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Final tax roll is released.

The city has held the line on assessment challenges, according to figures released with the final property assessment roll last week. The release of the roll is also the first step towards the setting of property tax rates by the City Council.

But since bills were already printed based on Fiscal '97 tax rates, whatever rates are finally set on June 5th will also be based on the new budget. So those numbers and new tax rates won't be reflected until owners receive their mid-tax year bills, due in January 1998.

One thing is already a sure bet, most taxpayers will see a rise in their bills, primarily because of the resetting of the tax class shares and the mandated shuffling of a large increase from the utilities.

The class shares are expected to reflect a 4.5 percent rise in Class I's overall taxes.

The tax bill on a million dollar Manhattan home is still less than half of what a suburbanite pays in the best school districts - it's just that in New York City, those homeowners pay the private schools the money directly instead of providing the financial support to fix the public schools.

And with a tax bill usually less than $1,600 in the outer boroughs, the money doesn't nearly support a child in the school system - or the police, fire, sanitation or other city services the homeowners receive. (That's one reason the city funds education with all revenue, including a portion of the personal income tax, and why Mayor Rudolph Giuliani says city residents need a reduction in personal income taxes as well as the property school tax relief that is proposed by the Governor's budget.)

There is already talk, but sources say no decision has been made by the Council yet, to cap the Class I increase at 2.5 percent. A state law, designed to prevent such political shifting, caps any increases at 5 percent. But there is already a bill, introduced in Albany by Senator Roy Goodman a month ago, to cap the Class II overage at 2.5 percent. That isn't going to be a problem this year, because those taxes would end up going down very slightly, but the bill could be altered to cap Class I.

Such a cap would probably shift more overage to Class IV's commercial owners, who would otherwise still enjoy a small decrease in their taxable liability.

The utility rise will also mean an increase in utility rates for everyone of under 3 percent.

The city's tentative billable assessments as released in January totaled $76,319,333,310, while the final billable released on May 27 totaled $76,020,741,879.

This reflected a drop of $298,591,331 due to Finance Department changes by notice after the roll was released and Tax Commission hearings on tax certiorari challenges.

Compare that to the January 1996 tentative roll that came in at a rounded $77,087,800,000 and became final in May, 1996 with cuts totalling $1,592,800,000 during the same Tax Commission hearing period.

Attorneys complain the Tax Commission did not make offers designed to settle the cases on the major taxpaying buildings assessed at $20 million and up, which will now pay the city at least more than $2 million each in taxes in the coming weeks. The Tax Commissioner did not return a call before deadline.

Carlos Velazquez, president of the Real Estate Tax Review Bar Association, points to the differences between the tentative and final rolls.

"It looks like the final and tentative rolls are the same," said Velazquez, a partner with Pottish Freyberg Marcus & Velazquez, who was perusing the assessments on the final roll. "I haven't come across one property with a decent cut (in its assessment). When you tell me that the difference between the tentative and the final roll is less than $300 million, it's a fraction of what they made (in cuts) last year."

In fact, the Mayor's own executive budget predicts a $600 million difference based on historical references.

Each $100 million of taxable assessment nets the city a little more than $10 million, based on an average tax rate of about $10.366 per thousand dollars of assessment.

The allowable borrowing power of the city is based on 2.5 percent of the full value of the final roll, averaged over five years.

Many factors come into the calculation of the debt service and sources insist holding the line on assessment cuts would not provide much relief on the debt service side.

Cases Backlogged

As in the recent past, and due to personnel cuts, only Class I homeowners, those properties valued at $20 million and up, and certain other matters received hearings before the roll closed.

That means that the majority of the 50-odd thousand property owners that filed challenges to their assessments will be paying July tax bills based on the tentative assessment. The certiorari attorneys say those owners have to then wait months - possibly until November - for their Tax Commission hearings and decisions, and then maybe years if the challenge has to be adjudicated through the Corporation Counsel.

Based on the 1996 Tax Commission report, it appears the Corporation Counsel is so backlogged that there are close to 150,000 back-year cases already awaiting adjudication. While about 10,000 of these tax year cases go back to 1980, the majority of them go back to 1989 when the market turned and New York City officials refused to acknowledge the problem.

If a case is open in a back year, all the intervening years are also still pending. The owner has been paying for a court petition each October and paying the property taxes based on the higher city-set assessment each year.

There are probably fewer than 500 cases open since 1980 - it's impossible to tell from the graph and no one from the city will release these figures - but by 1989 that number jumps to about 8,000, climbing to 20,000 in 1993 and about 35,000 still open from 1996.

When a case is finally settled at the Corporation Counsel, often the owner has to abandon challenges from back years, and does not receive a penny of interest on the intervening years of overcharges. This provides an interest-free loan to the city and a billion dollar reason to drag out the process.

All along, the city has conveniently borrowed these funds without paying a nickel in interest - albeit increasing its refund liability, which is finally being acknowledged in budget set-asides.

According to the Mayor's executive budget, with a $1 billion budget gap expected just next year and a total of $7.575 billion in the next four years, there is a motive for the city to slow down the settlement process.

But if the case goes to an actual trial, the city pays around 9 percent interest on the overcharges. The last time court trials played a major part in certiorari challenges was in 1982, after which time the Koch administration desperately tried to "cleanup" the back years and reduce the outstanding refund liability.

There were virtually no trials until the Court of Appeals forced the city to refund approximately $40 million to the owners of One New York Plaza, of which $28 million was overcharges and the rest interest going back to the FY '84 assessment roll. That case was based in part on asbestos problems in the building.

"They lost on virtually every case and on every legal theory," said Velazquez of the handful of cases that have gone to trial since that time, most of which the city has fought to the State's highest court.

Robert A. Kandel, a land use and tax certiorari who is of counsel to Kaye Scholer Fierman Hayes & Handler, said "As the real estate engine starts up again, it's more important than ever that the city clear the backlog of tax appeals so that the commercial property owners can compete for tenants on a level playing field. The inventory of appeals must be reduced because it's choking the system and distorting the market."
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Title Annotation:New York property tax rates
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 4, 1997
Previous Article:How bankers, brokers and appraisal companies can work together.
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