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Written by Joanne Wallenstein

Published: 24 February 2016

Created: 24 February 2016

Last Updated: 24 February 2016

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Enactment of a provision that would have doubled the real estate taxes for 42 condominium owners at Christie Place was defeated unanimously at the Scarsdale Village Board meeting on February 23rd. After two lengthy public hearings, and much discussion both for and against, the trustees voted "no" to the adoption of the Homestead Act, for the second time in just two years.

What was at stake? During a revaluation, NYS law permits municipalities to enact the Homestead Provision, primarily as a way of balancing the tax burden between residential and commercial properties. If adopted, condominiums at Christie Place would be assessed similarly to single family homes, rather than based on their potential rental income. Speaking in favor of the adoption of Homestead, realtor Lynne Clark pointed out that a condo at Christie Place is now on the market for $1.5 million with real estate taxes of $16,000, while a single family home is on the market for the same price, with taxes of $36,500.

Residents and Village organizations were divided in their views on the topic. While the Scarsdale Forum, the Advisory Council on Scarsdale Senior Citizens and Bob Harrison's "Taxpayer Alert," favored adoption of Homestead, the League of Women Voters, residents of Christie Place and their families opposed it. Since the Village considered the adoption of Homestead at the time of the Village-wide revaluation in 2014 many of the same arguments were echoed on both sides.

Those favoring Homestead argued that the condo owners were being treated as a special class of taxpayer and enjoying enormous tax savings at the expense of the 5,700 homeowners who are estimated to pay an average of $99 more per year to foot the bill for the Christie Place homeowner's "discount."

Seniors in single family homes said that the condo owners, one of whom needs to be 55+, were getting "special tax treatment" that seniors in single family homes don't enjoy, even though for the most part, they are not utilizing the schools.

Bob Harrison circulated a petition in favor of the adoption of Homestead and collected 112 signatures that he distributed to the Board of Trustees.

Robert Berg continued to press the board to vote for Homestead saying Christie Place condo owners were getting a "50% discount." He asserted that at the time of purchase the condo buyers were not guaranteed that the low taxes would remain in place. He also stated that the condos were not difficult to sell because of the age restriction. In fact, he said, they are in great demand.

Before voting some of the trustees explained the rationale behind their votes. They repeated many of the same reasons they gave in 2014, among them:

Condo buyers assumed that their tax levy would remain fairly constant when they purchased their units and paid a premium for their units.

The intent of Homestead was not to transfer the tax burden from one class of residential homeowners to another – but to balance the taxes between residential and commercial properties.

Third, the trustees said that condos should be taxed similarly to co-ops and other multi family dwellings, and by singling out condos and doubling real estate taxes on these units, the trustees were unfairly burdening 42 condo owners.

Fourth, if Homestead were passed, owners of these units would see their taxes rise on average $13,409 per unit per year. If not, owners of the 5,700 single family homes would each pay an average of $99. Trustees believed that such a significant tax increase for 42 homeowners was simply not fair.

You can watch the trustees speaking on the matter here:

The meeting ended with a unanimous vote against the adoption of Homestead – which precludes the School Board from considering it, as the Village needed to adopt it first before the School Board could adopt it.

Below find a statement from Mayor Jon Mark on Homestead:

Statement of Jon Mark with Respect to the Homestead Tax Option
Special Meeting of the Town of Scarsdale Board
February 23, 2016

I analyzed the Homestead Tax Option in March 2014 when it came before the Board I sat on at that time as a Trustee. More recently, I have read the Scarsdale Forum "Report of the Assessment Revaluation Committee on the Homestead Tax Option in Connection with Scarsdale's 2016 Townwide Revaluation," emails from residents received over the past month or so and listened to resident comments at the Town Board meeting held on February 9, 2016 and at this meeting. My view of whether or not we should adopt the Homestead Tax Option is unchanged from 2014 by the circumstances presented to this Board. My analysis starts with the basics: what the Homestead Tax Option is intended to do, what it would do in this case, and how residents would be benefited or burdened. In my view, when the numbers are crunched, adopting the Homestead Tax Option will place an enormous dollar burden on the few condominium owners in Scarsdale with only a minimal dollar benefit for most Village residents who are single family residential homeowners. Given the level of public interest in this subject, I would like to explain once again the reasons for my decision to vote against adopting the Homestead Tax Option. I note that my view derives from the facts and circumstances as they have been presented to us.

