Executive Summary

This letter report summarizes the findings of our follow-up review of the New York City (City) Department of Finance’s (DOF’s) removal of the Senior Citizen Homeowners’ Exemption (SCHE) from ineligible properties that were identified in our prior report, Audit Report on the New York City Department of Finance’s Administration of the Senior Citizen Homeowners’ Exemption Program (Audit #SR16-087A), issued on July 7, 2016.  As discussed in that audit report, DOF allowed owners of at least 3,890 properties to receive SCHE exemptions for which they were not eligible.  Those properties received 20,487 improperly granted exemptions from Fiscal Years 2012 through 2017 that resulted in a loss of property tax revenue of at least $48,529,687.  Additionally, DOF improperly credited properties of deceased homeowners and corporate owned properties with Enhanced School Tax Relief (STAR) exemptions totaling $10,647,896.  In total, the audit identified $59.2 million in lost tax revenue to the City.

Results

In this follow-up to Audit #SR16-087A and DOF’s representation that it would remove incorrectly applied exemption benefits, we examined the property tax bills, issued on June 2017, and Notices of Property Values, issued between January 2016 to May 2017, for the properties we identified as improperly receiving SCHEs to determine whether the exemptions were removed or reduced in accordance with DOF’s response.  Our review found that for Fiscal Year 2018, DOF has removed the SCHE from 2,057 properties where the homeowner had died, 67 properties that had corporate ownership, and 273 properties that contained four or more units.  In addition, the SCHE was prorated for an additional 262 properties that contained four or more units.  DOF also removed the Enhanced STAR exemption from 1,523 of the above properties.  As a result, the City will realize a gain of $9,201,392 in additional revenue for 2017/2018 tax year.  In addition, the SCHE was removed from 425 properties prior to the 2017/2018 tax year, so there was no revenue effect for this tax year.

However, we found that DOF did not remove the SCHE from 806 properties that we identified as ineligible to receive the SCHE.  We contacted DOF, and the agency informed us that it will remove or prorate the SCHE for 576 of these 806 properties.  DOF also indicated it will remove the Enhanced STAR exemption for 403 of the 576 properties that will have their SCHEs removed.  Removing or prorating the SCHE for the 576 properties will result in a gain of $1,042,348 in property tax revenue and removing the Enhanced STAR exemption for the 403 properties will result in a $250,472 in property tax revenue.  Thus, $1,292,820 in additional revenue will be collected after the inappropriate exemptions are removed.

According to DOF, the remaining 230 of the 806 properties are eligible to receive a SCHE because either the property had a surviving spouse entitled to the exemption or there was a new SCHE application filed, which was approved.

The follow-up review recommended that DOF should:

  • Immediately remove or prorate the SCHE from the 576 ineligible properties.
  • Immediately remove the Enhanced STAR exemption from the 403 ineligible properties.

In its response, DOF said that it has removed or prorated SCHE benefits for 265 of the properties identified in the follow-up review five prorated with four or more units: 118 cooperative properties; and 142 non­cooperative properties. DOF also said it has reviewed and removed improperly granted ESTAR exemptions for the majority of properties identified in the follow-up review.  DOF said it will continue  to  review  the  remaining  properties  and  will  remove improperly  granted  SCHE and ESTAR exemptions.