Tax certs a looming issue for school districts

By Dina Sciortino

REGION — School superintendents in the Rivertowns are making

difficult decisions. Against the backdrop of the struggling economy,
some are proposing the elimination of jobs by reducing staff or cutting
programs. At the same time, their spending plans must budget
thousands — and sometimes millions — of dollars for real estate
certiorari settlements.
Certiorari litigation is a process by which a property owner can
challenge the real estate tax assessment on a given property in an
attempt to reduce the property’s assessment, and possibly reduce
property taxes. Both residential and commercial property owners can
file certiorari claims.
These settlements may require school districts to refund the
overpayment of taxes. Sometimes they require districts to pay for
litigation fees and bond interest. Certiorari settlements cause a
reduction in the tax base going forward, forcing other property
taxpayers to pick up the cost.
“Certs [certioraris] are like a sword hanging over the school district’s
head,” says Ardsley Schools Superintendent Charles Khoury. “They are
a tragedy waiting to happen.”
The Ardsley School District will refund over $3 million in certiorari
settlements, with reduced assessments adding two percent to the
2009-10 tax rate. Khoury says the district plans to bond the refund
over 15 years at an additional cost to taxpayers of $250,000 a year.
The Irvington School District had a similar situation to that of Ardsley’s
last year, when it had a two percent tax rate increase in its budget off
the bat because of certioraris.
Irvington Schools Superintendent Kathleen Matusiak told the
Enterprise this week, “We were really fortunate this year. We don’t
have the same big hit as in previous years.”
Her district has 47 certiorari cases pending, and has spent $11.4
million on certiorari settlements since the 2002-2003 school year.
Jim Reese, Irvington’s assistant superintendent for business and
facility management, says certiorari settlements are a cyclical
phenomenon since certioraris can be filed every three years, making
some years worse than others.
In the last five years, the Hastings School District has spent
approximately $1.7 million in certiorari settlements. They will have
about five or six settlements that will affect the district over the next
year. These grievances are seeking refunds from $75,000 to $300,000,
and reductions that range from $24,000 to $120,000.
“We have budgeted for debt service related to a bond the district will
be taking out to pay back some of the refunds that will be due,” said
school district treasurer Maureen Caraballo. “The bond will be
approximately $1.3 million, and there is $160,000 budgeted for a
principal and interest payment for the bond.”
She finds certioraris “make budgeting or doing five-year projections
very difficult because your assessment is constantly changing, so to
get an accurate number for your tax rate is challenging.”
The Dobbs Ferry School District is also very aware of the impact of
certioraris. “Certioraris are an extremely large liability for our district
that we have to continuously fund,” said Schools Superintendent Debra
Kaplan.
Kaplan’s district has more than 42 outstanding certiorari cases, which
have a potential liability of $15 million in refunds. Collectively these
cases are seeking about $6 million in reductions or about 13 percent of
the total assessed values in the Dobbs Ferry School District.
However, district Director of Finance and Facilities Sylvia Fassler-
Wallach said, “The cases typically settle for a fraction of the requested
assessment reductions.”
The school district, which recently refunded Beacon Hill Estates
$626,217.48, has $50,000 budgeted for certioraris for the 2009-10
school year.
Many feel that the problem of certioraris lies in the way property is
assessed, especially commercial property. “There has to be a different,
accurate, and more consistent way to assess nonresidential
properties,” said Kaplan.
Edye McCarthy, assessor for the Town of Greenburgh, explained the
methodology behind assessments at the Hastings School Board
meeting on Feb. 9.
Assessments are derived from an assessor by determining the market
value of a piece of property and multiplying that value by either the
residential assessment ratio or the equalization rate.
Residential property is assessed based on the residential assessment
ratio, which is derived from the state’s comparison of other residential
property assessments. This compares similar property types —
residential to residential.
Anything other then a one-, two- or three-family home — including
condominiums, cooperatives and apartments — is considered
commercial property, which is assessed using the equalization rate.
The equalization rate comes from the state’s weighted average of all
types of assessments within the Town, including residential,
commercial, vacant land and utility. The equalization rate does not
compare commercial properties with similar properties, and is meant
to reflect market conditions.
The problem as presented by the Town assessor is that the
methodology used to establish the equalization rate is flawed. The
derivation takes into account all property types including residential
properties. Over the past several years the residential properties
increased in value much more than commercial properties and
therefore the rate derived was weighted more by the residences,
causing residential properties to fill the gap left by commercial
property in the tax base. This resulted in giving commercial properties
an advantage when filing certiorari petitions.
Commercial property is further served by New York State Real Property
Tax Laws 339-y and 581, which provide condominiums, cooperatives,
and rental properties (or apartments) a de facto exemption of 45 to 60
percent.
McCarthy explained that if you have a home valued at $500,000 you
pay taxes based on this amount. If you have a condominium worth the
same amount you would pay taxes based on a value of approximately
$300,000.
Residential taxpayers also have to make up losses for these de facto
exemptions in the tax base. Unlike other commercial property,
condominiums, cooperatives, and apartments demand the same
municipal and school district services as residential properties.
Khoury feels that “in this economy, with declining property values, the
deck is stacked against school districts, particularly in the case of
commercial property and condos.”
Real Property Tax Law 339-y was adopted in 1964, and 581 in 2005. A
March 2005 article in The Uniform Standard, a newsletter published by
the New York State Office of Real Property Services, titled
“Municipalities suffering growing pains with spread of condominiums,”
stated “new residential developments are being organized as
condominiums for the sole purpose of realizing these hidden tax
breaks.”
Westchester has seen its fair share of these types of properties, in the
form of duplexes, town homes, and even separate one-family homes in
a condominium development, crop up across the county in recent
years.
Many groups, such as the New York State Assessors’ Association, have
tried to have Real Property Tax Law 339y and 581 repealed, to no
avail. One way to void the de facto exemption is if the Town adopted
the Homestead Exclusion Act, which would require a townwide
reassessment. This would require all property assessments to be
based on comparable properties.
Reassessments would cause some people’s property taxes to go up,
down or stay the same, however some feel this would ensure that
everyone pays their fair share.