Background

1. As a threshold matter, it is noted that a Village-wide revaluation does not raise additional taxes. It results in a re-allocation of how the aggregate tax revenues to be raised are borne by residents.

Example: Assume pre-revaluation, two homes: House A is valued at $700,000 and House B valued at $400,000. The amount of taxes to be raised is $60,000.

House A pays $40,000 in property taxes. House B pays $20,000 in property taxes.

Post-revaluation: House A is still valued at $700,000. House B is now valued at $700,000.

The amount of taxes to be raised is still $60,000.

However, House B now pays $30,000, a $10,000 increase and House A pays $30,000, a counterbalancing $10,000 decrease.

Note that the re-allocation thus accomplished was the result of up-dating the values of the two homes. It was not the result of any change in the methodology used to value the homes for property tax assessment purposes.

The Homestead Tax Option

1. Similarly, the adoption of the Homestead Tax Option does not raise additional taxes either. Whether it is adopted or not, the amount of taxes raised, or to be raised, in any given year is the amount needed to fund the budget for that year. The adoption of the Homestead Tax Option simply permits portions of the property tax burden to be re-allocated from one property class to another.

2. Those in favor of adopting the Homestead Tax Option have argued that the sense of fairness which motivated the decision to engage in the Village-wide revaluation should also prompt the Village to adopt the Homestead Tax Option. Having considered the matter, I do not believe the two scenarios are comparable and disagree.

3. To put the matter in context it is noted that the principal purpose of the Homestead Tax Option is to allow a municipality to counter one anticipated effect of a village-wide revaluation. Because residential properties may (depending on economic conditions) appreciate faster or in greater amount than other classes of real property (commercial properties, for example) one effect of a re-valuation may be to cause a greater proportion of the aggregate real property tax burden to be re-allocated to residential properties as a class than was allocated to that class of properties before the revaluation. Whether that sort of shift occurs at all, and whether it is significant will depend on the mix of different property classes in the municipality undergoing the revaluation. The more evenly divided property classes are between residential and other classes, the greater the potential shift and conversely, if the residential class greatly outnumbers the other property classes, the smaller the shift might be.

4. Therefore the primary purpose of adopting the Homestead Tax Option is to allow a municipality to establish a preferential tax rate post-revaluation for residential properties which would allow that class to limit its aggregate allocated portion of the property tax burden to the pre-revaluation level as against other property classes. In other words, the adoption of the Homestead Tax Option could be used to counteract a reallocation of additional tax burden from non-residential classes of properties to the residential class of properties attributable to a village-wide revaluation. The heading of Article 19 of the NYS Real Property and Tax Law, the Article in which the Homestead Tax Option is set forth underscores this point. The heading of that Article is: "Preservation of Class Share of Taxes Other than in Special Assessing Units."

5. That threshold rationale for adopting the Homestead Tax Option is of little or no relevance to Scarsdale. Since residential properties presently bear approximately 94% of the Village property tax burden, a Village-wide revaluation causes an insignificant shift of tax burden effecting residential properties as a class, post re-valuation. There seemed to have been general agreement on this point among the members of the public who commented on this issue, including a comment to that effect in a Scarsdale Forum Assessment Revaluation Committee Report of January 11, 2014.

6. Data prepared by the NYS Department of Taxation and Finance in connection with the 2014 Village-wide revaluation bore this point out. The data showed that rather than experiencing an increase in allocated tax burden, the residential class experienced an aggregate decrease of less than one quarter of a percent without adoption of the Homestead Tax Option and would have experienced less than half a percent decrease if the Homestead Tax Option were adopted. There was approximately one quarter of a percentage point difference between the two scenarios – percentages which are immaterial when considering whether to adopt the Homestead Tax Option to counter the shifting of tax burden between different property classes.

7. Further, in Scarsdale's case, if the Homestead Tax Option is adopted, the only property class that would be affected would be condominiums.

8. This would come about because if the Homestead Tax Option is adopted, the methodology for valuing condominiums would change. Under present law (and unless the Homestead Tax Option is adopted), condominiums are taxed using a rental income approach (assuming a hypothetical rental income stream and hypothetical operations and capitalization costs). Multifamily rental apartments and co-ops are taxed the same way.

9. If the Homestead Tax Option were adopted, instead of valuing condominiums as rental properties, they would be valued by using their market value, just as single-family homes are. Adopting the Homestead Tax Option would thus make a fundamental change in how condominiums are valued for purposes of assessing property tax. Multi-family rentals and co-ops would not be affected. Making such a fundamental change only in the case of condominiums is a significant distinguishing factor from how the reallocation among individual residential properties comes about as a result of the Village-wide revaluation.

