THE CASE AGAINST NY BILL A10551A/S8143 (“RESIDENTIAL REVALUATION EXEMPTION”) aka THE GREENBURGH REASSESSMENT PHASE-IN BILL

 Recently we’ve been hearing from the Greenburgh Town Board that the phase-in bill now before the state legislature is a great solution that will give homeowners hit by huge tax increases an extra few years to adjust to the Tyler reassessment.  What’s not to like about this bill working its way through Albany?  

While the phase-in bill ostensibly has an admirable and generous purpose (i.e.,  to ease the pain for homeowners receiving tax increases because of the reassessment), this bill, conceived by the Town Board and sponsored by our state legislators, is poorly thought out, deeply flawed, and has the potential to inflict quite damaging and unfair financial consequences on the majority of the town’s homeowners.

First, let’s examine how the phase-in works:

The Bill operates by allowing a home-owner hit with an assessment increase to apply for a phase-in of the assessment increase (and corresponding tax increase) over three years. [1]

Let’s take the example of a two homes with the same 2015 pre re-assessment valuation of $700,000  and give each home a $300,000 re-assessment increase.  Let’s see what happens to taxes for each home if one house receives the phase-in and the other doesn’t. We’ll assume a blended property tax rate of 3.33% which is typical for the Greenburgh villages. 

                        HOUSE A (NO PHASE-IN)          HOUSE B ( PHASE-IN)

TAX YEAR	HOUSE A ASSESSMENT	HOUSE A PROP. TAXES	HOUSE B ASSESSMENT	HOUSE B PROP TAXES
4/2016	$700,000	$23,300	$700,000	$23,300
4/2017	$1,000,000	$33,300	$800,000	$26,640
4/2018	$1,000,000	$33,300	$900,000	$29,970
4/2019	$1,000,000	$33,300	$1,000,000	$33,300

                                    

House A and House B started in the same place in 2016 and ended with the same assessment and taxes in 2019, but House A (NO phase-in) paid about $10,000 more in property taxes over 2017 and 2018 than House B (phase-in).  Obviously, the phase-in is great for homeowner B who gets a $10K tax increase eased in over 3 years – as opposed to homeowner A who pays the full $10,000 increase immediately in 2017.[2] Presented another way, House B enjoys a two year, 50% tax break (in the amount of $10,000 in our example) on its assessment increase.  

What’s the problem with this?   The fundamental weakness with the phase-in scheme is that because House B is paying $10,000 less in taxes than it would have paid if the assessment were fully implemented in 2017 without a phase-in exemption, the various taxing authorities (schools, county, town, village and sometime fire) who collect revenue from House B will receive less money.  Remember: the new reassessment when fully implemented is revenue neutral for each tax authority, but phase-in delays full implementation of the new assessment for those houses with increased assessments whose tax increases are necessary to offset the decreased tax revenues from homeowners receiving assessment – and tax - decreases.  For example, since school taxes are about 60% of the total household bill in the villages, House B’s school district will receive $6,000 less over two years from Home B than it would have if reassessment had been fully implemented without the phase-in. Similarly, the Village (about 30% of the tax bill) will receive $3,000 less, and less for the county, town, etc. All these budgets will face shortfalls. 

What will be the scope of the tax collection short falls? No one has any idea. No one has calculated the potential tax impact on the various budgets from phase-in adoption because no one knows how many home owners will file for the phase-in which, as it stands, would be available to anyone eligible for a STAR deduction (i.e., earning no more than $500,000) with an assessment increase who simply files a form with the Town. In theory, 9,000 homes - one-half of the town’s residences (condos are not eligible) – could take advantage of the phase-in tax break. Anyone facing a post-reassessment tax increase would be foolish not to grab this no-cost, tax free gift.  

Where will the money needed to make up for the phase-in budget shortfalls come from?  It will come from all Greenburgh homeowners.  In our example, the school district will raise its tax rate to compensate for the $6,000 it won’t receive from House B over the two year phase-in period.  The village will raise its tax rate on all villagers, and the town and county will raise their rates on all Greenburgh residents. Multiply House B by several thousand houses receiving phase-in “gifts” and the potential consequences become apparent. 

According to this website http://www.greenburghreassessment.com/2016/05/28/assessment-change-by-school, 90% of homeowners in the Edgemont and Hastings school districts received an assessment increase.  All of these homes would be eligible to apply for the phase-in.[3]   In the school districts with the largest assessment increases (e.g., Hastings where 24% of homes received 50% or more assessment increases), widespread adaptation of phase-in by homeowners will likely lead to large school district budget deficits and corresponding high tax increases for 2017 and 2018 to compensate for the tax collection shortfall. Imagine the surprise of the many homeowners who received only small percentage changes in their assessment who will find tax increases in 2017 and and 2018 as a result of the need to finance the phase-ins.

