At the beginning of the 2006 Legislative Session, I was delighted that Assembly Speaker Sheldon Silver appointed me as new the Chair of the Standing Committee on Real Property Taxation. I appreciate the Assembly Speaker’s trust in me to lead this significant Committee because it considers legislation that affects every real property owner in this State, especially homeowners and their ability to afford their property taxes.

Real property tax assessments and exemptions determine the distribution of tax liability that local governments and school districts impose on residential and commercial real property. Not only is the Committee responsible for bills that set policies for equity and fairness in the way assessors determine real property tax assessments, but also it is an important player in developing ways to reduce the overall tax burden.

The Committee plays an important role in making legislative improvements to the STAR program and is exploring alternative methods of school funding other than through the local property tax. Additionally, as part of its jurisdiction the Committee has oversight responsibility for the budget of State Office of Real Property Services and for aid to local governments for improved real property tax administration.

This newsletter will provide a glimpse into the current activities of the Assembly Real Property Tax Committee. For a more detailed summary of our legislative work, our Annual Report will be available on the Assembly website early next year.

I welcome your comments, questions and suggestions on our work. As always, I and the members of the Committee as well as our Committee staff—Karen Smeaton, Legislative Analyst and Tony Cantore, Counsel—are available to discuss your concerns and welcome your input on all real property tax issues.

Roundtable on Alternatives to Real Property Tax Funding of Schools

On September 21, 2006, the Assembly’s Real Property Taxation Committee in conjunction with the Ways and Means Committee held a roundtable in Cortlandt Manor, New York to discuss alternatives and/or supplements to the real property tax for funding New York’s public schools. The goal was to lay the foundation for additional discussions and public hearings on the subject.

Participants at the roundtable were: James Dunne, Ph.D. (New York State Office of Real Property Services – Director of Research), Trudi Renwick (Fiscal Policy Institute, Senior Economist), Betsey Swan (NYS League of Women Voters, Co-Chair), Neal Foley (NYSUT Research Associate), Julie Marlette (NYS School Board Association, Government Relations Representative), Assemblyman Herman “Denny” Farrell (Assembly Ways and Means Chair), and Sandy Galef (Real Property Tax Chair).

Panel members recognized that the responsibility to properly educate our children belongs to everyone and should be a national concern, not simply a state or local concern. It was aptly pointed out that other countries, such as China and the UK, provide an education on a national level as they know the children are the foundation for their future. More needs to be done to get additional school aid from the federal government. Nonetheless, the issue at hand at this roundtable was to focus on what can be done in the foreseeable future at the State level to aid property owners, especially homeowners, in relieving real property school taxes.

The theme seemed to be predominately on a school real property taxation system that provides no mechanism by which the homeowner’s ability to pay is taken into consideration (a regressive tax) and the state’s– similar to the federal government - lack of responsibility in meeting the educational needs of its children; in particular the need for increased governmental funding.

The discussion of a property owner’s ability to pay focused on a personal income tax credit also known as a “circuit breaker”. Currently tax law allows for a circuit breaker that is limited to households making a gross income of $18,000 or less and only provides a maximum income credit of $75 for most taxpayers. That threshold was established years ago and has not been adjusted to reflect the current economy. (Note: A circuit breaker proposal that would have provided a sliding scale income credit was introduced and passed in the Assembly in 2006 – refer to A. 10258).

The discussion that focused on the state providing more state aid varied somewhat, some calling for the state to pick-up the majority of the funding, others generated discussion on modifying the current state aid formula to make it more equitable.

Of particular interest was the suggestion by Ms. Renwick that the State pick up the entire cost of funding a basic education (a/k/a “education foundation”) and allow individual school taxing jurisdictions to retain the ability to continue collecting a property tax for additional local educational needs. Monies for this proposal could be generated from the income tax and from restructuring the current formulas by which school aid is currently distributed. Ms. Renwick and Dr. Dunne pointed out that the current school aid formula contains numerous complex aid programs that have varying formulas- this along with the statutory hold harmless clauses have led to a school aid formula that is inadequate, inequitable, and systematically flawed. Restructuring of the current school aid formula appeared to be a main component of this discussion.

