Written by Matthew A. Piacentini Friday, 28 May 2010 00:00
If there is a fire, do you first put out the flames or try to find their source? Most agree in Nassau County that the current system by which property taxes are assessed and grieved is a crisis of “fire” proportions – with a quarter of a billion in taxpayer dollars wasted each year and well over $1 billion in existing debt - but officials and interest groups have begun arguing heatedly over how to fight it before the whole county goes down in the blaze.
County Executive Edward P. Mangano campaigned for his office by promising to “freeze and fix” the money-hemorrhaging property tax assessment and grievance system. At his inauguration on New Year’s Day he signed executive orders to create a volunteer team that would find long-term solutions to the system, the Assessment Reform Team (ART). Most recently, the county executive put forth three huge changes meant to reform the system and stop losses in the short term – two executive orders that radically shift the assessment process as of right now, and legislation that would create further immediate change.
Driving Mangano’s hurried push for reform is the need to address what he called at a recent press conference a “state of emergency.” Both Mangano and Nassau County Legislature Presiding Officer Peter Schmitt stated that a failure to fix the system could result in bankruptcy for the county.
The act of assessing and then allowing grievances, which result in refunds, is costing $100 million a year in refunds and an additional $150 million a year in debt service on the money borrowed to pay previous refunds, he presented.
“Last year it exceeded 10 percent of our budget,” Mangano said. One half of Nassau’s debt, over $1 billion, goes to paying these costs. It is a “shameful waste of taxpayer dollars,” he added.
First, to begin cost-saving reform of the system, Mangano has issued monumental executive orders.
One order was meant to force commercial property owners to contest their assessment within the year it is actually made (with their own certified appraisal) before that assessment becomes final. The idea is that these property owners will not overpay taxes because they will agree on the correct assessment of their property before the tax roll is final. Equally beneficial, the county, then, does not have to go through the expense of refunding those overpaid taxes.
The second order requires County Assessor Ted Jankowski to stop performing assessments annually and to begin a four-year cycle starting next year. Mangano argued that having a “perfect” system that accurately assesses each property annually is not working and that the “majority of other municipalities” across New York use a cyclical system.
Subsequently, to create more involved and detailed reform of the assessment system, Mangano, with the help of Patrick Foye, the executive director of ART and deputy county executive for economic development, has proposed a law meant to immediately stop some of the financial losses that result from problems with the system. They brought the draft of this new bill before the county legislature at its May meeting. The bill is focused only on commercial property owners, who, Foye submitted to legislators, make up 80 percent of the county’s liability. It is basically designed to push would-be grievances into settlements, again avoiding refunds and losses from the grievance process.
The proposal instantly created a heated debate at the legislative hearing. There were several issues that drew question and concern, not always divided along party lines.
As mentioned above, Mangano signed the order to create the Assessment Reform Team (ART) at his inauguration. The team was due to deliver a report just a few weeks from now on how to fix the system. Some in the legislature, and some members of ART, said the new tangent that Mangano and Foye have taken disappoints them, rushing to small, short-term measures and ignoring their overall suggestions for long-term change, before ever actually receiving this report.
In response, Foye’s testimony to legislators echoed Mangano’s urgent crisis terminology.
“This is an emergency,” he said. “If the fire department gets a call to put out a fire, they don’t rush to their pens and pencils.”
The point of this emergency reform, as mentioned, involves measures to encourage commercial property owners to settle before the tax roll is final – before they pay their taxes - rather than grieve after their taxes are paid. The idea is to either: 1) get a commercial property owner to submit their own certified appraisal of the property in question to use as the basis of a negotiation or 2) to make a good faith or “bona fide” offer to the county for a settlement, with any offer of 85 percent or more of the original assessment being accepted automatically.
The outcome of either of these options would then stick for the next four years of the new multiyear assessment cycle. If they don’t take either of these options, commercial owners would be fined $5,000, but could then grieve their assessment.
Bona Fide Offers
Republican Legislator Howard J. Kopel spoke in supportive terms about the bill. He said that people should be clear that the 85 percent number in the bona fide offer option is not a minimum, but a “safe harbor.” He asked Foye if lower offers could be possible and the response was that there were times when much lower offers would be accepted, such as environmental contamination and “Acts of God.” Kopel said that language to that effect should be very clear in the final draft of the bill, and go beyond those examples, to open offers under any circumstances.
Republican Richard J. Nicolello voiced concern that the $5,000 fine was too steep for smaller businesses and the bill should contain a sliding scale. Republican Dennis Dunne echoed this, saying that “free standing stores like Dairy Barn and Carvel and delis…” should be considered on a different scale than “BJ’s or Macy’s…”
Further, regarding the fine, Schmitt pointed out that the fine “does not preclude” filing a grievance. He posed the question, “Will this become part of the cost of doing business?” Other legislators later echoed that concern, worrying that $5,000 to a multinational chain would be an irrelevant cost in filing a grievance, while a small business might totally lose the right to grieve because they cannot afford that price tag.
Is the Bill Legal?
A separate item of concern involved the actual legality of the bill. Schmitt was the first to raise this point.
“I’d like to get a county attorney’s opinion,” he said both on “putting a fine” on not accepting an assessment and on legislating to condition a negotiation.
Republican Legislator Vincent T. Muscarella furthered this line of questioning, asserting that the county could be unauthorized to alter the assessment process, as it falls under New York State law. “There is significant concern that the county may not have the legal ability to do what we are doing today,” he said. “If we are here today and we are going to pass legislation such as this, I think the members of the legislature need to be confident that whatever action we take is within our power... without state legislation.”
“I find it extremely difficult to believe that we don’t need state approval,” Democratic Legislator Judith A. Jacobs said.
