New York's highest court delivered a major defeat to Nassau Tuesday by blocking the county from shifting most of the cost of property tax refunds -- estimated at as much as $450 million -- to school districts, towns and other taxing districts.
The State Court of Appeals ruled unanimously that Nassau's repeal of the so-called "county guaranty," which makes Nassau liable for all tax refunds resulting from erroneous assessments, violates the state constitution and home rule law because only the State Legislature has the power to impose taxes or adjust them.
The seven-member panel said in a 29-page decision the county's repeal was "unconstitutional, invalid, unenforceable and void."
The State Legislature adopted the county guaranty in 1948 at Nassau's request. Unlike most of the state, where towns and cities issue assessments, Nassau sets the taxable value for all properties in the county.
Tax challenges soared after Nassau reassessed commercial properties in 1986 and have continued unabated ever since. Successful protests have cost the county an average $100 million a year in property tax refunds, paid mostly through borrowing. Because of the guaranty, the county paid the refunds even though the school districts and towns collected more than 80 percent of the overpaid taxes.
The Republican-controlled county legislature repealed the guaranty in 2010, effective this year, at the request of County Executive Edward Mangano. School districts, North Hempstead and its taxing districts and several taxpayers filed suit.
"I'm thrilled with the decision," said David N. Yaffe, who represented 41 Nassau school districts in challenging the repeal. "It confirms the county had no right to place the burden of its incompetent tax assessment system onto school districts."
Attorney Maureen Liccione, who represented North Hempstead and its taxing districts, said the court "summarily rejected every single one of the county's arguments that tried to assert they had the power to do this . . . It means the county has to pay for its assessment mistakes."
County Attorney Carnell Foskey said Nassau "will seek state legislation to protect taxpayers from footing the bill for refunds that aren't associated with their own tax bill."
Nassau has attempted assessment reforms. In 2011, it began settling residential appeals to save about $20 million in annual refunds. Last year., the county legislature adopted tougher penalties for businesses that did not provide timely income data needed for commercial appeals.
Meanwhile, property owners filed more than 150,000 tax protests last year. The county has not addressed thousands of existing commercial protests.
Nassau estimates its refund liability at $300 million. But Donald Leistman, a lawyer who heads Nassau's tax challenge bar, estimates there are $200 million to $250 million in judgments against the county that have yet to be paid and another $200 million worth working their way through the system, bringing total commercial liability to about $450 million.
Leistman said some judgments go back three years. "I think the county was engaging in some wishful thinking in that the liability for the school district refunds would somehow go away," he said Tuesday. "It leaves me to wonder when the folks sitting with these judgments are going to get paid."
Mangano, Republican, budgeted $10 million and proposed borrowing $230 million this year to pay tax refunds. But county Democratic legislators and the state control board overseeing the county's finances have balked at more borrowing. The Nassau interim Finance Authority has refused to approve any further borrowing to pay tax refunds until the county cuts $30 million in spending and presents the control board with a balanced budget for 2015.
Lorraine Deller, executive director of the Nassau-Suffolk School Boards Association, said if Nassau had prevailed in court, "substantial" costs would have been shifted onto schools and local governments. "Operating under the New York state property tax levy, "this would have created massive problems for schools."
"This is an important decision for school districts," said David Feller, president of Nassau County Council of School Superintendents and North Merrick superintendent. "It would have had a very negative financial impact if school districts would have been required to assume this obligation."
Yaffe estimated the shift in costs would have resulted in the loss of 500 teaching jobs.
Jon Kaiman, who was North Hempstead's supervisor when the suit was filed and now is chairman of the Nassau Interim Finance Authority control board, said: "The court is saying you need the state's authority to do what they've done and they didn't have it. This is a much larger issue than can be resolved by Nassau County alone. It needs to involve the towns, the schools and the state as well."
Desmond Ryan, executive director of the Association for a Better Long Island, a development group, said, "Every single property owner in Nassau County should insist that Albany promptly pass a law that gives Nassau County the right to make local school districts responsible for their own tax liabilities. The idea that every one of us is being held hostage by any single school district is outrageous and cannot be allowed to stand."
State Senate and Assembly leaders did not return calls Tuesday. Presiding Officer Norma Gonsalves (R-East Meadow) said, "While the decision is unfortunate, we have already saved tens of millions from our other tax assessment reforms, and this ruling will not halt our progress."
But Minority Leader Kevan Abrahams (D-Freeport), said, "I do hope this decision from the State's highest court will inspire (Mangano) to stop the budget gimmicks and finally focus on fixing the broken assessment system so taxpayers can receive what they are rightfully owed."
Legis. David Denenberg (D-Merrick) complained, "Republicans great reform was to dump the problem on the schools."
With Michael Gormley
Homes are Class 1 properties - single-family homes and condominiums of three floors or less. About 102,000 homes countywide were not counted because they had renovations done or had exemptions other than basic STAR, both of which would have influenced assessed value. Homes in Amityville and Cold Spring Harbor were excluded because those school districts lie primarily in Suffolk County. Glen Cove was excluded because the city of Glen Cove does its own assessments. The Bellmore-Merrick, Sewanhaka and Valley Stream Central high school districts are not listed because their taxes are levied by the component elementary districts. Tax burden shifts to Nassau homeownersSuccessful commercial tax challenges have shifted more of the property tax burden onto single-family homeowners ...