How pests are poisoning New York’s suburban property tax system
The IRS has extended the filing deadline for tax returns this year, but in New York City, another tax season is now in high gear: the time of local tax grievances.
By mid-June, New York State homeowners will demand reductions in their property assessments, inundating local assessment review boards in Nassau, Suffolk and Westchester counties with appeals – many of which are promoted by an industry of tax grievances unknown in most countries. .
The thousands of appraisal challenges are part of a statewide property appraisal mess that’s at its worst in suburban New York City counties.
Real estate taxation, the main source of local government revenue in the United States, rests on the technical and obscure – but crucial – process of real estate revaluation. When assessments are out of date or inaccurate, so are homeowners’ tax bills, with repercussions on both personal finances and municipal revenues.
A recent University of Chicago study of property tax assessment practices across the country chose to focus on the impact of unchanged assessments on minority homeowners, who are more likely to live in homes. less expensive. In fact, outdated assessments skew property taxes for all owners.
All but nine states have laws requiring regular property reassessments, but exceptions include one of the largest and most heavily taxed states: New York. Here, not only is a reassessment not necessary, but also in some places the values have not been reset for decades or generations. Compounding the state’s failure to enforce a uniform standard of integral value, the disparities stem from New York’s multiple layers of local government.
Outside of Nassau County and New York City, property assessments are determined by hundreds of cities and towns. To accommodate county governments (which cover multiple municipalities) and school districts (which may cover parts of multiple cities), the state calculates an “equalization rate”: a rate of 25, for example, means that the municipality rates the property at an average of 25%. of market value.
The goal is to ensure that properties with similar market values in different municipalities pay equivalent shares of county and school taxes. In reality, however, the formula linked individual tax bills to the sale prices of other homes in its community – to ensure that a municipality’s share of its contribution to county tax revenue remains “equal.” over time.
The result is a non-system that has led to tax distortions and injustices and spawned a cottage industry of consultants who use the courts to force valuation adjustments for individual owners, while pocketing a large chunk of the savings for. themselves.
Localities in New York City often go decades, if not generations, without reassessments. In an exemplary community of Westchester (where one of us sits on the local assessment review board), assessment rolls were last updated during Richard Nixon’s first term in the White House. So homes that were popular half a century ago, but are now obsolete, get stuck with stratospheric tax bills.
In counties with some of the highest median property tax bills in the country – typically exceeding $ 10,000, with bills over $ 100,000 not impossible – the resulting inequalities can be huge.
The lack of regularly updated assessments means that most suburban tax rates, and therefore individual tax bills, are determined by this obscure “equalization” process. The state compares a sample of home sales in all towns and villages in a county to determine how much of county and school district property taxes each must pay.
If homes in your town have sold for higher prices compared to neighboring communities, your county and school rates go up, even if the market value of your own property has gone down.
No wonder local assessment boards are hit by a tsunami of grievances, many of which are filed by older homeowners living on fixed incomes in homes that have fallen in value but now have to pay higher taxes. Annual tax “grievance days” are held in Suffolk County on May 18 and Westchester County on June 15.
In the absence of regular reassessments, an obscure and parasitic group of complaint-filing firms has flourished. Often posing as “real estate consultants,” these companies are the property tax equivalent of ambulance hunters – charging up to half of a homeowner’s tax savings in the first year for the filing of disputes with local tax appeals commissions. Claim companies build business by filling suburban mailboxes with promotional flyers that promise results.
Incredibly, the overwhelming majority of appraisal challenges filed by and on behalf of homeowners are successful – not at the local level, but in an obscure court called the Small Claims Appeals Review.
The numbers for the past decade are staggering: nearly 500,000 assessments have filed appeals in four northern suburban counties, with Long Island by far the most active source of grievances.
The state doesn’t report how many assessment and grievance cases lead to tax cuts, but local assessors do. In 2019, in Westchester County, County Rye, 78% of successful small claims property tax appeals resulted in tax cuts of $ 522,000, an average saving of over $ 3000 per property. Very cautiously assuming that property tax grievances in New York’s metro suburbs resulted in homeowners making an average of $ 2,000, the total savings over 10 years was $ 1.1 billion. of dollars.
And assuming most of those cases were filed by grievance companies, the industry’s total take was around $ 500 million – most, again, on Long Island.
And when a homeowner’s tax bill goes down, other increase to ensure that the full tax levy is lifted. This keeps the grievance sauce train going.
Exorbitant property taxes add to the cost of living and doing business in New York City. Over the past decade, Governor Andrew Cuomo’s cap on property taxes outside New York City has finally brought suburban tax bills under control. It’s time for New York to combine property tax limits with tax fairness – and join other major states that require regular property reassessments at full market value.
Howard husock is Associate Researcher at the American Enterprise Institute and Editor-in-Chief of the City Journal. EJ McMahon is the founder and principal member of the Empire Center for Public Policy. Both have served on local assessment committees. Adapted from City Journal.