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Certioraris – a Taxing Situation for New York Homeowners - or Why Jerome Hellerstein’s image is secretly being burned in effigy by almost every elected official in New York…..

By
Real Estate Agent with Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605

pngBear with me…this one is complicated, but doubtless there are many homeowners in New York who are hearing about certiorari appeals and how it is impacting their property taxes. I thought that it might be nice to explain in simple English what all the fuss is about and why your $#%*ing property taxes keep going up in ever larger increments. Call it my good deed of the day. If this isn’t easy reading – rest assured it was equally challenging to write.

The short story:

The short story is that successful certiorari appeals – the state-wide legal process by which commercial property owners can appeal their property assessments (to have them lowered) have been increasing in number and show no signs of stopping. When commercial property assessments go down – and their taxes go down, the tax rate per assessed value must increase or municipalities and schools would rapidly run out of funds.

But that’s only the first whammy – it’s really a case of a double whammy. The double whammy is that commercial property owners can also apply for RETROACTIVE refunds. The second whammy has involved borrowing the necessary revenue to pay off the retroactive certiorari settlements.

How serious is the problem?

How does this affect the bottom line? In Tarrytown total taxable assessments have gone down 20% since the 1990s.* White Plains has a similar situation where the school budget recently had to include $3 million in new certiorari refunds. It also included $4.6 million in Tax certiorari bonds. That was 45% of the entire projected budget increase. Later, in the final budget, the school system left out the expected $3 million increase in certiorari’s from the budget, postponing the day of reckoning by planning to bond them. (Click HERE for the full story)In addition, White Plains is facing another $16 million in assessment losses over the next 24 months. (Click HERE for the full story) That’s NOT chump change folks. It amounts to huge headache for public officials and helps explain why your $#%*ing property taxes keep going up.

How did all this get started? (the long story):

The current situation has its roots in a court decision filed by a law professor and lawyer Jerome Hellerstein. Hellerstein’s wife had a small home on Fire Island which happened to be assessed at a fraction of its true value. Being the honest soul that he was, Hellerstein pursued a case that would result in raising the taxes on said home significantly. It took him seven long years to get his taxes significantly increased. To the great misfortune of every publicly elected official that has held office since that time – he won. Since that time I’m sure that many almost all elected officials across New York have created voodoo dolls with Hellerstein’s image and burned them effigy.

Why was this such a big deal? Well, the Hellerstein decision wound its way through the court system and eventually found its way to the New York State’s Court of Appeals – which ruled in favor of our tax-paying hero Hellerstein –raising his taxes significantly. But it did far more than that. The decision invalidated the entire method of fractional taxation that had been in effect for more than a century, reinstating a 200 year old law that required all properties to be assessed at full market value.


One might ask what is wrong with such a concept? Plenty. At the time property taxes in NYC were based on fractional assessments in which homeowners paid taxes based on a smaller percentage of their home’s value than did commercial property. The resulting shift in tax burden would probably raise taxes for homeowners in the city as much as 139%. Similar alarming numbers trickled in throughout the state. Many felt that this could lead to a New York version of the California Proposition 13. Homeowners rightly claim that they have no real way to pass along the costs of such large tax increases and that commercial properties should be assessed at a higher rate. The argument my late mother made was that “You can’t eat your home” and “appreciation is a paper increase which isn’t realized until the home is sold.” Whatever the logic, the law as it stands now – tilted in favor of tax relief for commercial property owners getting relief at the expense of homeowners.

The decision which was made in 1975 and since that time, it has resulted in thousands of successful commercial certiorari appeals.This has resulted in millions upon millions in tax refunds and a SHRINKING TAX BASE with which to collect revenue. They have also received retroactive tax relief which municipalities and school districts have been forced to bond. But the problem doesn’t end with the initial equalization. It gets even more sticky when property values change. When residential values increased wildly, during the housing boom, commercial properties got left behind. The additional disequilibrium created a slew of new certiorari claims and retroactive refunds.

Who is Impacted?png

The end result has been a major shift in the tax burden from commercial property owners to home owners – and home owners are rapidly getting up in arms and saying “enough is enough!”
It is no surprise then why I am seeing signs out to vote against the latest school budget and demands for reform. With each increase, more and more long-time resident’s are being forced OUT and more and more pressure is building to bring the tax burden of the home owner under some kind of control.

Hence the voodoo dolls and effigy burning.

The problem is particularly acute for owners of single family homes. Rentals, condos and coops are taxed as commercial property. One might ask how condo and coops can request certiorari relief when their market value has been soaring as much, if not more than single family homes in the recent boom? The answer is that assessments for all of these units are based on rental rates – rather than on their market value. This has created a very uneven playing field for the traditional homeowner.

Solutions?

Perhaps one solution would be to gradually raise the assessments of condos and coops to the level of single family homes. This would spread the impact among those who have benefited from the housing boom. And perhaps, New York State should revisit the 200 year old law that created this mess. Should homeowners really be assessed at the same level as commercial property? My gut reaction says “no.” My late mother was probably correct in that gains in home values are not realized until title is passed to a new owner. What we are being taxed on is “potential gain” and we have no customers or tenants to pass along the expense to.

So that's why your $#%*ing property taxes keep going up in ever larger increments.

• “Tax Crunch Results in Heavy Burden for School Districts – Condo and Coop Owners Enjoy Beneficial Rates” by Robert Kimmel, The Hudson Independent, March 2008 . www.thehudsonindependent.com

• “Clarification of the history of the Hellerstein Decision came from: Twenty-Five Years After S7000A: How Property Tax Burdens Have Shifted in New York City” Independent Budget Office (IBO) New York, NY. http://www.ibo.nyc.ny.us

To Search for Homes and for further information go to my website/blog with free home search at The Westchester View

I am always happy to answer your questions and you can speak to me directly on my moble phone: 914-374-5529.

