NEW YORK’S PROPERTY TAX SYSTEM 

Most everyone is aware that property taxes have spiraled higher in recent years. Our State Government recently released a committee report which elaborated on New York’s high property tax burden indicating as follows:

• 3 out of 10 counties where households paid the highest property overall in NY State.

• 8 out of 10 counties with the highest property taxes as a percentage of personal income are in NY State

• 4 out of 10 with the highest taxes as a percentage of personal income can be found in NY State.

By most any measure New York property taxes are unconscionably high. In the years between 1995 and 2005 property tax levies in New York have grown by 60%. In these same years property valuations also increased dramatically. Mathematically speaking increased valuations should not impact the quantity of tax levies. Unfortunately, the appear to have. While it is true that different jurisdictions (Cities, Towns and Villages) have faced increased costs based upon unfunded State and Federal mandates they have also simply felt the flush of new revenue and spent too much. They have been building new school buildings, parks, senior centers, libraries, pools, and community centers in unprecedented numbers. They have been increasing the size of their police forces, fire departments, highway departments and recreation departments. These additional expenditures have been well out of proportion with any concomitant population increases.

The problem of high local taxes has been compounded by New York State’s system of property valuation and classification. NY administers one of the most archaic and Byzantine systems in the Country. While most states have less than 100 assessing jurisdictions, statutory reassessment cycles and a statewide standard of assessment. New York by contrast has 1,128 assessing units, each of which determines its own standard of assessment and reassessment cycle. While some municipalities reassess annually others have not reassessed since before the Civil War. This system is further complicated by the numerous overlapping and intertwining boundaries of school, fire and other special districts. The statewide system is not only inefficient and overcomplicated it breeds inequity.

When municipalities do not reassess the parcels they use an equalization rate set by the State to bring properties in line with market value. Each municipality upgrades all assessments by one equalization rate. This blanket approach is inherently inequitable since different types of properties appreciate and depreciate at different paces. Moreover, assessments on real estate rarely keep pace with the vicissitudes of the open market. For instance, assessments tend to overlook changes in: cash flow, interest costs, discount rates, operating expenses and functional obsolescence.

In addition to rapidly changing market prices, equalization rates also go out of balance by force of political pressure. There is often political pressure to lower equalization rates without changing assessments or tax rates so that municipalities lay meet local budgets which have become distended principally by unfunded mandates, rising pension costs, and rising healthcare costs. Owners should annually spot check the actual value of their property against the equalized value purported by the Town.

According to the Office of the State Comptroller, Statewide between 1995 and 2005 total property tax levies increased by 59.60% while inflation according to the consumer price index rose by 28.1%. Simply put property taxes increased by twice the rate of inflation. While in several counties there has been significant population growth which has compelled government spending such as in Orange and Dutchess County there are several Counties where taxes have spiraled considerably higher while the population has either stagnated or declined.

For instance, Nassau County is notable in that its tax levy increased by 74.8% between 1995 and 2005 while its population showed modest declines in the same period. Similarly the total levy in Westchester rose by 67.3% and Suffolk County showed a 63.8% increase while their populations manifested statistically insignificant population increases.

When the tax levy increases property owners have to pay more tax. In communities where values are rising rapidly the rate of tax per $1000 of market value often actually decrease. While this may appear to be good news, in reality the same owners of the same properties will usually be paying more for the same property. There are municipalities which have increased their total tax levy while lowering rates enough to counterbalance the changing equalization rates but this only occurs when there has been a surge in new commercial properties brought on-line which do not demand a concomitant increase in service expenses.

Generally, in downstate communities which saw significant appreciation, mil rates per assessed value have gone down and in upstate communities with either depreciation or stagnation mill rates per assessed value have gone up. “Mil rates per assessed value” are defined annually after the taxing jurisdiction has its budget approved. This budget is then divided among the total assessments in the taxing jurisdiction so that each parcel pays a percentage of the funds in accordance with the ratio of their assessment to the aggregate of all assessments. In downstate communities municipalities have seized the opportunity of falling mil rates per assessed value to increase spending without the political consequences of raising taxes per mil of assessed value.