Presented by: Diana A. Ehrlich
October 22, 1997, Sayville, New York
Before we begin, we wish to thank the members of the Committee, especially Chairman Ramirez and Assemblyman Paul Harenberg, for their formidable efforts to bring about meaningful reform of the property tax system in 1997.
Thanks in large part to your commitment this past spring and summer, we've now taken the first important steps toward creating a fairer, more workable, and better understood real property tax assessment process in New York State.
No one on Long Island needs to be reminded of how critical the property tax issue is to New York's citizens and businesses. While efforts to reduce state taxes have been moving forward, property taxes, especially school taxes, have continued to rise. In fact, the property tax is now the largest single tax paid by New Yorkers, totalling more than $20 billion.
1997 was the first legislative session in which The Business Council took an active, leading role in the struggle to provide property tax relief for New Yorkers -- especially employers.
In addition to efforts to reduce property tax rates, we addressed policy changes that could enhance the fairness, equity and efficiency of the property tax assessment and appeals process.
Early in 1997, we urged the Pataki Administration to include property tax reform in the Executive Budget, with special emphasis on a group of process changes we termed the "property taxpayer bill of rights."
The Administration responded to our appeal, drafting its own bill of rights under the STAR school tax relief plan. Their reform program was geared primarily to a taxpayer's right to know - to know the assessed and full value of their property, to know the percentage of full value applied in their jurisdiction and to know how to appeal or challenge an assessment, etc.
These are all very worthwhile changes and we applauded their inclusion in the budget eventually passed by the Legislature.
It was, and is, our contention, however, that a property taxpayer's rights should go beyond the right to know. With the lead sponsorship of Assemblyman Harenberg, along with the leadership and sponsorship of the Assembly's Real Property Taxation Committee Chairman Ramirez, and Ways & Means Chairman Denny Farrell, we drafted and promoted an expanded Property Taxpayers' Bill of Rights. Senator Mary Lou Rath of Amherst became the sponsor in the Senate.
This legislation went beyond the right to know, incorporating the rights of taxpayers, especially small business taxpayers, whose only avenue of redress is to appeal and challenge their assessments.
While working on drafting this legislation, we could have composed a multi-page laundry list of much-needed changes in the property tax law. In the end, the sponsors settled on three reasonable and reasoned reforms to add to the Governor's right-to-know proposals. These three reforms would have gone a long way toward giving property owners a real opportunity to challenge assessments they believe are unfair.
The reforms were:
Expand from 30 days to 60 days the time permitted to file a court challenge to an assessment.
Remove the precedent which protects/prevents a local assessor from being called as an adverse witness, or providing paperwork used to reach an assessed value, in a commercial or industrial property tax challenge.
Permit the use of all relevant evidence, including sales ratio studies, to prove the ratio of assesses value to full market value, which is often critical for businesses to use when making their case in court.
At the close of the session, only the last of these three components was adopted as part of the 1997-98 budget. We are very pleased that the other two reforms have not dropped off the radar screen - that they are included in the request for testimony at this hearing. And, we would like to comment on why these reforms, as well as one other, should be addressed by the State Legislature in order to reduce the financial and legal burden of property tax appeals on small businesses.
First, relative to the issue of extending the time to file suit to address an unfair assessment:
For most small businesses, a thirty-day window in which to file suit is simply unworkable. Hiring counsel; completing the appraisals and research; filing motions and notifications to the required parties, and other legal steps are just too time-consuming, especially considering that they have their own businesses to run.
Many, if not most, small business owners, who think the tax roll treats them unfairly when it is published in June, simply live with it for another year. They don't have the luxury of in-house tax counsel like large corporations, who they can push to expedite a suit against an assessing jurisdiction. They are forced to spend weeks or months preparing to file suit the following spring because the system doesn't give them adequate time to file during the year in which the inequity is identified. Meanwhile, these small employers have overpaid for another year, sapping valuable resources from often-struggling small firms.
Extending the time from the current 30 days to 60 days would give small businesses a chance to file, without any unnecessary burden on local governments.