 

Debbie Malone
Londeree's Real Estate & Property Management - Lynchburg, VA
From Lynchburg To The Lake (434) 546-0369
Ruthmarie, now I remember why I left Massachusetts. No one likes paying taxes however if we don't have the funds to manage our schools, infastructure it all goes to hell. I wasn't happy with my last tax assessment but would I sell my house for it's assessed value? No way.
Mar 20, 2008 11:31 PM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

The trouble is that the tax rates are going over $1/assessed value in some areas.  For example, in some communities if you have SF home with an assessed value of $20k - your taxes are $28k - no I'm not kidding.  In some areas that's the tax on an $800-900k house. White Plains hasn't gotten anywhere near that BUT it may at some point but suddenly it has started spiking up because of all the commercial  certiorari's.  Also, all of that MASSIVE building was sold to the taxpayer because of the tax revenues it was supposed to create.  But condos are taxed like commercial property so the taxpayer got NO RELIEF....a ton of extra traffic and infrastructure changes and a flood of new children into the school district.  My guess is - and we can't get anything concrete from the city - that the average taxpayer lost big time on this one because the costs have outstripped the revenue collected on most of these buildings. In other words, it has made the problem WORSE for single family home owners who didn't want all the construction to begin with. So people are VERY ticked off. 

I fear that we may be headed towards a Prop 13 type of revolt.  School budgets have been passing, but by less and less each year and I have personally voted "NO" on the school budget for the past four years.  At $25k per child per year - it is simply out of control and even though I'm a liberal to the core, I do think teachers in my immediate area are overpaid given the ridiculously generous retirement and general benefits packages. They include no NYS taxes!! HELLO!  Enough.  $130k for working 9 months a year and they don't pay NYS taxes? What is that all about?  Then they are always crying poverty for the "poor teachers."  Please!  They are piggybacking off of the genuine hardship teachers have in other states. But around here the impoverished teacher is an urban legend. College professors in my former field can't hope to even come close to that.  They top off (Ph.D. and all) at about $70k - and they don't get the summer off.   Of course my attitude on this reflects what my fellow professors feel.  They look at their school tax bill and tear their hair because despite their far more rigorous and extensive educations, they don't come close to the pay scale they support with their taxes for people with far less expertise and education.  Its infuriating. 

As for condos and coops, appreciation should be linked to market value not rent - many complexes don't even permit renting. 

Mar 21, 2008 08:24 AM
Maureen Maureen
Orangeburg, NY
Ruthmarie - It is so sad, the taxes are so high here that I know a bunch of people that are moving down south because they cannot make it in NY any longer.  My taxes are more than most people's mortgages. 
Mar 22, 2008 09:55 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY
Part of the problem has been the successful certiorari suits by commercial properties.  The burden has been shifted so heavily to the shoulders of homeowners that many are drowning.  I see taxes of $30k on homes that are worth less than $1 million.  What's that all about?
Mar 22, 2008 02:55 PM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!
Ruthmarie, I've subscribed to your blog!  Anyone who can write an informative and interesting article on a complex topic like this and make it enjoyable reading to someone clear across the country is doing something right in my book!  I'm glad that this article was featured in the Blogger's Choice Spotlight by Lenn.  It is very well written.  Thanks.
Apr 01, 2008 05:52 AM
Midori Miller
Talk 2 Midori, LLC - Daytona Beach, FL
Online Marketing For Real Estate Professionals

Ruthmarie-you have to wonder where all those tax dollars go and why so many increases.  The small business seems to get affected the most...sales tax...unemployment tax...will it ever improve????  Normally these types of posts do not interest me at all...but I have to say...you spelled it out even for the common folk to understand...meaning..me..the average consumer!  Congrats your post was selected for the blogger's choice selection.

Apr 01, 2008 07:05 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Thank you Lola,

It was funny because I actually wrote a blog complaining how someone with 60-something one-sentence blogs eclipsed this blog from the blogroll!   So I want to thank LENN in particular for giving this one a "second wind!"  I admit the topic is kind of a slog and it took a long time to write - mostly because I wanted it to be readable.  That was the hard part. Thanks for the complement, the subscription and the BLUE RIBBON! 

 

Midori -

I just don't know the answer.   This is an example of a court decision that had far-reaching consequences.  Its a mine field for elected officials to correct on the state level because there will be clear winners and losers.  So NOTHING has been done where it really needs to be don. But more generally I feel that much of this is just POOR PLANNING on the part of local governments.  They don't think before they leap into a new building project that claims it will bring in huge streams of revenue.  There are also legal issues in which builders really bully municipalities into consent threatening them if they don't concede. This has happened more than once. The idea that "It's MY property and I have the RIGHT to build to the fullest extent of the zoning no matter WHAT!" resonates with our free-market mentality - but there should be limits if its going to cost tax payers millions in infrastructure costs and increased school taxes. If the "plan" isn't carefully reviewed, the costs can easily outrun the revenue gains and THAT is a very dangerous problem if a lot of building is happening at once. 

Apr 01, 2008 07:53 AM
Kevin O'Shea
Coldwell Banker - White Plains, NY
White Plains, NY Real Estate

Hi Ruthmarie

Great job on a complicated topic. Congratulations on the blue ribbon.

 

Kevin

Apr 20, 2008 04:55 PM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Kevin,

Thanks. How are you enjoying life on AR?  Getting the feel of the place yet...lot's to learn. I was surprised it got tagged.  But Lenn Harley who did the review likes complicated topics.  You should read her regularly.

Apr 20, 2008 05:52 PM