City cash-flow woes choke owners.

Tired of providing multi-millions of dollars of an interest-free financial float for city services, property owners are starting a call for prompt payment of property tax refunds and interest when it takes too long.

Real estate sources report it can now take ten months to two years to receive a refund check from the date a completed application is given to the Dept. of Finance.

But there are many property owners that accepted an offer of reduction at the end of last July that still don't have a remission letter - an official document issued by the Tax Commission necessary to apply for a refund and to show lenders so they will change the escrow requirements of the property. Attorneys say the Tax Commission is trying its best and is overworked and understaffed, but nevertheless their clients need the letters.

Another requirement is that certain Corporation Counsel settlements must now include a certified copy of an order signed by a judge, along with a letter from Finance re-calculating the transition assessments and taxes. But in at least one borough, a justice is taking ten months to provide the document.

Back to Bonds

In the last month, the city has also returned to its previously abandoned policy of requiring a bond in certain instances before it will issue a refund check. This practice further delays the refund and costs the property owner hundreds to thousands of dollars in additional fees.

The new budget documents provide evidence the city is collecting close to $200 million a year in overpayments but is not quite giving it all back, and certainly not in the same year.

Facing a New York State legislatively-induced budget stalemate, Mayor Rudolph Giuliani and City Comptroller Alan G. Hevesi admitted last month they had begun to conserve cash. While that may have come as a surprise to some New Yorkers, the city has taken similar steps in the past, in part by deferring payments to construction companies and holding up these very same property tax refunds.

No Money For Refunds

Typically, those affected report, funds have dried up towards the end of the six - month cycle just before half-year payments of property taxes - and a large infusion of cash - are due. So in November and December, and in May and June - depending then on state and city budget negotiations - payments to taxpayers can be non-existent.

Indeed, sources report no property tax refunds will be made for at least another month, if not longer. The last batch of property tax refund checks was issued March 10th and before that, a major mailing was made in October.

Last Spring, city sources reported refunds were to be held to no more than $2 million per month, an amount that can easily be exceeded by one settlement on one building. And there are 60,000 Tax Commission applications to be heard this year and about 90,000 cases on back-years that are still open - many of which will require refund checks.

There is no evidence that more than this $2 million a month has been distributed despite the budget document's report that $202 million was to be refunded in this past fiscal year, an increase of $31 million over the year before.

For fiscal year 1996, $209 million is being budgeted for refunds, yet the forecast calls for $477 million in "reserves," a number that is defined as including among other items "delinquencies," as well as the "cancellation of tax liability due to reductions in assessed value," and "refunds of current and past year payments due to overpayments (resulting mainly from cancellations of liability)."

In 1994, the last year for which data is available on delinquencies, $403.4 million was delinquent, yet a reserve of $593 million was set aside, leaving about $189.6 million for everything else, including over-payments and exemptions. Only $171 million was scheduled to be re-paid under a different item called "refunds."

That number will increase to $202 million in 1995, with the fiscal report recognizing that property owners are receiving reductions in their assessed value after they have already paid the taxes.

Contractors Get Interest

Property owners are also affected by fiscal policies when city agencies do not pay rents or scheduled condemnation settlements. Contractors are often affected because work done for city agencies goes unpaid.

Because contractors were neglected in the past, they lobbied for several state bills that now require public owners, the state comptroller's office and state agencies to pay interest after bills are owed for more than 30 days. That interest is passed-through to subcontractors and material men.

Last June, however, the city delayed payments anyway, and caused many small contractors to face bankruptcy. "Payments were held up and were two to three months behind," recalled Lawrence Roman, president of the Subcontractors Trade Association and executive vice president JWP Mechanical Services of New York, a division of Emcor. He quickly fired off a letter to the Mayor wondering "How come when money stops, the first people they stop paying are the contractors?" Roman says payments were made after that, but worries about a repeat performance this year.

So does Richard T. Anderson, president of the Building Congress. "Our guys have to meet payroll and you don't get reimbursed for a long time, and it's jeopardized these organizations." Last June, he recalled, there were some late payments and they joined with others protesting to the Comptroller Alan Hevesi. "Hevesi said, 'We'll do better,' but the city gets into cash-flow problems and in December they did it again," said Anderson. "They're in a pattern and the city is juggling its finances and is borrowing from its suppliers."