Second, in regard to removing the prohibition against calling an assessor to testify:
Two long-standing precedents protect local assessors from being called to testify as adverse witnesses in real property tax challenges.
Last year, even broaching the subject of removing this protection ignited a powerful counter attack by the assessor community.
It was curious to observe this virulent attack on the idea of requiring assessors to explain and justify their valuations in court. In almost every other state (see chart appended), the assessor may be deposed and called as a witness, but in New York, assessors protested behind the scenes and blocked attempts to pass a statute that would override the nearly-unique precedent.
On its face, the idea of preventing a claimant from finding out how a figure was reached - when that figure constitutes the origin and entire reason for the court case - seems ludicrous. The whole premise for the legal action is based on a number - a number arrived at by an assessor. How can it be wrong to ask the assessor to explain how he or she came up with it? The legislature and the courts have determined that the burden of proof in property tax cases is on the taxpayer. Allowing the taxpayer to question the assessor does not shift that burden - it simply allows the taxpayer a reasonable chance to meet the burden.
The current furor in Washington over the burden of proof in regard to the IRS and taxpayers points out the need to balance the revenue needs of government against the rights of citizens to make their case. This is even more true in regard to property taxes, when the initial calculation of tax liability is made by the government itself, rather than by the individual.
Third, the possibility of making small claims assessment review (SCAR) proceedings an option for small business challenges:
We agree that a change in venue could be valuable for small business owners, who have difficulty handling the cost - in time and money - that usually accompanies an Article 7, certiorari proceeding in State Supreme Court.
The small claims review option may be a useful alternative for many small companies, but it may not be right for all smaller commercial and industrial appeals. In some cases, local, or other factors, may lessen the confidence in the local review process among business property owners.
For this reason, it may be preferable to allow smaller non-residential appeals to be brought in either state court, as currently available, or in a local small claims venue.
Fourth, the issue of providing for an escrow account to serve as a repository for disputed amounts:
The hearing notice listed a number of issues to consider as possible reforms that could ease the financial burden on small businesses of fighting an unfair assessment. We would recommend that the Legislature consider a requirement that a modest percentage (perhaps 25 percent) of the disputed amounts (not of the entire tax bill, but only of the disputed amount) in Article 7 certiorari proceedings be placed in an interest-bearing escrow account until such time as the case is settled.
There are several reasons for this recommendation, but the primary advantage would be that an escrow account would prevent local governments from spending money which may not, in the end, be theirs.
Some responsible local government officials already deposit the entire amounts under dispute into separate, untouchable accounts. This is a practice that should, at least in part, be codified.
When localities spend all of the money collected from taxpayers who are disputing their assessments and tax bills, it inevitably puts all local taxpayers in line for future "sticker shock," when final judgements favor challengers.
Such settlements or rulings create budget problems, hostility toward the businesspeople who filed a completely justified case and, in extreme cases, state intervention to bail out the localities.
Finally, a point about the overall increase in the number of court ordered reductions in real property assessments and the hardships these settlements seem to represent to local governments and schools.
A year ago, a legislatively mandated study by the Interagency Task Force on Real Property Valuation - which included Comptroller McCall and representatives from the State Office of Real Property Services - concluded that: ". . . reductions in assessment challenges can only be achieved if the underlying causes of these problems are addressed. The primary recommendation is therefore to amend state law to effectively require an improved standard of assessing."
In other words, this report goes into great length in describing the depth of the problem, showing the dramatic increase in the number of certiorari and small claims challenges, as well as the budget impact for schools and localities. But, itconcludes that the blame lies not with those who challenge their assessments, but rather with the inequities and faults of current assessment standards.
We applaud Chairman Ramirez, Assemblyman Harenberg and the other members of the Assembly who are taking steps to bring fairness and efficiency to the system. We also believe that the steps taken in 1997 and, we hope in the future, will restore the sometimes eroded confidence in local governments, as the primary collectors of the largest single tax paid by New York's businesses and residents.
Thank you for your attention and consideration.