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.
[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.
[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.
