Audit Report on Real Estate Tax Charges on Space Leased at 40 Rector Street by the Campaign Finance Board

AUDIT REPORT IN BRIEF

This audit determined whether the landlord’s real estate charges allocated to the Campaign Finance Board for space leased at 40 Rector Street were accurate and properly adjusted to account for any reassessments. The New 40 Rector Street Company (the landlord) provided the City the use of office space at 40 Rector Street pursuant to a written lease agreement (the lease), dated October 20, 1994, negotiated by the New York City Department of Citywide Administrative Services (DCAS). The Campaign Finance Board (the Board), the subject of this audit, occupies 12,796 (2.85%) of the 449,355 square feet at the property.

Our examination of the landlord’s bills maintained at the Board, along with the payment vouchers listed in the City’s Financial Management System (FMS), reveals that the landlord did not allocate any additional real estate charges to the Board. During the period, the property was reassessed and the landlord received a reduction in the property’s real estate taxes; however, according to the lease, the City was not entitled to a portion of the reduction because it brought the tax amount below that payable in the base year of the lease, Fiscal Year 1996. Accordingly, an adjustment of the tax charges or credits passed on to the Board is inapplicable. (The Board was not liable for any real estate tax escalation charges during the period reviewed, nor did the landlord bill the Board for any such charges.)

Nevertheless, a criminal prosecution now in process may establish that because of an improper under-assessment the real estate taxes for 40 Rector Street was lower than was to be expected. The market value for this property decreased 64 percent—from $66.5 million to $24.2 million—from Fiscal Year 1993 to Fiscal Year 2003. We sent a letter to the Department of Finance (DOF) in October 2003 requesting that it reassess this property and apprise us of any action it takes regarding this matter; DOF did not respond to our letter. Nevertheless, in January 2004, DOF reassessed the market value for this property and recorded the tentative Fiscal Year 2005 market value as $49.9 million—a 94 percent increase over the Fiscal Year 2004 market value of $25.7 million.

We made one recommendation to DCAS. DCAS should:

• Ensure that future leases have no provision barring the City from receiving a refund or credit if the property’s real estate tax bill is reduced below the amount payable in the base year of the lease.