Warren Kogan, executive vice president of the Subcontractors Trade Association, has been instrumental in lobbying for interest payments on late payments for his tradesman.

"If the pocket isn't too deep, the city has been known to put people out of business," he recalled. "If you take a job for the city or the state - they are not much better - you can relax to a point... but you fall into the bureaucratic cesspool and it doesn't matter which way you swim, you can't get out of it."

Last Fall, rental payments were delayed by city agencies to commercial owners and the Real Estate Board of New York had to step in to help their member buildings.

In another area of governmental overbilling, refunds on overpayments of city business taxes also come with interest payments to the taxpayer if the city pays after a 90 - day period.

Two and three month delays would be heaven to tax certiorari attorney Jeffrey Golkin's ears. "There are cases where the taxpayer complied fully with the requirements of the refund process and it can be as long as a two-year delay in the obtaining of the check," he said.

His client property owners are delayed in getting property tax refunds going on two years in cases where an exemption or tax referral is involved. Otherwise, Golkin, a partner with Hirschfeld & Rubin, says he has cases waiting for nearly one year. And these are instances where all necessary paperwork has been in the city's hands since that time - the property tax payments themselves were made some years prior to that.

"The problem is exacerbated when we're dealing with condominiums or where properties are enjoying an ICIP, 421a or J51 benefit," he added.

In one case reported by another attorney, an entire Manhattan condominium refund application was held up because one unit simply had a veteran's exemption.

And a different attorney reported he recently telephoned the refunds and adjustments bureau because a year had passed. As it turns out, that particular application had not been signed. "Would you have called to tell me this?," he asked. "They said, 'No.'"

In one borough, a judge routinely signs orders that do not always appear in a timely manner in the New York Law Journal and recipients can wait as long as ten months for notification if they don't check the court files. The order is now necessary so as to obtain the refund on Law Department settlements.

One Queens low-income co-op settled a case going back to 1985 and is due about $100,000 in refunds. The check was ready to go out with the next batch in the Fall, recalls one attorney, and "then they stopped issuing checks." Then the city decided to require the judge's signed order. The check was canceled and so far no order has been signed. And the taxpayers still don't have the refund.

In Staten Island, businessman Richard Nicotra, chairman of Everything Yogurt Inc. that owns about 300 yogurt shops in malls around the country, developed a 40,000 square-foot office building in the Teleport section that is partially occupied by his company.

He accepted an offer from the Tax Commission on July 30th. To date, his attorney, Steven R. Hochberg, a partner with Seiden, Stempel & Bennett, has not received a copy of the remission letter that was already pre-keypunched into the Tax Commission computer system.

Even the intervention of Council Member Jerome X. O'Donovan has not secured the coveted piece of paper that will finally stop Nocotra's bank from escrowing an additional $35,000 each year.

The remission order must be coupled with the canceled checks the banks used to pay the real estate taxes before the retired application can be sent in. Another year could pass before Nocotra sees his cash, and all the while, the city is enjoying close to $100,000 in interest free loans.

"It's really causing a problem in terms of cash-flow and hurting my ability to put up a new building," said a disgusted Nicotra, who as a Staten Island native did not want to defect to New Jersey.

Taxpayers Charged 18 percent

Golkin, who is president of the New York City land economics society Lambda Alpha International and a professor at New York University, is also burned-up by the delays.

"Delinquent taxpayers are changed 18 or 19 percent interest and the city should be placed in a position where if the taxpayers are not issued a refund in a reasonable period of time, the city should be required to pay interest as well," he insisted. "There has to be some incentive for the city to expedite the processing of these refunds. It's a question of fairness."

Delaying these property tax refunds is another fiscal game the city has been playing off and on for years, but this year city officials have come up with tactics that have stretched out the refunds to unheard of time periods.

The latest wrinkle has brought back an old stall: requiring the posting of a bond in certain instances and costing the property owner even more money while ensuring the city gets another 30 days or more of financial float.

The surety bonds provide the city with an assurance that the party receiving the check is entitled to the money, explained certiorari attorney Israel Schechter, a partner with Podell Rothman Schechter & Banfield. "I can see it in certain cases. But the city is using it as a delaying lactic," he said matter-of-factly.