In addition, there was a brief dialogue on requiring the “earmarking” of certain revenue sources. This has been done in several other states. Some states require a certain percentage of all sales tax and “sin” taxes to go directly to school funding for the sole purpose of funding schools and to reduce property taxes. This is not a new concept, as a member of the audience stated; revenue from the New York State Lottery is/was marketed as a school funding program that would aid in the reduction of local taxation to fund schools. In addition, several audience members acknowledged their discontent with the pace in which school expenditures and budgets are growing – generally much faster than the rate of inflation. Suggestions were made that budgetary restraints by school administrators and others would have to be a primary component of any viable solution to rein in school property taxes.

Mr. Foley proposed that additional school aid could be generated by a less regressive means if the State implemented the income tax rate formulas that existed in the 1970’s. Primarily, he suggested that additional revenue could be generated by widening the income tax brackets. In 1972 there were 14 tax rate brackets, today there are only five. The tax brackets of today have very little variance. At the low end, an income earner making $8000 or less has a tax rate of 4% whereas at the high end income earners of $20,000 or more have a tax rate of 6.85%. Mr. Foley suggested that if these brackets and tax rates were modified to the 1972 level, revenue could be generated in a more progressive manner and the state could generate the additional funds it needed to significantly reduce or potentially eliminate the reliance of real property taxes for funding schools. As a panelist pointed out, although a modification of the tax brackets may be needed, it should be done with great care as it would make New York less competitive with other states. This draws back to the discussion that education should be a federal issue so states are not competing with each other for the basic essential element needed for a strong nation – educated citizens.

These are but a few of the ideas that need to be discussed further to formulate data and viable proposals to reduce the burden of the local school property taxes on homeowners in New York State.

2006 Budget Highlights:
STAR Rebate

By the time this newsletter is published, the State Department of Taxation & Finance should have mailed all STAR rebate checks to New York STAR recipients as an extra benefit to help alleviate the burden of school taxes that homeowners have to pay. Homeowners were entitled to receive a rebate check if, as a homeowner, they received a basic or enhanced School Tax Relief (STAR) exemption on their 2006-2007 school tax bill. If a homeowner would have been eligible for the STAR exemption but forgot or otherwise failed to apply, they still may be eligible for a rebate check. In this case in order to get the rebate check, the homeowner must file an application (Form DTF-178) with the Tax Department. The application must be completed and filed no later than January 20, 2007. [New York City Property Owners should contact New York City Finance Customers Assistance at (212) 504-4080 if they have not received their rebate check but believe they are eligible. They should NOT use Form DTF-178.]

A formula set forth in law determined the amount of the STAR rebate for homeowners in individual school districts. The formula relied on the 2004 school district tax rate applicable to each school district. All homeowners in a particular school district received the same rebate amount. Senior citizens qualifying for the Enhanced STAR program received a rebate that is 67 percent higher than the basic rebate.

Originally the State Department of Taxation and Finance did not have the necessary data to issue STAR rebate checks to eligible cooperative homeowners. As such, it was originally surmised that eligible cooperative homeowners would have to file a DTF-178 application in order to receive their STAR rebate. However, due to the joint data collection efforts of local assessors and that of the New York State Office of Real Property Services, under normal circumstances eligible cooperative homeowners were not required to file a separate DTF-178 application. Nevertheless, if cooperative homeowners did not receive their rebate checks according to the original mailing schedule which ended October 31, 2006, they should make inquiry with the Tax Department and/or file Form DTF-178 to make sure they are protected and will get a rebate for the current year.

In addition, where other problems arise, such as checks being lost or being made out to the wrong homeowner, the Department of Taxation & Finance should be notified by calling the Tax Department’s toll free number, 1-877-6-STAR-NY.

2006 Budget Highlights: Cost of Living Increase in STAR benefit

Enacted with the 2006/2007 State Budget were provisions to create an enhanced STAR annual cost-of-living (COLA) adjustment increase annually for senior citizens over the existing STAR exemption base. For the 2006/2007 school year, the $50,000 Enhanced STAR exemption for income-eligible senior citizens would be adjusted from $50,000 to $56,800 to reflect cost of living increases since the full implementation of STAR.

