New York, NY – May 24, 2009 – (RealEstateRama) — New York City Comptroller William C. Thompson, Jr. today said ambiguity in State law has allowed millions of dollars to slip through the City’s fingers because of a methodology that allows properties to be assessed well after their renovations – when their values are higher.
“This lack of specificity permits discretionary interpretation and practices that limit City revenue potential because the exemptions amounts were not calculated on the basis of assessed value when a project was completed,” Thompson said.
Thompson made the claim in a new audit that examined how the City Department of Finance (DOF) reviewed and executed the J-51 tax benefit program for Manhattan properties. The program gives tax exemption and abatement benefits to the owners of residential real property who renovate their buildings, and to the owners of non-residential properties who convert buildings to residential use.
Thompson’s auditors reviewed the records of 102 sampled properties that received such abatements or exemptions in Fiscal Year 2007 under the J-51 program, which was created in 1955 under legislation authorized by Section 489 of the New York State Real Property Tax Law and is governed by Section 11-243 of the New York City Administrative Code.
Exemptions are granted for a period of either 14 or 34 years, based on the type of project, and abatements are granted for a period of up to 20 years. According to the City, during FY 2007, 14,479 properties received $115.7 million in tax exemptions and 143,483 ones received $104.8 million in abatements.
However, Thompson said the statute that spells out the J-51 program does not clearly define a point in time at which a reassessed evaluation of a property should be computed, and neither does the New York City Administrative Code or the Rules of New York provide specific guidance for J-51 program implementation.
“This permits considerable local discretionary interpretation,” Thompson said. “A reassessment should be based upon the change in value of a property that resulted directly and only from the renovation work itself from the tax period before the renovation to the tax period following the completion of the renovation.”
“As a consequence,” he added, “property owners at a time of rising market values appear to have the ability to manipulate the amount of their property tax exemption. This can easily be done by taking one’s time to submit required paperwork to City agencies to trigger a reassessment inspection.”
In fact, auditors uncovered 44 properties whose values were calculated up to four years after renovations took place, when the values had grown long after the renovations were finished.
Thompson said that if the statute were written more precisely, the properties he looked at alone would have brought in $3.4 million in extra revenue. And, he added, since exemptions given under the program extend up to 32 years, the better system could yield about $32 million in extra taxes in future years.
Additionally, Thompson’s auditors found other problems: 32 properties that should not have received full exemptions, which cost the City $2,619,577 in real estate tax revenue. Of the 32: 23 weren’t billed properly because of wrong tax exemption-tax abatement data; at 8, unrealized revenue totaled $1,093,012 because of DOF did not prorate the properties’ exemption amounts, as required; and, at one, real estate tax was reduced from $202,535 to zero and the property owner has not paid real estate taxes for at least five years.
Finally, Thompson said DOF awarded benefits to a dozen property owners who hadn’t even submitted all of the necessary paperwork. Final certificates-of-eligibility must be filed before granting tax benefits but weren’t.
Thompson made 17 recommendations to DOF, which agreed with two, disagreed with three, and did not address 12. Chief among the recommendations is a request that the City seek changes in the J-51 statute and/or City rules to specify the best method for calculating tax exemptions so as to ensure program equity and the greatest revenue potential for the City.
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