Audit: Tax appeal firms made $500M during past assessment freeze

Tax appeal firms representing Nassau County homeowners earned more than $500 million in fees after winning assessment reductions for clients during the eight years county tax rolls were frozen, according to a new county audit obtained by Newsday.

Comptroller Jack Schnirman’s 204-page audit of the Assessment Review Commission, the Nassau body that reviews all assessment challenges, said the firms collected $506.5 million in client fees between 2012 and 2019.

The successful appeals shifted $1.1 billion in tax burdens onto other Nassau County homeowners, auditors found.

During the eight-year time the firms were winning assessment reductions, home values rose by a total of 34%, the auditors found.

The assessment reductions lowered the tax base so significantly — by a total of $106 million — that tax rates rose by 46% between 2012 and 2019, in part to make up the difference, comptroller officials said.

The higher rates were paid by all taxpayers, including those who had won reductions.

The audit also uncovered systemic deficiencies in the county's assessment system.

A key issue, according to the audit, is that the system is swamped annually with more than 200,000 assessment appeals, many of which are baseless. Staff have difficulty defending against the deluge of appeals, many of which are duplicates, or filed automatically, auditors concluded.

"That’s a sign of an unhealthy system," Schnirman told Newsday.

"If essentially you're going to grieve it no matter what, that’s a perpetual grievance culture," said Schnirman, a Democrat who did not seek reelection and left office Dec. 31.

"It’s like Vegas," he said. "You have to be in it to win it, but the actual effect is it costs everybody money."

But Shalom Maidenbaum, founder and managing member of the Maidenbaum Property Tax Reduction Group, told Newsday that assessment firms are a critical resource for homeowners in high-tax Nassau.

"The facts are clear: Nassau homeowners pay some of the highest taxes in America, the assessment system makes mistakes, and firms that represent taxpayers perform an essential service by ensuring homeowners do not pay more than their fair share. That's why the review and assessment challenge process Nassau uses is clearly set forth in state law," he said in statement.

If homeowners believe their properties are overassessed, they have the right to appeal their values through the Assessment Review Commission.

After the commission reviews those cases, homeowners whose challenges are rejected have the right to appeal in a judicial process known as small claims assessment review, or SCAR.

When the county loses cases in SCAR, and after the tax roll is set, it's responsible for refunding homeowners.

In the 2020-21 tax year, the liability alone was $17.2 million, county officials have estimated.

What is now a yearly flood of tax appeals was not the status quo nearly 30 years ago in Nassau, which has more than 385,000 residential properties.

For example, in 1993, there were 55,000 tax challenges in Nassau County, auditors wrote.

In 2003, a year after the first revaluation of properties in more than 65 years, Nassau received more than 100,000 appeals.

The figure soared to 261,000 for the 2020-21 tax year, the first year of Nassau County Executive Laura Curran's reassessment program.

Curran, a Democrat, reassessed all properties for the 2020-21 tax year for the first time in nearly a decade. In the first year of the program, 65% of properties that were underassessed saw school tax increases and 35% had declines.

Curran froze the tax rolls for the 2022-23 tax year, and assessment officials are considering another freeze for the 2023-24 tax year, to prevent sudden spikes in residential home values caused by the COVID-19 pandemic.

Her predecessor Edward Mangano, a Republican, froze the tax rolls in 2011 in a bid to revise the way Nassau reviews property assessments. The freeze lasted for eight years.

The new tax roll is to be published Jan. 3, when County Executive-elect Bruce Blakeman, a Republican who defeated Curran, takes office. Blakeman has asked incoming Nassau County Comptroller Elaine Phillips, a Republican, to conduct a review of Curran's reassessment program, which he criticized during the campaign.

Schnirman's audit explores why the problems with the Nassau assessment system have been so persistent and are likely to remain an enduring problem.

Auditors noted by the end of the Mangano-ordered freeze in 2019, residential properties on the tax roll created by the Assessment Department had become, "undervalued by almost $100 billion in ... [market value], yet record numbers of [assessment] grievances were filed each of those years claiming overassessment."

Tax firms, "capitalized on the county’s need to settle, and would aggressively advertise to property owners that their [assessments] were too high, even at a time when actual real estate values were generally rising and were typically higher than the [market values] used in" the county's calculations.

Auditors found it will take years to calculate and maintain a tax roll that accurately reflects home values. They identified two major issues.

First is that the Assessment Review Commission applies a lower "level of assessment" to taxpayers who successfully appeal their home values.

The ratio is lowered in order to give property owners who grieved their assessments as too high the same benefit as those who were underassessed when home values were first assigned.

Nassau does not assess homes at 100% of the home's market value, but rather a very small percentage of valuation called "full valuation." Dropping the ratio causes reductions in the property owner's final valuation and property burden.

Auditors said Nassau does not disclose to the public the ratio that is used in appeals cases, and said the practice of using two different levels of assessment produces different property tax rolls for those who grieve and those who don't.

Second, auditors noted that a state law prohibits the Department of Assessment from increasing assessments by more than 6% annually, or by a total of 20% over 5 years.

The cap is intended to prevent sudden spikes in tax increases from reassessments. Since the roll was frozen for so long, the cap was a major obstacle to taxing properties at what the Department of Assessment believed to be their new market value.

The law forces "Nassau County to continue to undervalue properties that appreciate above the cap," auditors said.

They said the "6 and 20" law will continue to make it difficult for Nassau to value homes precisely.

"Unless reassessments occur frequently, the application of the 6/20 Rule will cause assessed values to become disparate in appreciating real estate markets, shifting tax burdens … ," the report said.

In 2020 and 2021, for instance, home prices rose rapidly as New York City buyers sought homes in Nassau and other suburbs, auditors wrote.

The report faulted the department for failure to maintain adequate staffing levels and other bureaucratic shortcomings.

Auditors also said the Assessment Review Commission's staff fell by 35% during the period of the assessment freeze, while the number of appeals the agency had to handle doubled.

SCAR hearings also considered cases in which the homeowner had accepted a settlement from the Assessment Review Commission.

And there are thousands of duplicate applications submitted each year that overwhelm ARC staff. In 2020, there were 6,966 instances in which a homeowner had submitted more than one application. In many cases, the unresolved duplicates end up in SCAR, clogging the court system, auditors wrote.

In their response, county officials said they have little control over the excessive number of appeals cases. Jeremy May, acting Assessment Review Commission chair, said: "ARC has no control over grievances filed. Taxpayers in New York State enjoy the right to grieve. However, it must be noted that in all other NYS jurisdictions, other than New York City and Nassau County, if a Property owner successfully grieves their assessment, they may not file consecutive grievances for three years."

By Scott Eidler

scott.eidler@newsday.com@ScottEidler

Scott Eidler covers Nassau County government and politics for Newsday. Scott has worked at Newsday since 2012 and previously covered municipal government and education.