What about the Town Board's insistance that the phase-in bill should be adopted to save residents from the pain of sudden post-reassessment tax increases? Is the opposition to the bill simply heartless?

The first response to this argument is to point to the principle of fair and equitable treatment of all Greenburgh residents.  The entire reason for the reassessment was to account for changes in property values in Greenburgh over the past 60 years since the previous town-wide assessment.  While there may be valid arguments about specific properties, there is no question that certain villages, school districts, neighborhoods, streets, blocks, and even individual houses, have increased in value compared to others which have stayed the same or decreased in relative value.  Homes receiving assessment – and consequent tax – increases were under-assessed in past years and enjoyed the benefit of paying less “than their fair share” of taxes as determined by the reassessment while previously over-assessed neighbors covered by over-paying their fair share of taxes.  Now, the Town Board wants to offer those homeowners who underpaid for years a two-year tax gift again at the expense of neighbors in their school district, village, town, fire district and county.  How is extending this tax payment inequity in any sense fair?

The phase-in legislation is also suspect as a wealth transfer scheme. All homeowners will receive tax increases in order to make up for the various budget shortfalls that will result from the phase-in tax gift. This means that Greenburgh taxpayers not receiving the phase-in will pay the phased-in part of the tax bill that otherwise would have been paid by the phase-in beneficiaries.  The property tax paying homeowners of Greenburgh should not be taxed in order to finance a gift on behalf of a select class of fellow homeowners, whether within a school district, fire district, village, or town-wide. [4]    

It should also be noted that there is no indication that the Town Board or experts have seriously analyzed the various potential consequences of the phase-in bill. The phase-in bill is being pushed into law without public explanation of its financial impact if fully implemented and adopted by phase-in eligible homeowners. There should be a public discussion before the bill is implemented to inform Greenburgh residents about the scope of the two year tax increases. At the same time, other tax mitigations options, such as adoption of homestead, should be discussed.

   

Another major problem with the phase-in bill is that there has been no analysis over whether the resulting tax increases will push the town over the state Tax Cap and thereby forfeit the “Cuomo Check” received by homeowners each fall.  Consequently, the costs of phase-in could be greater for each homeowner than even the unpredictable tax increases.  Logic also suggests another cost for potential home sellers because the phase-in related tax increases will negatively impact house sale prices through 2019 (transferred houses lose the phase-in exemption).  An alarming alternative is the possibility that various taxing authorities may seek to cut services or tap fund balances in order to minimize the tax impact of the phase-in, in anticipation of the 2017 elections.[5] 

We hear the argument that the phase-in bill should be adopted because it will encourage other towns to reassess.  Without the soft landing of phase-in, the argument continues, town officials fearing the anger of homeowners receiving tax increases will hesitate to reassess.  This is an entirely cynical argument.  Towns should reassess because it is the right and fair thing to do.  If elected officials decline to act in the best interests of their constituents for fear of anger or electoral retribution, then they should seek employment outside of public service.

The deeply flawed phase-in bill is poorly conceived and will result in negative consequences for the majority of Greenburgh homeowners. Phase-in undermines the goal of reassessment by prolonging the unfair allocation of property taxes. The phase-in bill should be rejected. Finally, should the phase-in bill become law, it should be subject to a town-wide referendum before implementation.

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[1] The phase-in really operates as a tax exemption of 2/3 of the increase in 2017 and 1/3 of the increase in 2018.  Technically, the assessment is fully implemented under  phase-in but the resulting exemptions reduce the taxable amount of the reassessed property value for 2017 and 2018. 

[2] If the house is sold during the phase-in period, the full assessment is implemented and the phase-in is forfeited.

[3] To make matters more chaotic, a large minority of these homes receiving low assessment increases will receive tax decreases once all the various budgets are adjusted.  What happens to those homeowners receiving reassessment increases AND tax decreases who mistakenly file for the phase-in? 

[4] Residents of the Greenburgh Central School District, where homeowners generally received assessment decreases, are specifically concerned that the phase-in will result in their receiving large increases in their town and county taxes to finance the shortfalls in townwide town and county collection as the phase-in tax gift will disproportionately be enjoyed by homeowners in other school districts which received significant assessment increases.
[5] Using fund balances to subsidize the phase-in is equally outrageous as the fund balance consists of revenue collected from all homeowners for town operating purposes and should not be allocated to finance tax gifts for a selected subset of homeowners.