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Finance jumps gun on J-51 law change.

A move by the Department of Finance has increased property tax assessments for more than 400 buildings in the 11th year of their J-51 program even though the City Council has not passed the local law that is required for these changes.

While the local bill may pass as early as this week, officials differ on whether properties currently obtaining J-51 benefits will fall under the New York State enabling legislation or if only new properties entering the program will be affected. That bill was passed last year to modify and extend the J-51 program.

The J-51 program allows ownersincluding co-ops and condominumsto ake building wide-improvements and in return receive either an exemptin of the property taxes or an abatement of a portion of their property taxes. Under the old rules, the exemp- tion would end abruptly after either 12 or 32 years.

The enabling legislation passed by the New York State Legislature last year added years 13 and 14 to the program and began phasing out the exemption at 20 percent per year beginning with the 11th year. A similar two-year program (now 34 years) would not affect properties for another 15 to 20 years.

Although many experts, including Council officials and an Assemblyman who voted for the bill, believe the state measure applies only to new buildings entering the program, the legislative assistant who shepherded the bill insists it applies to buildings entering their 11th year of the J-51 program.

A Finance official has therefore raised the assessments of 404 buildings in their 11th year of the current 12-year program on the assistant's advice and in anticipation of the City Council measure being passed and signed by the mayor in time for the July property tax bills.

A City Council official, who spoke on condition of anonymity, was highly distressed over the Finance action. 'I had always read it to apply to new buildings,' the official said, 'If they are reading it differenfiy then we have to set them straight and be sure the legislation reads very clearly.'

'It's going to surprise a lot of people,' said Andrew Hoffman, president of the Community Housing Improvement Program and the owner of London Terrace and other properties. 'They sit down to do budgets last year and now they are going to get socked with a tax bill they didn't know they had.'

Assemblyman Howard Lasher, chairman of the Housing Committee, said he thought the bill was supposed to apply to new buildings entering the program. "If somebody does something pursuant to a Statute, builds in costs, then somebody goes and changes the statue it's not right," he agreed.

Lasher also questioned the constitutionality of Finance's move, noting the courts might have the final say.

Both the Council of New York Cooperatives and the Federation of New York Housing Cooperatives representatives testified at City Council hearings last fall and requested an 'opt-in' for the city's. local law. A provision for buildings to 'opt-in' to the new program was removed from the final state legislative version.

Jack Freund, director of research for the Rent Stabilization Association, agreed the city should either make the measure prospective or allow current program beneficiaries the option of the new phase-out or old 'cliff' ending.

While some properties might benefit from stretching out the payback, Freund observed, rental apartment owners have counted on vacant apartments becoming exempt from rent stabilization at the end of the exemption period.

'They will become exempt if a lease rider has been in place,' he said.

Additionally, the apartment has to become vacant after the end of the exemption period. "If you stretch it out, some owners might lose out on the deregulation potential,' Freund added.

They might also keep apartments vacant for one or two years if they can afford to do so.

"There's been a history of administrative actions that run counter to the legislative intent,' Freund continued. "The key here is knowing what to expect."

Co-ops in particular have complained bitterly about the abrupt ending which in some cases brought property taxes from $0 to many thousands of dollars, and have lobbied for a phase-in of taxes. But as CNYC Executive Director Mary Ann Rothman put it, they wanted the phase-in after the 12 years. 'They are helping by sticking their hand into your pocket earlier,' she said.

Under the modified bill passed by the state, the exemption would begin to phase out after 10 years but stretch to 14 years while the other J-51 program would phase out over years 30 to 34. No buildings will be reaching the 30-year point for another 15 to 20 years and are not affected by Finance' s move.

During the first year of the phase-out -- year 11 -- a building would be 80 percent exempt and paying 20 percent of its tax bill. By the fourth year -- year 14 - the building would pay 80 percent going to the full 100 percent when the program is over in year 15.

