Inability to Recoup Costs for Municipal Services Provided to Tax-Exempt Properties PDF Print E-mail

The Mandate:  All real property in New York is subject to taxation unless the law grants it exempt status. Real property tax exemptions are permitted on the basis of many different criteria, including the use to which the property is put, the owner's ability to pay taxes, the desire of the state and local governments to encourage certain economic or social activities, and other such rationale. Many tax-exempt properties require the same, and in some cases, more municipal services than non-exempt properties require, yet they are not obligated to pay for such services due to their tax-exempt status. While municipalities currently have the ability to impose user fees and benefit assessments to cover some of these expenses, they are prohibited from doing so for the most costly services, including police and fire protection (see Opinions of the State Comptroller 81-366 & 90-39).

The Cost:  Municipalities regularly expend resources providing services for properties which are tax-exempt. While real property tax exemptions do play an important role in New York State's property tax system, it is important to note that exempting property from taxes does not diminish the need for revenues; it simply shifts the burden of generating those revenues to the remaining taxpayers in the community. According to an OSC report issued in October 2013, $680 billion in full market value of all real property in New York State (27%) is exempt from municipal taxes – which equates to approximately $17 billion in foregone property tax revenue. Prohibiting local governments from being able to recoup a portion of the costs they incur to provide services to tax-exempt properties only exacerbates the burden on local taxpayers.

The Solution:  The proliferation of real property tax exemptions -- which often times occurs in a haphazard manner via special laws and expansive judicial interpretation -- has resulted in a dilution of local tax bases. As cities and villages statewide continue to try to contend with the increasing expenses associated with the delivery of municipal services, they must be given greater latitude to recover a portion of these costs from those properties that are benefitted. The state should enact legislation that would permit municipalities, at local option, to impose a service charge on certain tax-exempt properties to offset some of the costs of providing such properties with municipal services. In 1971, a "service charge" law was enacted in New York, but its effective date was delayed and the law was ultimately repealed.  The State Legislature, in 2008, introduced a "service charge" bill, which although limited in scope, would be a step in the right direction.  Unfortunately, this bill was never acted upon.