He said the firm, that represents several thousand properties, has over 400 completed refunds pending totalling well into the millions of dollars and received merely eight checks in the March batch.

As of April 13th, a new law provides that only an attorney's affirmation coupled with an indemnification agreement is necessary to obtain the check. But the President of the city's Real Estate Tax Review Bar, Arnold I. Mazel, scoffs "No one in their right mind is going to guarantee this to the city. No way is an attorney going to sign such a document."

Bonds Cost 1.5 Percent

For clients to obtain a surety bond, longtime certiorari bond provider Arthur Levine, who heads his eponymous Manhattan-based company, said an indemnification form must be signed for him.

"We want to know your financial status and we want an indemnification agreement from you that we can come after you," he said, noting "We are not an insurance policy." His firm merely lends you his credit with the city.

One attorney called to tell him a client was balking at signing the form to obtain a $250,000 refund. "Then he won't get the money," responded Levine, who has been burned only a few times in the past 20 years, sometimes over lost stock or bond certificates that later surfaced.

A surety bond costs 1.5 percent of the expected refund and is required wherever the refund is over $1,000 and a canceled check cannot be provided or in some other partnership circumstances. So the cost on a $100,000 refund would be $1,500 additional for the taxpayer.

The city had routinely required surety bonds until a daily newspaper exposed a pattern of unclaimed credits in the Finance Department computer. At that time, and in an effort to be user-friendly, then Commissioner Carol O'Cleireacain began automatically providing credits to property owners who may or may not have made the water or sewer or property tax overpayment some years before. The requirement for the bonds was quietly dropped and was suddenly re-instituted about a month ago.

No one at the Department of Finance was able to comment on the sudden need for bonds, or on the growing refund liabilities to city taxpayers.

"Other counties pay interest on settlements beyond a certain period of time," noted Mazel, mentioning Westchester as well as Nassau County. "This is not city money. This is taxpayer money that the city is holding beyond a reasonable period of time. This is entirely wrong. This is not their money."

Mazel pointed out that the refunds are due on settlements, and these are made at lower amounts than the taxpayer is entitled to receive, primarily because the taxpayer wants the money in a timely fashion and does not want to drag the process out further with a long and costly court battle.

"The taxpayer is not receiving back his entire refund, only a part of what they are entitled to," continued Mazel. "They either settled at Tax Commission or the Law Department at a percentage of what they would risk at Court. And the city is holding it up."

Mary Ann Rothman, executive director of the Council of New York Cooperatives, notes that many co-ops and condos are affected by the lack of cash-flow while waiting for the refunds on settlements. "If we are late paying our property taxes we pay 18 percent interest," she noted. "It's hard to ask a city strapped for money to pay us interest, but they should at least pay in a timely fashion."

The co-ops expect the money in about a year and because they are operating as basically non-profits, budget for the check. So when it does not arrive, they have to raise maintenance. "These are middle-income people," Schechter said. "These aren't always luxury buildings. We have Queens co-ops and they have gone to their Councilmembers to try to get the check. And we have a lot of angry clients."

Roll Closing May 19th

The future also looks bleak for those property owners who have in the past been able to obtain reductions at the Tax Commission before the roll closes on May 19th and pay on the reduced amount without going through the refund process. The final roll is to be issued on May 25th and tax rates are usually set in late June, depending on the class share adjustments.

Attorneys report the only hearings that will be held at Tax Commission before June 15th are the buildings assessed at over $20 million and cases known as tri-boards where the Tax Commission and the Law Department work together on an older matter.

The hearings on the city's largest buildings for the wealthiest property owners help shape the final roll and calculate refund liabilities. In reality, the final roll has already been determined by city officials and now the properties must be pigeonholed into the result. The roll will drop a mere .7 percent from fiscal year 1995's billable assessments of $7.60193 billion, while the levy will be $7.838 billion.

So most taxpayers will have to pay on the higher amount, and then negotiate or litigate to obtain a settlement and hopefully, a refund in a timely manner.

"It's like an interest-free loan from the real estate industry," said Schechter. "Everybody understands the problem with the city's finances, but you can't just decide to hit one industry when it's unfair."