Exemption Boost May Haunt Council

As the City Council develops a budget that has potential to inflict more pain on taxpayers than in recent years, it may come to regret a decision made during more robust times.
In February 2007, the council substantially raised the ceilings on veterans' exemptions, allowing applicants to keep as much as $75,000 worth of property in their primary residence free of city taxes.
That decision has come back to bite the city. Lawmakers were forced to close a $1.2 million budget gap, during the winter, caused by slumping sales tax revenues. If those revenues continue to falter, as some county officials fear, the city will likely need to hike property taxes to balance an estimated $2.6 million budget shortfall for the 2009-10 fiscal year, according to the city's five-year capital plan.
The amended rules allow veterans who served during wartime to exempt $15,000 worth of property, an increase of $9,000. Those who served in a combat zone can exempt an additional $10,000, an increase of $6,000. And those who suffered a disability can exempt up to $50,000 more - the previous maximum was $20,000.
Prior to the boost, veterans exemptions totaled $10.6 million in 2007. The increases added roughly an $8.9 million impact on the total taxable base, City Assessor Brian S. Phelps said.
The city of Watertown will forgo $536,391 in revenue because of tax exemptions granted to property owners.
The city provides 35 categories of exemptions, which lower the taxable assessed value by 28 percent to just more than $1 billion, according to a city Assessment Department report.
A majority of the exemptions are required by the state, meaning that 537 properties that meet specific requirements pay either reduced or no property taxes. State-mandated exemptions apply to properties owned by groups that include municipalities, nonprofit groups and development agencies.
The city does, however, opt in to 13 exemptions that lowered the assessments of 1,698 properties by $74.2 million, according to the report. If the city eliminated those optional exemptions, that revenue would have reduced the property taxes paid by everyone else by 7.3 percent, from $7.3 million to roughly $6.7 million.
The optional exemptions include groups such as veterans, senior citizens and both residential and business owners who have made improvements to their properties. By exempting some property owners from paying full taxes, the city shifts the property tax levy's burden onto owners who do not meet exemption requirements, Mayor Jeffrey E. Graham said.
Despite facing uncertain fiscal times, the mayor said the City Council likely will not amend or eliminate property tax exemptions to increase revenues.
"With 40 percent of the council up for vote this year, it's unlikely you'll get anyone to look at it," he said. "I think the politics behind that would be disastrous."
The council can try to bump revenues by updating fees for services it provides or by using its nearly $9 million fund balance.
"The question is whether we can get through this year if we're confident things will rebound quickly in 2010," the mayor said. "We'd better begin moderating things or burn through the fund balance. If it's called the rainy day fund - well, it's definitely raining now."
The city still is compiling a report that compares city fees to those of neighboring communities. The city's search for additional revenues is an about-face from 2007, when lawmakers increased exemptions for veterans and senior citizens.
With 1,271 properties enrolled, veterans' benefits surpass any other optional exemption.
"The veteran's exemptions are huge," Mr. Phelps said. "Information about those seems to get around to those who they apply to."
The largest property tax exemption the city hands out is to itself. The 239 city-owned properties are assessed at $83.2 million.
"A majority of those are properties are ones that no one really wants," Mr. Phelps said. "A lot of them were taken for back taxes; they're inaccessible lots, or lots that the city might keep because they're used for drainage or a utility runs through them."
Any homes taken for back taxes are either auctioned or demolished.
The city does own properties that include City Hall, the hydropower plant, Thompson Park and the water and sewage-treatment plants.
The city does not collect property taxes, which would total $222.7 million, on 172 properties owned by the county, state, Watertown City School District, Jefferson County Industrial Development Agency and Watertown Housing Authority.
"New York state law precludes them from paying property taxes, so we're not allowed to collect taxes from them, even if they wanted to pay," Mr. Phelps said.
Another 119 properties that include nonprofit agencies and religious institutions are exempt from paying $684,233 in taxes.
Another $84,959 million is reduced from 31 properties that are owned by railroad companies, cemetery associations and hostels.
The city probably can't look to its exempt properties to ease any budget shortfall.
"You really need to look at things in life that you can change, and those you can't," the mayor said. "The politics isn't there right now to repeal them. We could spend weeks debating and pining on them but I don't see the political will to tackle that issue."