Public Employee Press

First in a series on taxes and revenue

$2.9 billion deficit

Because of downsizing and reliance on a substandard assessment method, the city loses hundreds of millions of dollars in revenue every year.

By GREGORY N. HEIRES

With the threat of devastating service cuts and up to 19,000 layoffs under Mayor Michael R. Bloomberg’s doomsday budget for next year, our bleak financial times demand that New York City consider new sources of revenue and bring in outstanding taxes and uncollected fines, which total at least $2 billion.

Enacting long-standing — and new — proposals to increase the city’s tax base and take tougher steps to collect revenue and fines would go a long way toward putting the city’s fiscal house in order. The failure to enact reforms threatens New York City’s special place as the country’s beacon of progressive public services.

Last year, the New York City Comptroller’s annual financial report noted that the total of uncollected taxes, written-off taxes and uncollected parking fines added up to $2 billion. A 2009 investigative report by the New York Daily News concluded that the city is owed $2 billion in uncollected taxes and outstanding fines. The Finance Dept., which collects such data, failed to answer repeated requests from the Public Employee Press for updated figures.

Cut contracts, not jobs

The city is moving ahead with nearly 200 layoffs this month and plans to fire 800 employees and eliminate nearly 3,500 positions through attrition under the fiscal year 2011 budget, which has a projected $2.9 billion deficit. In April, DC 37 Executive Director Lillian Roberts wrote City Council Speaker Christine Quinn to suggest funding alternatives. The city, she said, could save at least $1 billion by maximizing revenue collection at city agencies and reducing expenditures on outside contracts.

The union has criticized the Bloomberg administration’s plan to increase spending on consultants and outside contracts by more than $250 million in 2011 — from more than $9.2 billion to $9.5 billion annually — while targeting perhaps thousands of employees for layoffs. A 2009 white paper study by Assistant Associate Director Henry Garrido found that the city could save $130 million by eliminating 10 personnel and technical services contracts at eight city agencies. That would be only the tip of the iceberg of the savings it could find by putting its 18,000 outside contracts under the microscope, Garrido noted.

A major contracting scandal is the CityTime project in which the Science Applications International Corp. has run up cost increases of an astounding $722 million as it implements a computerized timekeeping system, which after 12 years covers only 46,000 of the targeted 145,000 city employees.

The city could begin to recapture wasted funds by changing the way the Finance Dept. does business.

Downsizing loses millions in revenue

Years of downsizing of the ranks of Tax Auditors and Assessors have undermined revenue collection, according to union members at the agency.

The adoption of an unorthodox assessment method during the administration of former Finance Commissioner Martha Stark resulted in undervaluing buildings and losing hundreds of millions of dollars in revenue, according to Assessors, Appraisers and Housing Development Specialists Local 1757 and DC 37. Stark resigned last year amid allegations of nepotism, cronyism, ties to an out-of-state real estate company and an affair with a subordinate.

During the Bloomberg years, the city has also lost hundreds millions of dollars by raising the share of properties with tax exemptions from 40 to 60 percent, according to union officials.

The administration’s decision to change the property valuation on the city’s 600 hotels from the appraisal industry’s accepted method to a “rule of thumb” method has led to undervaluation of up to 25 percent of hotel property, resulting in the loss of over $90 million a year.

The formula adopted by Stark is based solely on room rent. The method favored by the appraisal industry is more comprehensive as it incorporates all income sources of the building, including restaurants, retail establishments and Internet and telephone services.

Stark’s methodology calculates property values using a formula that fails to consider many factors — including expenses (such as water, electricity and heat costs, and building repairs) age, condition, size and location — that contribute to the value of buildings. The method’s simplicity undervalues property and fails to capture tens of millions of dollars in taxes.

Local 1757 President Fran Schloss said there’s talk at the agency of returning to the traditional assessment approach, backed by professional associations and used by virtually all of the country’s municipalities, which focuses on the income generation of commercial buildings and multi-dwelling residential buildings.

Restore Auditors and Assessors

In 2002, the department wiped out the Assistant Assessor position, eliminating 30 jobs. Since then, the number of Assessors has plummeted from about 300 to 110. The number of Tax Auditors dropped from 465 in 2003 to 265 this year. The department used to employ 500 sheriffs for collection, but their ranks have dwindled to less than 250.

Maf Misbah Uddin, president of Accountants, Statisticians and Actuaries Local 1407 and treasurer of DC 37, praised the newly appointed commissioner, David Frankel, for deciding to hire 29 Tax Auditors. Still, Uddin said, the department needs to remedy the legacies of the Stark years by hiring more staff and tightening enforcement to bring uncollected taxes. Each Auditor typically finds $2 million in additional revenue each year, according to Local 1407.

To improve collection, the department needs to end Stark’s emphasis on cursory audits that assumes filers are in compliance with tax law and causes the city to lose millions of dollars in revenue, Local 1407 Executive Board member Yosry Aly said. Rather than favoring “mom and pop” audits over those of major businesses and high-income individuals, the department, for instance, should more seriously pursue wealthy taxpayers with hidden assets aboard, he said.

The department should also stop contracting out tax collection, which used to be done more efficiently in-house, Aly said. Furthermore, it should reopen satellite offices in Chicago and San Francisco, closed by Stark, that collected $50 million in revenue each year, he said.

New revenue sources

Besides beefing up revenue collection at the Dept. of Finance, the city has numerous options for additional revenue:

• Eliminating the “carried interest” exemption from the unincorporated business tax for private equity and hedge funds would generate $100 million a year under a proposal by the Fiscal Policy Institute.
• Adopting a payment in lieu of taxes program could tap 25 percent, or $75 million, of the $300 million in property tax exemptions enjoyed by private universities and colleges, according to the Independent Budget Office.
• Restoring the commuter tax would bring in $694 million in 2011 and $816 by 2014, according to the IBO.
• Moderately increasing the tax on high-income residents could generate an extra $491 million in 2011. This could be done by replacing the old top bracket of 3.65 percent with two new brackets of 3.92 and 4.20 percent.