercial, although multifamily, including condos and coops, as well as the occasional single family residence, are included in these figures. Most owner-occupied, single-family residences are addressed in a separate part of the Supreme Court.

While there is no definitive way to determine the cause of the gradual increase and the recent decline, it is at least quite likely that a correlation exists between the real estate market for the period from 2008 through 2011 and the number of owners who saw fit to appeal their tax assessment. Perhaps the minor recovery of the market in 2012, or at least a general perception of a recovery, explains the dip in the numbers more recently. The market might also be responsible for increased filings in 2006 and 2007 to the extent that assessors were more aggressively increasing tax values as they read the news of a real estate market that seemed to be on fire.

Nonetheless, it is difficult to read too much into the figures; for example, it is quite possible that the increases in filings over most of the period from 2006 to 2012 is even more significant than may appear on their face due to changes in the County Clerk rules concerning the venue in which Article 7 proceedings could be filed. Historically, a property owner’s attorney was permitted to file a tax certiorari proceeding with the Westchester County Clerk even if the property was physically located in another county within the 9th Judicial District (Orange, Rockland, Dutchess, Putnam), because the Tax Certiorari Part was based in White Plains. A fairly recent rule change that was implemented just a few years ago discontinued this practice and now requires that tax certiorari proceedings be filed in the county in which the property is located. As such, these proceedings may no longer be filed with the Westchester Clerk, and yet the overall Westchester certiorari filings either increased or experienced only a minor decline. This can have no other explanation than that the “true” number of Westchester property-based certioraris increased even more significantly over the period at issue than indicated by the numbers released by the Westchester County Clerk, since those that are out-of-county have been removed from the figures.

The number of certiorari filings in Westchester since the time Mr. Idoni took office as County Clerk are as follows:

Year 2006 2007 2008 2009 2010 2011 2012
Filings 3,288 3,294 3,398 3,683 4,151 4,268 4,067

 

Considering the number of commercial tax parcels in all of Westchester County and the general lack of assessment equity, one might contend that some 4,000 appeals per year is surprisingly low.

New York’s Wealthiest Communities Pay the Lowest Property Taxes, Report Finds

Posted in Property Tax News, Property Tax Trends

New York State notoriously has one of the highest property tax burdens in the United States, leading the nation by several measures. Yet, within the State, the picture is far more complex and varied. Despite the fact that the majority of property wealth is located downstate in New York City and the suburbs of Nassau and Westchester County, a new report shows that upstate New Yorkers pay a disproportionately larger percentage of property taxes. According to the report, “[t]he highest tax rates are in places with low property values, while the lowest rates are in wealthy areas.

Gloversville, in upstate Fulton County, ranked first in the State with the highest effective tax rate, followed by Binghamton, which was ranked first last year. Surprisingly, the lowest effective tax rates among cities in New York State were found in Westchester, where Rye had an effective rate of only $14.46 per $1,000 of home value while it also had the highest median property value of $630,000. Interestingly, according to the report, “[t]he lowest-taxed community in the state is the Village of Sagaponack in Long Island’s Hamptons, which had an effective rate of just $1.19 per $1,000. Sagoponack also was the lowest-taxed community in last year’s survey.”

With votes on school budgets looming in the near future, New York State residents must once again consider what they’re getting for their money.

NY Property Tax Monitor Blog Quoted in the New York Law Journal

Posted in Property Tax Laws, Property Tax News, Tax Cap

Appellate Division Justices Thomas A. Dickerson and Daniel D. Angiolillo, writing a roundup of notable decisions and issues in the field of New York State property taxation and valuation law in the prominent New York Law Journal, cited and quoted this blog in a discussion of the controversial tax cap legislation (see this blog’s June 29, 2012, article, “Calculating New York’s Two-Percent Tax Cap“).

Judges Dickerson and Angiolillo observed that there were reactions and criticisms to the tax cap, and quoted the Tax Monitor as saying,

The greatest source of confusion among most New York State taxpayers is the suggestion that with the tax cap one year’s tax bill should never be more than two-percent higher than the year before. This is hardly true. Rather, the cap limit refers to the total tax levy (or budget) for the municipality or school, after application of a complex formula.”