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Volume 2 - Opinions of Counsel SBEA No. 104

Opinions of Counsel index

Housing exemption (application) - Private Housing Finance Law, §§ 33, 36, 93, 125, 577:

Generally, a municipality may not grant preferential assessments, or establish an assessment based solely on a percentage of gross rents, or a fixed amount of taxes. A private housing project must be owned by a housing company incorporated under some article of the Private Housing Finance Law in order to qualify for a limited exemption. Partial tax exemptions should be given in the form of a reduction in assessed value.

We have received an inquiry requesting our opinion on several aspects of tax exemptions for the property of nonprofit housing corporations.

          The applicable provisions relating to such corporations are contained in sections 33, 36, 93, 125 and 577 of the Private Housing Finance Law. These sections give municipalities the power to exempt the property of housing corporations which are incorporated under various articles of that law and which are subject to regulation by some public body. (The exemptions given certain nonprofit housing corporations by section 422 of the Real Property Tax Law are mandatory.)

Thus, a municipality may grant exemptions only to limited-profit housing companies (Private Housing Finance Law, §§ 33,36), limited-dividend housing companies (id. § 93), redevelopment companies (id. § 125) and housing development fund companies (id. § 577). The amount, extent and duration of the exemption which may be given is controlled in each instance by the particular exemption provision.

The first question is whether a municipality may grant preferential assessments, or establish an assessment based solely on a percentage of gross rents, or a fixed amount of taxes.

In our opinion, the general answer to this question is no. In all of the above cited sections, except section 577, the authority given municipalities is to exempt all or part of the value of the property included in a project which represents an increase over the assessed value of this property at the time of acquisition. (Section 577 is the only section which permits a total exemption.) We have construed this language as granting the power to exempt all (100%) or a percentage (i.e., 50%, 85%, etc.) of the assessed value of a completed project over and above the assessed value of the property at the time of acquisition. In the case of the property of limited-profit companies, the companies are obligated to pay an amount of taxes not less than ten percent of the annual shelter rents.

The construction we give these sections is in harmony with the in rem concept of taxation existing in New York State, the constitutional tax and debt limit provisions, and state per capita aid formula. The methods of tax relief suggested in the first question arc not.

For example, where a tax abatement is given for a fixed amount of taxes, we assume that the full assessed value would appear on the taxable portion of the roll, but the taxes would be abated thereafter. Therefore, the amount of taxable full value is inflated, thereby permitting the imposition of a higher tax rate than should be. This at least violates the spirit of the constitutional tax limitations if not the letter. The reverse is the case with the state aid formula: the taxable full value is higher than it should be, and the city might get less state aid than it should.

This leads to the second question: May a municipality grant exemptions with provisions for payments in lieu of taxes by contractual arrangements to federally-aided housing developments, other than housing development fund companies or property of a State urban development corporation project, under section 577 of the Private Housing Finance Law?

We believe the answer to this is that a private housing project must be owned by a housing company incorporated under some article of the Private Housing Finance Law in order to qualify for a limited exemption, and we have been told that the Federal Government will not assist any such company other than a housing development fund company. If this is so, then there can be no federally aided project owned by a housing company other than a housing development fund company.

However, even if a municipality was empowered to grant partial exemptions to federally aided projects, we do not think the proper method of doing so, in the absence of a specific statutory authority, is to exempt the entire project and then accept in lieu payments. Briefly, our reasons are:

(1) The burden on real property taxpayers could be greater than it should be since the property tax rate does not automatically reflect the in lieu payments;

(2) A city’s tax limit measurement base is less than it would be if the exemption were only a partial one; and

(3) The city would appear to have a lower taxable full value to be used in the state aid formula than it should have, to the disadvantage of all other municipalities which are sharing the state aid.

We, therefore, think that partial tax exemptions should always be given in the form of a reduction in assessed value.

June 20, 1972

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