10. If that significant distinction were the only factor presented, it might not be a basis for not adopting the Homestead Tax Option, in my view.

11. However, while adopting the Homestead Tax Option might have fairness as its purpose, its expected effect should be considered in order to conclude whether or not adoption would be fair. The relative benefits and burdens of adopting the Homestead Tax Option must be taken into account.

12. Based on the particular circumstances existing in the Village, I do not believe that adopting the Homestead Tax Option would produce a fair result for the following reasons.

13. There are 47 condominiums presently in the Village: 42 of which are residences in Christie Place, the other five are commercial properties in Christie Place. In contrast, there are now approximately 5,700 single family residential properties in the Village.

14. The five commercial condominium units would be unaffected by the adoption of the Homestead Tax Option. It is noted that the project at 2-4 Weaver Street is being marketed as co-ops and we are advised that the development on Weaver Street known as Heathcote Manor is being organized as a homeowners' association, so neither of these new additions to the Village housing stock would be impacted by the adoption of the Homestead Tax Option.

15. The Village Assessor has provided a preliminary draft analysis of the expected impact of the adoption of the Homestead Tax Option on the 42 condominium units at Christie Place. The analysis is based on preliminary 2016 re-valuation estimated data and does not reflect changes that might result over the next two months as the re-valuation process is concluded. The analysis was presented by the Village Assessor at a public joint meeting of this Board and the Board of Education held on February 2, 2016 and was presented again at the February 9th Board meeting.

16. The Assessor's analysis looks at the projected 2016 valuations of the 42 condominium units and corresponding projected 2017 taxes in two alternative scenarios: one in which the Homestead Tax Option is adopted and one in which it is not adopted. The analysis also excludes County taxes from the calculations made because County property tax methodology is restricted by law to using the income approach for rentals, co-ops and condominiums. School District taxes are, however, included in the analysis because if the Town adopts the Homestead Tax Option, the School District would then be faced with considering whether or not to adopt the Homestead Tax Option. If the Town does not adopt the Homestead Tax Option, the School District will not have to consider the matter. Looking at the numbers reveals the following:

With adopting the Homestead Tax Option, the Village-wide revaluation would cause:

Approximately $563,000 of tax burden to be shifted from residential properties as a class to the 42 condominiums. That works out to an average tax bill increase of $13,409 per condominium unit and an average decrease of $99 per property for the approximately 5,700 residential properties in Scarsdale.

Without adopting the Homestead Tax Option, the re-allocation of the $563,000 to the condominiums would not occur and the average of $99 per residential property would remain on that class of properties.

17. By focusing the analysis on the dollar impact of adopting the Homestead Tax Option, the relative benefits and burdens of doing so become clearer. For the condominium class, a relatively significant dollar burden would result, with a rather minimal dollar benefit to the residential class when looked at on an average per unit/per property basis. As the figures noted are averages, there will be a range of dollar amounts above and below these averages among individual properties and units.

18. In my view making a fundamental change in the methodology used to assess condominiums that produces a significant tax dollar burden on 42 condominium units and an insignificant tax dollar benefit for approximately 5,700 residential properties is not a fair result.

19. Further, since we are not considering adopting the Homestead Tax Option for its primary purpose – to re-establish pre-revaluation property tax allocations among residential and other property classes, it would seem that adopting it solely to change the methodology for valuing condominiums has a punitive quality that also strikes me as unfair.

20. The Scarsdale Forum Committee report states that I have "argued" that the Homestead Tax Option is an option – i.e., that it is optional as to whether to adopt it or not. That is not an argument. It is a statement of fact. It is the way the law is written. Specifically, the opening line of the relevant Section of the NYS Real Property and Tax Law, Section 1903, reads: "The governing body of any approved assessing unit except a county may adopt the provisions of this section..." [emphasis added]. Note: "may" not "shall."

21. There are other points to be made as to why adopting the Homestead Tax Option would be unfair and my fellow Board members have raised some of the points that they find persuasive. However, because of what I perceive as a material lack of comparability between the general impact of the Village-wide re-valuation and the very specific impact of the adoption of the Homestead Tax Option, I do not believe that fairness compels the adoption of the Homestead Tax Option. To the contrary, fairness compels me to conclude that the Town should not adopt the option and I intend to vote against doing so at this time.