Democrat Kevan Abrahams asked, “Why isn’t the county attorney here now? I would say, presiding officer Schmitt, the county attorney should be here today.
“I don’t disagree with you,” Schmitt responded. “Nothing is going to happen until we get the county attorney’s opinion.”
He and other legislators voiced concern that this bill, and other related ones, were already sent to Albany for state opinion, before they knew about it. Abrahams, for one, questioned why they were meeting to vote on a bill that was still being changed and was in a different form in Albany. He questioned why any version of the bill was with the state government if the county administration did not believe it needed the state’s involvement.
Schmitt asked Foye to make sure all the bills now in Albany were also with the county legislature.
During public comment, attorney John Terrana of Forchelli, Curto, Deegan, Schwartz, Mineo, Cohn, & Terrana LLP, which represents commercial property owners, testified as to whether or not the proposed law is actually trumped at the state level, making it illegal for the county to approve it. He told legislators, “Absolutely, yes. It is pre-empted by state law.”
There was also a question as to the legality of creating a new law and making it retroactive, as this bill proposes to affect those who have already filed grievances. On this subject, Terrana submitted that it is unconstitutional to subject people to a new law if they are already operating under the old law. “Ex post facto” laws are prohibited. “You cannot do it,” Terrana told the legislators.
Objection to the Bill
A different area of concern, larger in scope and really involving opposition to the bill, was the idea that the new actions to stop losses in the assessment system are not addressing the system itself. First Democratic Legislator David Dennenberg and then members of the ART and business community spoke to this.
Dennenberg’s major point of contention was that the county collects data from every commercial property owner now that should be, in his opinion, the defining information needed in making a correct assessment. This would be the income and loss statement. First, he said be believed the current law states that the county is not supposed to settle without looking at these documents. He objects to the fact that the county’s existing assessment staff, which has been enlarged in the county budget in recent years by millions of dollars, does not look at these statements in a “meaningful” way.
An attorney testified at the hearing that when he works to settle assessment grievances for his clients now, the county reviewers do not look at these income and loss statements all the time. He said when they do, the cases are settled. When they do not have time to review the statements, the county rejects the grievance automatically, he testified to the legislature.
Dennenberg said that he has an alternative law in that would require county assessment departments to review all income and loss statements within one year. He objected that the bona fide offer idea means the assessment reviewers “just accept an offer and don’t have to look at anything.”
Further into the argument that this draft bill does not address the problems in the assessment system, members of the ART stood to submit testimony.
Co-chair of the team, Mark Hamer, said that in its effort to stop losses from grievances, the county has found a short-term method that might be good for the county but bad for local business, mainly small business. He told Foye that his plan to “fight the fire” should be to find the “source of the fire” with a long-term legal solution. He told the legislature that the economic survival of the county depends on fixing the assessment process properly.
In harsh language, Hamer said that in seeking to encourage settlements the county has “criminalized the grievance process,” adding, “When we formed this committee, we were charged to make recommendations to improve a system so flawed” it is threatening the county and “crippling” small business owners with a “non-just, not transparent” system. “Many of us on the commission are frustrated and disheartened,” he continued, complaining that the executive orders and proposed legislation “seek to bully commercial property owners… it seeks to punish every commercial property owner that files a grievance.”
Hamer said that these actions endanger “the local deli, the pizza parlor… if you pass this law you are assaulting the small-business community.”
Tarrana objected to the bill in this regard as well. He said that he has represented commercial property owners in grievances for 25 years and that small businesses cannot afford to spend the money on the appraisals that are needed to avoid the fine. He went on to argue that the county will not accept the number from an outside appraisal anyway, so that whole expense would be a waste. “They’re not going to accept word of an appraiser we hire,” he said. “What you’ve done is told the small business owner, ‘You can’t challenge.’ The large owner will still challenge every year. This disenfranchises every small commercial property owner in this county.”
Hamer, Tarrana and other argued that the only sure bet in this new law would be to make the 85 percent offer. Any other offer or the submission of an outside appraisal would simply go back into the county system that has a history of rejecting claims, they argued.
Tarrana did say, “You can fix the assessment problem. This bill is not geared to getting things right,” arguing that it simply deters people from challenging their assessment to protect the county from paying refunds.
The most surprising question to arise at the hearing was, what happens now? Will the ART still submit a June report? Hamer said that he was under the impression that the county was moving forward without the input of his team and did not think he would issue the report that was due in June.
He testified that the ART was never supplied with crucial information from the county, such as the average percentage change in a settlement. There is no way of knowing if the 85 percent “safe harbor” is based on a good number without knowing this.
“That data for the last three months has been unavailable to us,” he protested.
Schmitt and some other legislators appeared to take his testimony seriously. Once Hamer made his opening diatribe, a lengthy discourse followed with legislators, addressing many areas of the ART’s findings that could lead to comprehensive reform. He said that 98 percent of cases are settled once the income and loss statements and other information are reviewed. So to re-allocate resources in order to make that happen faster would avoid refunds. He testified that most business owners want to settle so they know their cash flow for the next year.
The presiding officer said he was confused that Hamer was so adamantly opposed to the new legislation and executive orders. Hamer told him that he felt out of the loop and that the work of his team was “hijacked” and their input was not being taken into account. Schmitt asked him to finish the report.
“If you have information to share, please share it with us,” he told Hamer, suggesting that the input could replace the current proposal. “It is hard to beat something with nothing.”
Hamer agreed to submit the final ART report.
On this note, Legislator Abrahams summed up the opposition’s point asking, “When you have this fire, what would two weeks [when the report is due] have cost the county?”