So buildings that were to pay no taxes for another year or two are being faced with up to a 20 percent payment this year, although the effect may be tempered with "abatement dollars."

Martha E. Stark, the special assistant to Commissioner of Finance Carol O'Cleireacain who made the assessment changes after concurring with legislative assistant Ed Lilly, explained that buildings would probably' not be hit with the entire 20 percent payment because 'abatement dollars' could be used to help pay down the total. Stark said a property can drawn down 8 1/4 percent of its abatement dollars per year.

A J-51 and certiorari expert, attorney Paul Korngold who uncovered Finance's assessment changes while tracking his J-51 clients, disagreed. "It's going to cost people money," he said. "If the building is paying taxes already, you can't draw down on the abatement."

Lilly admitted the legislative memo did not specifically address who would be affected by the measure. "If you don't ask the question, you don't get the answer,' he said of Lasher's differing interpretation.

Stark noted that they are beginning the phase-in only for buildings currently in year 11 and not for buildings in year 12. She said there cannot be two laws on the books for J-51.

Several experts pointed to the various 421a programs 'on the books' and noted that Stark and Lilly have decided to follow only part of the law by implementing it in the 11th year and not the 12th.

"The law doesn't say if you are in your 12th year it doesn't apply nor does it say if you are in your 11th year it does," said two attorneys who requested anonymity. "The assessments may be illegal."

Stark explained that if Finance did not make the changes in assessments for the tentative roll, property owners might miss the opportunity to challenge them. Owners have until Mon. March 1 to file assessment challenges while Finance has until that date to send an increase by notice for Class II properties. Those properties would then have additional time to file a challenge.

By the time the Council passes the measure, the change by notice period will have lapsed, Stark noted. 'We didn't want to be doing [computer] programming in April,' she added. She also said it would be kinder to the owners to see the full implications on the tentative roll now instead of raising the assessments later.

"If the City Council doesn't like what we've done they can always change it," she said.

Ann-Marie Ninivaggi a spokesperson for the City Council said Finance is doing this on their own. The City Council law, Intro 605, was discussed at a public hearing in November. 'But we have heard other complaints from people,' she said. 'We have not passed anything.'

The Council may be acting on the local legislation on March 1 or soon thereafter. There are a few minor aspects that are being discussed, said an official, but not much will have changed from last fall's versions.

Housing Preservation and Development (HPD) will not put any regulations into effect unless a measure is passed by the City Council, a spokesperson said.

Korngold, a partner with the law firm of Tuchman, Katz, Schwartz, Gellis & Korngold. said the purpose of the state law is to help people but in effect, it is not helping; it is hurting.

'The city is forced to act like Big' Brother,' said Korngold in a sentiment that was echoed by several others. 'It is telling co-op boards and rental owners that they don't have enough sense to take their own money [and build up the full taxes in their own bank accounts],' he continued.

The city is taking the money away at an earlier date, Korngold noted, and is getting an interest free loan.

'If assessments continue to decline it will hurt people because they will get a percentage of a smaller exemption,' Korngold continued, 'but if the market goes up it will help. The immediate effect is to cause taxes to go up this year but the bill is designed to be revenue neutral.' Korngold agreed the payments could balance out in a few years, but in the meantime, the city is taking money away earlier from owners.

Stark agreed the city is getting a little more a little sooner but feels most building's abatement money can pay 20 percent of their tax bill. 'The goal to address was the people being pushed off the cliff," she said.

Stark is frustrated by the criticisms of what she felt was a move to make things better. "We've given them a little staircase,' she said. 'That's what they asked for."

It was done for good purposes, Korngold said, but it makes them pay taxes earlier. And, he noted, "it keeps others from destabilizing apartments that they counted on."

CNY's Rothman observed: "It would delight me if the City Council passed the legislation but an either/or would be better and fairer. Then I don't have the tiniest problem with the phase-in starting tomorrow."
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Title Annotation:New York, New York Department of Finance increases property tax assessments
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Feb 24, 1993
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