This budget item represents a base exemption increase of 13.6%, which includes an accumulated increase in CPI since 2001. For taxing jurisdictions with STAR differential factors, appropriate calculations would be made to reflect the 13.6 % COLA adjustment. Thereafter eligible property owners are to receive annual COLA exemption adjustments. The COLA would be based on the consumer price index for urban wage and clerical workers (CPI-W).

Enhanced STAR would provide nearly 620,000 senior citizens an average property tax savings of $1,220 in 2006-07.

On top of school property tax relief, New York City residents would receive $668 million in 2006-07 in City personal income tax relief through the STAR program.

Notices in Real Property Tax
Foreclosure Proceedings

On July 26, Governor Pataki signed Chapter 415 of the Laws of 2006, amending the Real Property Tax Law, to impose more stringent notification requirements upon tax districts that foreclose delinquent real property tax liens under Article 11. The new legislation became effective November 23, 2006.

The legislation brings the state’s uniform tax enforcement procedure, under Article 11 of the RPTL, into compliance with a 2006 United States Supreme Court decision – Jones v. Flowers – in which the Court held that when a notice of foreclosure sent only by certified mail is returned unclaimed, a tax district must take additional reasonable steps to attempt to provide notice to the property owner before selling his property, if it is practicable to do so.

This new law builds upon current procedures and details steps to be taken to supplement mailed notice that is returned as undeliverable or otherwise ineffective. This ruling had an immediate impact upon counties and other local taxing districts that conduct real property tax foreclosure proceedings. (Whether under RPTL Article 11, or otherwise, care must be taken to ensure that the tenets of the Court’s decision are followed.)

Overview of Chapter 415

Under the pre-Flowers version of Article 11, when a foreclosure proceeding was initiated, enforcement officers were required to send notice to the owner only by certified mail, and to other parties only by either certified or regular mail (RPTL §1125(1)). If the Postal Service returned the item as undeliverable for any reason, the statute did not require the enforcing officer to make further efforts to bring the matter to the owner’s attention (though many did so anyway).

Chapter 415 amends Article 11 to generally require notices of foreclosure to be sent both by certified and regular mail when a foreclosure proceeding is commenced. The tax district would be permitted to proceed with the foreclosure without making further efforts to notify that party if: (1) neither mailing is returned within 45 days, or (2) only one of the mailings is returned during that period (i.e., the certified mailing comes back but the regular mailing does not, or the regular mailing comes back but the certified mailing does not.) If, however, both are returned within the 45-day period, further obligations are imposed upon the tax district:

In the case of an owner, the tax district must check with the Postal Service for an alternative mailing address. If that proves unsuccessful, it must post the notice on the premises (and may charge an additional $100 for the service). In either case, the owner would be guaranteed another 30 days to respond.

In the case of a non-owner, the tax district must also check with the Postal Service for a more current address, but if that proves unsuccessful, it must post the notice in the offices of the enforcing officer and the court clerk. As with an owner, the addressee would be guaranteed another 30 days to respond.

Those municipal officers who enforce tax liens pursuant to Article 11 are encouraged to review the Supreme Court decision and the new legislation, in consultation with municipal attorneys. Those officers that serve in municipalities that are not subject to Article 11, but rather enforce delinquent taxes pursuant to local charters, administrative codes or the like, are encouraged to review the Supreme Court decision and, in consultation with municipal attorneys, adapt your administrative practices (and if appropriate, your local codes) as may be necessary.

- from The Uniform Standard, October, 2006, Vol. 6, No. 10

Board of Assessment Review Ethics

Two bills were enacted into law directed toward preventing unethical conduct by members of Boards of Assessment Review—Chapter 405 and Chapter 503 of the Laws of 2006. These were designed to address a local situation where members of a Board of Assessment Review (BAR) considered complaints to reduce property assessments on property owned by fellow BAR members. Chapter 405 increases the fine for such conduct from $250 to $1,000 for each instance of such conduct.

Chapter 503 provides that, in the situation where there is a direct or indirect interest of a BAR member, a municipality may enter into an inter-municipal agreement with another municipality in the county to permit hearing of the complaint in the other municipality.